Why are brands rethinking the way they use agencies?

Many brands are reevaluating their products Relations with agencies.

In the 2024 report 40% of the companies surveyed said they were likely to switch from their primary agency within the next six months. Although down 15% year-on-year, it was up 33% from 2021, an indication that traditional agency-client models are under pressure.

Tightening budgets, the rise of in-house marketing teams, and evolving expectations are all pushing brands to rethink how they use agencies.

Here’s a breakdown of why this change is happening and what it means for both brands and agencies.

The continuing rise of residential housing

Millions of companies are offering their previously “agency only” services and building specialized teams that handle strategic tasks such as brand strategy, creative or… Media planning.

Many brands no longer rely on outside agencies for their core marketing strategy; They develop that expertise internally.

So, why is this, and why do brands that saw agencies as a necessity now not need this dedicated arm in their business?

There is a long list of reasons that are unique to each company, such as control, speed, efficiency, and experience. However, the cost of driver #1 is 83% of brands Citing cost efficiency as the main reason for expanding their internal teams.

If we think about the last 30 years, the typical agency model hasn’t really changed. Agency rates are based on several factors (percentage of media spend, deliverables, etc.) and then, once you win business, break down the fees to be as efficient as possible. Marketing Week This is supported by brands stating that there is a huge frustration in meeting a team during a presentation, and a different, less qualified team after the presentation.

What this means for brands is that they do not receive the expertise promised, and may only get a small percentage of their fees allocated to experienced specialist teams, those that have been on the field but then backed out.

In addition to this, Survey conducted by WFA and the International Observatory It found that motivations for moving away from agency support included a desire for more agile operations (76%), better brand integration (59%), and deeper internal brand knowledge (59%).

So, has this move internally affected quality with specialist agencies out of the picture? Far from it. In many cases, it improves with… 86% of brands Saying they are satisfied with their internal teams’ production, a third of them expressed complete satisfaction, a sharp rise from 23% in 2020.

From an agency standpoint, this may sound like doom and gloom. However, most brands are still using agencies to meet specific needs, and it is this shift in needs that provides a huge opportunity for specialist agencies to partner with brands to make a real difference rather than bringing in a service like PPC or SEO for 12 months.

Demand for greater value and real ROI

Another reason brands are rethinking agency relationships is the increasing focus on value and performance.

With economic uncertainty, marketing budgets under pressure, and costs per click Increasing year after yearEvery dollar spent on an agency must be justified.

the Clear setting It found that dissatisfaction with value was the number one reason clients ended an agency relationship, up from the number two reason the previous year, dissatisfaction with the strategic approach.

Brands feel like they’re not getting enough bang for their buck, as agencies still bring solid ideas to the table, but often charge too much to justify a return, and the actual execution of these ideas is few and far between, often forgotten about with the day-to-day management of accounts.

Budget pressures from the C-suite intensify this scrutiny, and when CEOs and CFOs ask for less spending, CMOs often look to agency fees as a place to cut the fat, and if there is no wiggle room from the agency, more often than not, marketing teams will be directed to find a cheaper supplier.

A Gartner CMO survey confirms this, noting 39% Many leaders often look at agency fees as a place to trim the fat when they want to lean out.

When you take this, along with the frustrations around flexibility, efficiency, integration, and most importantly, results, it begins to form a picture of why brands are downsizing agencies further every year.

The days of big services with ambiguous results are numbered, and brands are quicker to withdraw if the results and value aren’t there.

For agencies, the need to continually demonstrate value has never been more important.

Speaking up, sharing experiences, and challenging the clients you work for – a cliché that has long been part of the agency world, but is rarely acted upon.

Take paid media agencies, for example. They need to dig deeper and have conversations about profitability, return rates, and lifetime value on short-term metrics that the marketing team doesn’t need to repeat to them.

These conversations are the seeds that grow into solid, long-lasting relationships, and agencies with proven experience will still win, because they will prove their value every day and make themselves irreplaceable.

Fragmented partnerships, project-based work, and jargon

Along with seeking more value, brands are changing how they engage agencies.

