The Soda Academy

The State of the Agency-Client Relationship

After a positive turn in 2015, the client/agency dynamic has hit a roadblock with the number of agencies reporting relationship improvements falling from 70% to 53%. This is likely due to an increasingly competitive landscape, where clients work across multiple agencies and are feeling more and more pressure to not only produce successful marketing campaigns, but to also “out-innovate” their competitors in areas that are still relatively new, like digital products and experiences, as well as marketing creativity and strategy.

The Client/Agency Dynamic

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The Client/Agency Dynamic

Agency respondents have a decidedly less optimistic outlook on their relationships with clients than in 2015, when 70% agreed that the dynamic was improving. This isn’t surprising as clients are pushing for diverse and innovative work from partners and aren’t particularly loyal to one shop (see Agency Ecosystems).

When we dug deeper, we saw that agencies that provide both traditional and digital services were more likely to have cause for concern than agencies that provide digital services only. This is likely due to the changes that these agencies, as well as their clients, have had to undergo to adjust to the always-evolving digital landscape. This transformation can be painful, resulting in a negative impact on the client/agency dynamic.

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State of Agency/Client Relationship

Even agencies that are experimenting with new types of engagement such as alternative compensation models or embedded resources did not feel particularly bullish compared with those agencies that are following more traditional models. 55% of agencies trying new engagement models agreed that the dynamic was improving versus 52% of their traditional counterparts.

This may indicate that new engagement models aren’t going to save these relationships. Instead, agencies and clients need to come back to an agreed upon value exchange and invest as much in the relationship as they do in the latest technology or consumer trend.

What Clients Want

This year’s Digital Outlook Study revealed a greater imbalance between the skill sets that clients and agencies believe bring the most value to their relationship.

To gauge YOY trends, we asked both clients and agencies to rank the areas of expertise they believe to be the most valuable for client organizations. Here’s what they said:

Q. (Agencies) Generally speaking, what do your clients value most in their relationship with your organization? (Rank 1-9, with 1 being the highest)

Q. (Clients) Generally speaking, what do you value most in agency relationships? (Rank 1-9, with 1 being the highest)

Infographic what clients want

Illustration by Taiwan-based illustrator, Kuocheng Liao

Before we get into the results, it’s important to note that, while the agency response shows a significant spread, the client results cluster in the middle — indicating that clients are having difficulty prioritizing what’s really important (everything is!). Agencies, on the other hand, seem to have prioritized services like strategic leadership and creativity over others.

Clients rank strategic leadership and marketing creativity in their top two —which agencies also agree are the same level of importance.

The similarities, however, end there. In 2015, clients and agencies aligned on five of the seven skill sets, while this year, we only see agreement on four out of nine. Clients are still seeking the fundamentals of customer-focused strategy and creativity from their agencies, along with basics like project management and measurement. Agencies, however, are putting more weight on expertise in emerging trends and technology capabilities. We can’t blame them though —clients ranked expertise in emerging trends highest in 2015!

Most notable is the gap between customer-centric marketing, which clients rank as the third most valuable skill set that an agency can bring. Agencies rank it sixth. With the proliferation of media channels and, now, brand experiences, the idea of providing utility to the customer can often get lost. This is an opportunity for agencies to start focusing more on the customer rather than the technology or channel when coming up with ideas.

Why Clients Leave

Miscommunication is usually a root cause of any bad relationship — even at the end. And it’s no different with clients and agencies. Clients continue to leave for myriad reasons, but agencies continue to blame it on management changes. Not only is this incorrect, but it doesn’t break the top five termination reasons for clients.

Yet agencies continue to attribute client termination to new management. In fact, the percentage of agencies that blame client management changes jumped from 33% in 2015 to 56% in 2016 — a full 19 percentage points higher than the next most prevalent reason cited by agencies. This isn’t to say that it isn’t rising in significance for clients, who are often at the mercy of a new CMO or business lead under pressure to drive growth. Management changes jumped for clients as well from 11% in 2015 to 18% in 2016. Even with this jump, however, it still ranks seventh.

New to the survey this year is the pricing/value category, which clients and agencies wholeheartedly agree on! Thirty-seven percent on both sides attribute the end of their relationship to this common issue. This is not surprising, as agencies struggle to prove the impact of their work through measurement and clients feel increasing pressure to prove the ROI of agency investments. Agencies owned by holding companies feel this more acutely with 48% selecting pricing/value as a reason for termination versus 35% of independent agencies. This could be because holding company agencies are often sitting on bigger budgets and clients expect greater efficiencies.

