Is this the end of the agency retainer?
Posted on 2018 Jan,04

The varied impacts of a troubled economy are threatening the traditional agency retainer. As marketing budgets across the GCC are strained even further, a noticeable shift away from fixed fees to project-based work is taking place. And the implications for agencies and clients alike are significant.

The logic is straightforward enough. Why pay hefty monthly retainer fees to agencies of record when work can be produced at a greatly reduced cost on a project-by-project basis? Viewed through the prism of an economic downturn, it makes perfect sense. Viewed through the lens of brand custodianship, less so.

“Agency dynamics are changing,” admits Iris Minnema, managing director of DDB Dubai. “We are evolving, adapting to new market environments and planning for the future. Nowadays we are expected to know and deliver more than ever before – and all this while client loyalty is decreasing, competition is increasing and project-by-project pitching seems to be the trend.

“While we still have a retainer agreement with around 80 per cent of our clients, we do see a difference between now and a couple of years ago. Especially the smaller clients/brands are looking for agreements on a project basis, as they feel it gives them the opportunity to negotiate fees on a regular basis and the flexibility to work with different (or more specialised) agencies per project.”

The knock-on effects for agencies are numerous. A slide towards project work impacts the amount of permanent staff an agency can sustain, as well as its ability to plan. It also affects the creative output of brands and the dynamics of their relationships with agencies.

“The role of the agency as a brand partner or brand custodian will be negatively impacted by the increase of project clients.”--Iris Minnema, managing director of DDB Dubai.

“It makes it harder to hire and secure the right recourses for projects/clients that come in,” says Minnema, “as the yearly objectives, revenues and full-time equivalents need to be planned ahead of time and new hires need to be validated against a solid yearly revenue expectation. The higher the percentage of clients on a project basis, the higher the agency risk.

“There is [also] a big risk that agencies will deliver a ‘case-by-case’ solution. This works [in the] short term but does not build a solid long-term platform for a brand. All responsibility for long-term brand planning will be with the client and it depends on a client’s capabilities whether the agencies move in the right direction, project by project. Next to that, it gives agencies less time to thoroughly know the brand and build a relationship, including the ‘best way of working’ with a client.”

For Dave Balfour, managing director of LightBlue, project-based work has traditionally been more common for experiential agencies, but changes have still had to be made.

“Healthy agency/client relationships depend on great work, people chemistry, value and a continued mutual respect… Let’s focus on value added, not cost.” --Dave Balfour, managing director of LightBlue

“Our agency has had to become more flexible and adjust the way we work with our clients – they are all completely different,” says Balfour. “This has also led to an increase in pitching and so agencies must learn to pick their battles with the time consumed and costs they incur.

“Healthy agency/client relationships depend on great work, people chemistry, value and a continued mutual respect. Relationships must develop and adapt but at the same time agencies add significant value to their clients and they must acknowledge that for the industry to prosper. Let’s focus on value added, not cost.” 

As with everything related to the client/agency relationship, multiple points of view exist. For example, any leaning towards projects can be viewed as a means to beat agencies down further on cost, thereby exploiting what is an over-supplied marketplace. From a client’s perspective, if brand custodianship lies within a strong and competent marketing department, why pay monthly retainers for work that isn’t necessarily being produced?

Adapting to this new dynamic is crucial for agencies. For Minnema, this can best be achieved by focussing on new business, improving workflow and turnaround times, and changing financial structures in order to have more ‘floating’ resources – i.e those that are not dedicated to clients, but jump from project to project. Agencies should also retain the best recourses for long term partnerships and short term solutions, while investing in solid strategic planning and research resources and tools.

“The role of the agency as a brand partner or brand custodian will be negatively impacted by the increase of project clients,” says Minnema. “While agencies need to become more agile and offer clients quicker, less expensive solutions, clients will also need to recognise the value of agencies that invest in the knowledge and understanding of their brands.

“Having said that, there are still a lot of brands/clients that prefer a solid, long-term partnership over the hassle of continuously pitching and educating different agency teams. They don’t want to waste time ‘managing’ agencies, they prefer the agency to claim a bigger role, make processes less complicated and lead the communication processes for them.”

Such clients want agencies to further increase their services, sometimes with different agencies within the same team (advertising, CRM, PR and media etc) but with one agency leading the troops.

“So, on one side we experience less partnership, more case-by-case solutions with different teams working on different brands,” says Minnema. “But on the other side we see an increase in requests for full agency solutions within the (network) agency group. The agency of the future will need to be able to successfully manage both.”