The classic model of one agency handling all aspects of marketing is starting to fade away (outside of marketing). Big six).

Many advertisers now maintain multiple agency relationships to meet different needs, for example, one shop for creative, another for media buying, others for SEO, social, PR, etc.

This dispersion means that the role of the lead agency is smaller than in the past, making the role of the “single lead agency” not as important this year as it was before.

If a brand can use a small specialist paid media agency/consultancy where they can ensure they have an experienced account leader actually doing the work, and then another for SEO, content etc., they may not even need to invest the full budget but they get a better quality of work and a closer relationship with the partner they are working with.

This growth tends to be in project-based work versus a traditional long-term retainer.

Instead of paying one agency a month to be on standby for all needs, brands bring in agencies for specific projects or campaigns, essentially “vetting” agencies through short-term work with/without a goal to find a long-term partner.

As an industry veteran Ave pointed out“This shift from AOR to project-by-project is one of the most disruptive trends in the agency landscape.”

It gives clients more flexibility to test different partners and skills while putting pressure on agencies to perform on each project or risk not getting the next one.

There are pros and cons to both sides: The obvious drawback is managing multiple agency partners (and periodically Request for Proposals (RFPs) For new projects) that take a long time, and others with brands that risk losing the deep brand knowledge that the agency partner accumulates over the long term.

Ultimately, requirements depend on many factors specific to each brand, and the shift towards more flexible and experimental relationships with agencies allows for a more selective approach to finding partners when you need them, often with the primary goal being to find a really great agency to build a relationship with over the long term.

Evolving expectations of agency partners

Beyond structural changes, brands’ expectations of their agencies have evolved.

It is no longer enough for an agency to simply execute campaigns; Clients want a real strategic partner.

According to 2023 Clear setting“Chemistry” is the number one factor clients look for when hiring a partner agency.

As much as a flashy portfolio or unparalleled niche experience may be, marketers prioritize cultural fit, networking, and authentic connection as necessary cornerstones of executing great work.

Clear communication is absolutely key: no need to embellish or hide behind numbers or excuses.

Straight talk, respect and honesty – three features that may not be the first three that come to mind if brands are asked about their experience with agencies, but three are very important.

This is a change, and a good change. It’s rarely something that gets talked about in presentations, and in my experience, as agencies are afraid to rock the boat when things don’t go as planned, it’s actually the best time to talk openly with clients.

This tends to mean agencies need to build a deeper business understanding of the industry, business model and objectives, not just tick boxes and manage accounts with a short-term vision that doesn’t break the boundaries of expectations and KPIs.

I’ve spoken with many brands who have had a bitter taste for agencies after paying huge fees to entrust junior teams to manage their paid media campaigns.

Cases where 100% of their resources were invested in day-to-day account management without thinking about measurement, buying, forecasting, attribution, CRO, modeling, etc. This is in some of the highest spending accounts in the world.

Agencies that collaborate well with in-house marketers, respect processes, share knowledge, and complement internal capabilities are more likely to retain their client relationships and build on their client base with this ethos at the heart of it all.

Bottom line

Brands are rethinking their approach to agencies because the marketing landscape demands it.

Faster transformations, tighter budgets, and more data-driven decision-making favor a model in which brands have more control.

By building in-house teams, choosing smaller, more specialized partners, and holding agencies to higher performance standards, companies aim to achieve better agility and return on investment (ROI).

This does not mean that agencies are outdated, on the contrary; This means that the traditional agency model has changed.

What this means is that agencies must adapt to serve a new role: high-value, specialized partners that leverage private brand capabilities.

Brands want transparency, and are tired of paying for cookie-cutter approaches to buying media, SEO, PR, and more, closing a contract, and then moving on to the next.

Agencies must demonstrate impact, dig deeper, and lead with accountability.

It’s time for brands to define the value they want, and for agencies to prove they can deliver it.

If done right, it creates leaner, smarter, more productive partnerships that cut through the noise and deliver results that matter.

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