This interview is part of our February content series on the 'Changing Nature of the Agency Model' that explores remuneration, global pitches, competitors and more. To read the full feature in print, subscribe to AdNews.
The whole industry will remain in limbo until it can prove ROI, according to Omnicom Media Group AUNZ CEO Peter Horgan.
The top network boss has also targeted "weaponised" procurement, cross-selling from consultancies and faults in the current media agency model in an interview with AdNews for its February issue on the Changing Nature of the Agency Model.
“We’re in a post commoditised world where agencies are expected to skill up in a far more complex landscape than was ever the case before,” Horgan said.
“You’re having to skill up to a very expensive capability and yet not be remunerated for the value you bring. Until you’re really able to prove ROI, it’ll be couple years until we close the loop.”
Part of this loop includes the phenomenon of agencies having to rigorously defend media resource price structures.
“There are some ratbag agencies out there ripping off clients. On the flip side, there are a lot of clients who have no interest in paying for the resources they access - that will pin agencies to the wall and put penalties in place for the delivery of that unsustainable media pricing,” he said.
Horgan is one of the most outspoken media agency leaders, having spent 15 years with OMD Australia before taking on the top job at Omnicom AUNZ in 2016.
The response, Horgan says, is not to “subordinate” as some agencies have done.
He describes procurement as the industry's underbelly which has negotiated agency margins in a way which has led to strategy being given away as an overhead. Horgan describes this as a "great tragedy" in our industry.
“Some clients reward that, but lots of clients, especially in procurement, take advantage of it. The core tenet of procurement, sustainability of quality supply, is the first to be thrown out the window. It’s a commoditised approach to something that isn’t a commodity. However, until we’re able to start proving ROI, we’re stuck with it,” he said.
The consultancy stand-off
It’s not only proving gainful ROI that agencies must contend with. Client preference for media agencies versus consultancies and single service agencies versus diversified services, all contribute to the melee.
“Media agencies actually have a huge advantage against the consultancies," Horgan explained.
"They’re in the weeds, they understand what is trying to be achieved. They can point to the fix and execute off the back of it.
"Clients will know in a nano-second whether that recommendation has been effective or not, but with a consultancy model, for a huge price you’ll get a 200-page recommendation that if it doesn’t perform, is somebody else’s fault."
Horgan believes it is the frequent cross-selling within consultancies that causes clients to lose faith.
“Entities that get too elaborate in their cross-selling is what pisses clients off about consultancies. Too much cross-selling is unhealthy because clients get a sense they’re being fed what they don’t necessarily need,” he said.
“Agencies tend to be on retainer. We get in there, try to fix the problem and then move onto the next thing.”
A tricky limbo period
A retainer model, while sometimes favourable, can also hinder media agencies, which is why some are looking at alternative models.
Horgan said full-time equivalent or commission remuneration fails to recognise the true value a media agency offers to a client. However, new age models also have their draw backs. If an agency commits to a value-based model but falls short they could find themselves out of pocket.
“It’s a tricky limbo period whereby few industries would assume the sort of risk media agencies take on for the skinny margins they are expected to operate," he said.
While the legacy side of the business, being media planning and buying, operates on a reasonably modest margin, there are pockets of higher margins within the digital transformation space that continue to grow, Horgan explained.
As for whether Omnicom is developing the technology necessary to demonstrate ROI, Horgan is adamant in their Swiss position.
“Omnicom is not in the business of owning tech. We’re not going to place bets on specific technology vendors or take an equity stake in those vendors," Horgan said.
"We need to be a neutral arbiter in what particular blend is right for specific clients. We need to be able to do that without fear nor favour."
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