Is the AOR model obsolete?

Standfirst: In an age where data and, therefore digital, is increasingly running the show, is the traditional AOR model redundant? Here are the challenges it faces. Elizabeth Low reports.

There has been enough said of the data age. With the rapid uptake of data-driven marketing and the role digital is playing in marketing, the marketing profession has seen a major upheaval in the way it is run. (See Time for a data-driven approach to marketing).

Major brands and firms are placing data centres right smack in the middle of their processes, building their own data and analytics teams in-house – of which play a key part in informing their next marketing moves. The likes of OCBC, Lenovo, Philips, IBM, StarHub and more have already taken this path.

What this also means is that it places vital information back in the hands of the marketer. How has this changed the traditional client-agency relationship? Are agencies offering what marketers really need?

A recent interview with Pete Mitchell, global media innovations director for Mondelēz, seemed to indicate a gap. Speaking on the company’s goals to take on more real-time, data-driven approaches, Mitchell said this was an area larger agencies seemed to struggle to do adequately.

While praising legacy creative agencies for their ability to execute longer form work, Mitchell said there remained a gap for agencies who can do both long and short-form work. The creative agencies tend to do great work for TV, but are falling behind when it comes to the likes of real-time marketing.

This is an area big agencies are struggling with, and what social media, digital or media agencies with creative arms are doing better, according to Mitchell.

Most agencies are stocked with the wrong kind of people they need for the next five years.

“It is full of people that have been doing this job and have an allegiance to doing so for the same way that they have for the past 50 years – (taking) a highly protectionist approach – (that is thinking) TV first; working on a production margin and award-winning work that tends to be made for TV,” he said.

“These tend to be longer form work and lend themselves to a more campaign-style of execution.”

He cites one great recent example of such work being Johnnie Walker Blue’s campaign with Jude Law. (Johnnie Walker recently shot a short film with Jude Law and co-star Giancarlo Giannini in a handcrafted boat, filmed in the British Virgin Islands. The film was released online and done by Anomaly out of New York.) “Legacy agencies such as JWT and Ogilvy & Mather are great at this (longer form work),” he points out.

Pointing out Mondelēz’s data-driven direction, much like the likes of Philips has recently taken (See Philips overhauls marketing), Mitchell opined then that agencies need to be able to work more on a project basis instead of campaigns.

“In fact, we don’t need agencies of record. Brands should be able to work with agencies on a project basis and look for agencies in terms of what they are good at. Agencies need to be more specialised. We should be stepping away from the agency of record model.

“We should also be more comfortable with working with agencies who may work on competitors. They do that all the time anyway.”

Is the concept of AORs overrated?

Obviously the view throws into question the need for the classic client-agency relationship, which in recent years has seen a rapid shortening as clients are quick to call pitches for a new partner.

Susanne Arfelt, head of marketing for Unilever Singapore, staunchly disagrees with that view. “Brands are like people, it takes time to get to know them. If we continuously change agencies, there will be little to no consistency in the look and feel of the communication,” she said.

“Agency relationships take a long time to build and I believe the greatest work comes out once the client and agency have tried a couple of campaigns, learned how they can optimise and continuously improve through honest conversations.”

Also, through the AOR model, the client can tie the agency to the success of the brand, which ultimately assures the agency has to focus on business results, and not merely go for the creative “wow” effect.

Richard Bleasdale, of marketing consultancy Roth Observatory International, says that an entirely project-based approach has its merits.
“Agencies can pick and choose the things they do and don’t want to work on. It will allow them to stay fresher. Work in more focused and concentrated bursts. Give their people more interesting variety. Marketers, too, can pick and choose which agencies work on what. It will keep the agencies on their toes. They’ll get more fresh perspectives and ideas,” Bleasdale said.

While the idea looks to be driven by a desire for better work, the theory may sound better than the practice, he adds.

Challenges for marketers and agencies

In reality, this would mean massive hurdles for both marketers and agencies.

“For marketers, not only would they be facing increases in average agency fees, they would also face significant increases in agency management time to bring new agencies up to speed on their brands/business, and to manage and integrate the now wider group of project-based agencies they work with,” he said.

On the agency side, uncertainty of income would make it very difficult to retain talent. “You just wouldn’t know if you can pay them. In fact, to some extent, there would be some challenge knowing if you could pay any expenses at all,” he said.

The implication is that agencies would have to significantly increase their fees to cover the income uncertainty. This is commonly seen today in the different rate cards agencies offer for retained versus project-based work.

From the company’s research, Bleasdale said the three critical factors of trust, co-operation and commitment were needed for great work.

“You can again see why purely project-based marketer/agency relationships will struggle to establish the conditions where great relationships and so better work can be produced,” he said.

He conceded some global marketers, for example, Coca-Cola, are experimenting with a “halfway house”, where a roster of multiple specialist agencies is appointed as agencies of record. These cover areas such as shopper marketing, activation, digital and more – and the agencies work on a rotating project basis to execute campaigns.

“Coke has implemented a unique remuneration methodology for these relationships. Agencies are paid on a project basis, with the fee determined based on the project’s strategic importance, the quality of agency talent working on it and the results of the campaign,” he said.

However, to date, there has been no formal feedback from either Coke or its rostered agencies on the success or otherwise of this model, he said.

Agencies need to catch up

While it’s easy to see the difficulties a solely project-based model will throw up, it’s clear the agency model needs to play catch-up quickly

Frank Bauer, CEO of JWT Singapore, agrees that communications will be more data-intelligence driven, with direct engagements with consumers through various touch-points. This would call for more flexible partners to execute. However, he added that a brand idea needs to be consistent and evolve over time, and that would call for a trusted partner.

He also added that on the part of agencies, there is a need to specialise. Larger groups may, however, decide to create a family of brand and engagement specialists.

Bauer admits that digital fragmentation has changed the role of agencies. “PR and media agencies expanded their role as experts on ‘new media’, and digital agencies gained power and clout.

“The ad agency’s added value and role got a little blurred, and sometimes questioned, and brand owners ended up giving out the same briefing to a whole bunch of agencies.

“It is common practice for a company to have a brand campaign by their ‘agency of record’ running at the same time as a digital campaign by a different agency and a social media push by another.”

But there remains a fresh opportunity for agencies that look at brands strategically to rekindle a relationship by partnering with the C-suite.

While the debate goes on about how to reach that, agencies need to quickly find their footing in the forever changing media landscape.

“Agencies that can focus on digital development without trying to become a ‘digital agency’ and leave everything else behind, will become the go-to partner of CEOs,” Bauer said.