The biggest problem agencies face today

Today I would like to share part of an interview done by Trent Dyrsmid on BrightIdeas, with David Baker, a management consultant who has analyzed more than 700 marketing agencies. In this interview, David talks about positioning for agencies, which he defines as one of the biggest problems that agencies face today.

This article is based on this interview and the ideas expressed in it are those expressed by David during the interview.

According to David, the main problem that agencies who do not have a clear positioningfaceis that their agency is too easily replaceable. In the mind of the customer, such an agency is like a “commodity”.

To avoid being perceived like this, an agency should seemarketingnot so much as how to obtain incoming work, but more about controlling who comes in. If there is only one prospect to fill a slot, but the prospect is not a great fit, most agenciesaccept the client because they have to meet payroll.  This needs to be changed.

The Life Cycle of an agency

When an agency is built from scratch, they need to say “Yes” to almost all opportunities that come in, even those that are not good because the firm needs cash andthe experience to stay in business. However, somewhere between 3-5 years, the agencyneeds tostart focusing in pursuing those opportunities for which they are best suited, even if this means saying “No” to many opportunities. This does not necessarily mean that the agencycannot take work from clients that are not part of its core positioning, but theyshould not look for those clients. This is the transition between the old un-positioned agencyto the new one.

This change affects all parts of the business. For example, the agency should hire and train its staff based on their positioning. The agency should also market themselves, choose which, conferences they speak at, what audience they write for, and where they deepen their knowledge based on their positioning. According to David, agenciesare usually very badlypositioned because they are driven by a desire for diversity and variety in their work. They just buy the biggest boat they can and drag the biggest net behind it. They fish anything they can sell. So the idea of getting a smaller boat and a smaller net terrifies them.

The importance of control in an agency/customer relationship

In a customer/agency relationship both parties should havesome control. The customer controls the agency by what they pay, while the agency controls the client by their expertise. The degree to which the agency has control in a client-agency relationship is measured by how long it takes the client to replace the agency. If an agency is well positioned, the number ofagencies that can replace them and have a similar expertise are narrowed downward and this is where control over the client-relationship comes in. An agency should make a big effort so that the time it takes to be replaced is as long and as painful as possible.  This way, the control will be somewhat evened out.

Difference between vertical and horizontal positioning

Vertical positioning centers the efforts of the agency on a specific niche, sector, or industry like healthcare or financial services. There are 4 advantages to vertical positioning (over horizontal positioning):

1. Clients are very easy to spot
2. Client’s contacts typically go to a similar firm when they leave one company and they frequently take the agency with them
3. Clients tend to gather in groups and speak to each other, so many agencies gain customers from recommendations of other customers.
4. There tends to be a little bit more money with vertical positioning.

Horizontal positioning is doing the same types of services for lots of different industries. It has 4 advantages:

1. There is more variety
2. There are fewer conflicts of interest
3. There is some sort of immunity from an economic downturn.
4. An agency can work for a much bigger company because they are carving out of a very small area

There is no inherent advantage in either of the twotypes of positioning. The important thing is the agency’sreal expertise. If an agency has multiple elements of expertise,they have to make a tough choice.

In this interview, it is especially relevant how David, who has consulted with over 700 agencies defined a lack of positioning as one of the biggest problems agencies face today. Having the right positioning helps agencies prepare their value proposition, know what customers to get, and where to find them.  As David says, a well-positioned agency will have more control in the relationship with the customer, will be able to charge more, and will be an agency for much longer.