After pricing/value, the client-side response clustered around unhappiness with strategy, creative and project management — the bread and butter of most client and agency relationships. As we saw in the What Clients Want section, these areas are of utmost importance and when agencies don’t meet expectations, clients are going to jump ship. Agencies that turn a blind eye to why their clients are really leaving will fail to address key improvement areas. The dysfunctional circle will continue until a new entrant comes along to disrupt the cycle.

Another big change from 2015 is the impact understaffing or inexperience can have on an agency’s chances of survival. In 2015, only 6% of clients listed this as a reason for termination; it jumped to 21% in 2016. As agencies struggle to stay competitive and meet client needs, they are sacrificing talent and sufficient skill development — and clients are starting to notice.

We expect inexperience to be an increasingly prevalent causal factor in agency-client relationships going south, as the percentage of agencies who indicated they are not providing any training to their staff almost tripled in 2016, growing from 5% to 14%.

Overall, client expectations are increasing across the board and agencies haven’t caught up yet. And they aren’t always bringing their business to other agencies. Many are also taking it in-house, which came out in the color commentary provided by respondents.

Q. (Clients) Thinking about your most recent experience with terminating an agency, why did that relationship end?

Q. (Agencies) Thinking about your most recent experience with being terminated by a client, why did that relationship end?

Infographic why clients leave

Illustration by Taiwan-based illustrator, Kuocheng Liao

Clients on Their Agency Partners: Everything is….just ok

Key Insight:

Client satisfaction levels with agencies across key digital skill sets are average at best. Agencies, specifically ones with B2B expertise, should seize this opportunity to build stronger practices around specific areas rather than spread themselves thin trying to do a little bit of everything.

Last year, we asked clients to answer how likely they were to recommend their agency partners to a friend or colleague. We saw a general level of dissatisfaction for both digital and non-digitally focused agencies.

We didn’t ask the same question this year because we wanted to dive into satisfaction levels for various digital agency services. We found a general feeling of “blah” from our client respondents regardless of the service. We did, however, see pockets of difference based on the type of client respondent.

Most notably, B2B marketers were the most dissatisfied (when compared to their B2C and B2B2C counterparts) with their agencies’ abilities in strategy, digital products, and customer insights. This represents an opportunity for agencies with expertise in these areas and B2B marketing.

User experience, content, and app development received the lowest marks from all marketers.

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Rank satisfaction

Are Clients Organized for Innovation?

For the second year, SoDA asked both clients and agencies for their opinion on clients’ organizational structure and whether those structures facilitate or hinder their ability to innovate and spur positive change. 2016 results follow the same patterns as 2015, but the gaps are wider. Here’s what they said:

My company’s current organizational structure…

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Organizational structure

Our clients’ current organizational structure…

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Client Org Structure

As we saw in 2015, clients and agencies have very different perceptions of how clients are positioned to drive innovation. 2016, however, reveals even larger gaps and less uncertainty. In 2015, 17% of clients reported that their organization hindered their ability to innovate. This jumps to 29% in 2016.

Clients picked sides on this issue in 2016, as evidenced by the fact that the share of noncommittal respondents (i.e., those indicating their organization neither facilitates nor hinders innovation) shrank from 41% to 23%. The percentage of clients responding that their organization facilitates innovation saw a slight increase from 42% to 48%.

Meanwhile, agencies are feeling less optimistic — with the percentage reporting that their clients’ current organizational structures facilitate innovation dropping from 15% to 12% and those that think client org structures hinder rising from 44% to 51%.

As the term innovation broadens and companies are feeling pressure to remain competitive, many organizations are devoting greater resources and time to innovation (or not), which is why clients are more likely to pick a side. Agencies, however, may find that working with these newly formed innovation teams or processes is even more cumbersome — bringing more process and red tape into projects that used to move quickly under the oversight of a rogue innovation team.

Clients and Agencies Assess Their Digital Savvy

Q: How do you rate your organization on the following? 1-5 with 1 being the weakest and 5 being the strongest (Clients, Agencies, Prodcos and other consultants were evaluating themselves on the three attributes listed below)

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Assess Digital Design

Similar to 2015, agencies continue to rank themselves higher than their marketing counterparts in these three key areas: user-centric design, emerging technology, and digital innovation. The gap, however, is lessening and clients are feeling more confident than agencies in their ability to drive digital innovation and incubate new products.

The real story here is the difference between agencies, production companies/studios, and other service providers that may identify as consultants. With the exception of user-centric design, agencies rank themselves lower than the other service providers in terms of emerging trends and digital/product innovation. Production companies/studios, as well as consultants, may be tasked with special projects focused solely on digital product innovation or emerging technology.

Agencies, on the other hand, are still tasked with the traditional tasks of an agency, which can include more traditional, but necessary, marketing tactics like creative development, campaign execution, and website updates.