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Clients and agencies see brighter business prospects across 2014

A new report by leading marketing services consultancy AAR has found that both client-side marketing teams and external agencies are increasingly confident about the outlook for their businesses in the wake of an improved UK economic scenario. The report found that clients will be increasingly reliant on their existing agency roster and will also be on the lookout for new agencies to support them with their campaigns, thereby resulting in more pitches.  

But expectations on the part of both clients and agencies must be clearly defined if each is to leverage new opportunities  

• Marketers are more confident this year than in 2013 and are increasing their budgeted marketing spend – spurred by strong UK economic growth figures.

• Almost all (93%) of clients say things have “picked up” for marketing in 2013 with 74% saying that things will continue to pick up in 2014.

• The report also found that a “disconnect” can occur during the pitch process. 77% of clients say, in pitches, agencies all too often set an expectation that is rarely delivered on while 90% of agencies say the same about clients.

Budgets will still be under pressure, putting issues such as fee negotiation and agencies’ accountability for ROI under the spotlight.  Where budgets remain the same or less than in 2013, a majority of clients will extend contracts with existing agencies rather than going to the market. However, the report found that clients are planning, on average, to add two new agencies to their roster in 2014. 

“We are gradually emerging from five years of austerity, and consumer confidence and spending power is beginning to return,” said Kerry Glazer, CEO of AAR, which specialises in client:agency relationships. “During a recession, marketing is one of the first budget lines to be cut but when the economy improves, it is one of the first to come back.” 

Encouragingly, three quarters (76%) of clients and agencies say the volume of work going through agencies is increasing. This additional activity is being seen most clearly in the transport, energy, retail, financial services and FMCG sectors. Among agencies, almost all (92%) say clients are asking them to take on more work, of the same (60%) or extended (32%) scope. “Our study is good news,” notes Glazer, “because it shows that marketers are thinking about the right changes to make in response to the increase in consumer confidence. There is, however, still the challenge of obtaining approval for more budget from their board and it’s important to note that while we are seeing pockets of confidence, this is not a UK-wide scenario.”

Expectations remain high 

With a surge in the number of pitches being put out to tender, competition amongst agencies is expected to increase. This means that agencies need to deliver their very best when participating in the pitch process. Interestingly, the report found that agencies often let themselves down in a number of ways. The problems most often articulated were not fully understanding their challenge/opportunity poorly presented ideas asking the wrong questions lack of enthusiasm ideas insufficiently thought through senior people talking too much and missing the brief entirely.

The report also found that both clients and agencies can have a distorted view of the pitch process. It found that 77% of clients say, in pitches, agencies all too often set an expectation that is rarely delivered on, while 90% of agencies say this about clients. And, when clients do appoint an agency, many are disappointed afterwards, citing problems such as the agency not costing ideas fully at pitch, the agency over-promising on their capabilities and agencies not foreseeing problems with the ideas pitched.

In contrast, agreeing and approving a clear scope of work for year one in the first month, and agreeing briefing and approval processes and an SLA framework in the first three months were, according to the report, critical to a successful client-agency relationship.

In addition to overseeing around 40 pitches a year, Paul Phillips, AAR’s Managing Director, spends most of his time working with agencies to help them articulate their perspective in a way that will be meaningful and engaging to clients. “Some of the results are bewildering because they are actually very easy to solve, such as lack of enthusiasm, senior people talking too much, not bringing the core team, lack of demonstrated interest in the existing agency roster,” he says, “Others might be symptomatic of the peculiarities of the pitch process.”

Prior to AAR, Phillips worked for 16 years in full service and media agencies and is well placed to offer a valuable perspective from seeing first-hand how clients and agencies operate. “Clients don’t see how much work goes into a pitch and how many ideas never see the light of day,” he says. “AAR’s counsel to clients is to enter the pitch process looking for the right agency for them, who they can work with together to come up with the best approach – rather than with an expectation that one of the agencies is going to come up with the right answer at the pitch.”

Ongoing challenges remain for both clients and agencies 

While both clients and agencies have a more positive outlook about business prospects, they still face daunting challenges. The report found that the three biggest challenges facing agencies at the moment are an increase in competition (72%), downward pressure on profit margins (49%) and recruiting talent (45%).  

The three biggest challenges that clients face at the moment in marketing their brands are an increase in competition (63%), understanding consumers’ requirements (55%) and low budgets (53%). 

With budgets remaining under pressure, clients have the extra burden of deciding whether or not to use a retainer or project model, move activity in house or consolidate agencies.

Phillips continues: “Though the economic picture is brightening, the challenges that clients and agencies continue to face means that both parties will have to work together in the most effective way possible. Clients will need to be absolutely clear about their briefs while agencies must ensure they are “pitch perfect” if they are to win client approval and capitalise on new opportunities.”

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