Markets

3 Ways Clients Can Push Ad Agencies to Save Money

By Jim Edwards

Updated on: November 17, 2009 / 1:10 PM EST / MoneyWatch

Advertising Age has declared cultural war on procurement officers -- the executives at large advertisers who scrutinize ad agency budgets in an attempt to save money. Editor Jonah Bloom recently denounced the "obsession with ROI (return on investment) and the rise of the procurement officer" and wondered "whether procurement had jumped the shark."

His magazine found that fewer than 1 in 10 procurement officers had experience in marketing, according to a review of their Linked In profiles. With these know-nothings in control of the purse strings, agencies have had their operating margins reduced to 10.5 percent, Bloom moans.

The idea that clients will turn away from trying to save money on advertising because Ad Age declares it to be untrendy is, of course, ridiculous. And it's probably a good idea that outsiders get to scrutinize agency billings because some practices -- such as the broadcast TV upfront, where agencies are forced to buy up to a years' worth of ads in in a week or two in May -- only make sense within the Stockholm Syndrome-afflicted agency world.

The Procurement Blog described agencies' delusions in a nutshell:

Because most agency remuneration is calculated on 'hours worked' rather that 'value created' it's necessary to nail down the process - otherwise, it's in the interest of agencies to work more hours, not less, regardless of the quality of the output or the end benefit to the client organisation.

With that in mind, here are three areas that client procurement officers should begin scrutinizing in order to get agencies to do the same thing that clients have been doing for years -- find ways to do everything cheaper:

Why are you based in Manhattan and Los Angeles? The web allows workers to work anywhere. Do agencies need to pay the most expensive rents in the U.S. to maintain them in their cubicles? Even a move to Queens, New Jersey or Portland, Ore., can cut real estate costs dramatically.
Why are you paying six figure salaries for creative directors? It's never been easier or cheaper to be "creative." Free technology gives even the rank amateur access to professional quality production techniques. Perhaps it's time to regard creatives as mere technicians who take an original concept and reprocess it for different venues, rather than as unique geniuses whose time is priceless.
Why do agencies comply with the TV upfront? These face to face negotiations are so 19th Century, and have the concomitant Dickensian inefficiencies that go with it. Why not use an online exchange or marketplace that could efficiently trade airtime the way investors trade stocks?