Welcome:

The pressure on CEOs and Executive Teams to deliver more sales and profit with fewer company resources is unrelenting.

And nowhere is this more pronounced than in a company’s advertising and marketing program. Media costs continue to rise while the number of media outlets fragment. The cost to produce an advertising program and implement it into the marketplace is skyrocketing.

Consider: According to the American Association of Advertising Agencies, the average cost to produce (not air) a :30 TV spot is over $372,000. Put that spot into last year’s Super Bowl one time and add another $2.6 million.

And just when you think effective marketing is only for Big Companies and Big Agencies, research shows several things changing in the marketplace that's creating new opportunities for companies to capture new customers and sales.

That’s the topic of this newsletter.

As always, I look forward to your comments.

Sincerely,
Tim Lazor
timlazor@nauticom.net

ROI-Based Marketing News is published by: Lazor/Yost Marketing & Design, Inc.
412-423-0044

www.lazoryost.com

---

Why CEOs Are Using Smaller Ad Agencies To Grow Sales & Profit

By Tim Lazor

Does ad agency size really matter? Do CEOs still hire agencies on the total number of people they have under one roof, even though a small team within that Big Agency will work on their business?

Not anymore. Research shows more CEOs are using “Right-Sized”** smaller agencies to grow sales, control costs and reduce risks.

According to a study conducted by Second Wind Research, companies with marketing budgets of $500,000+, and who changed agencies within the past 24 months, an unprecedented 92% switched to a smaller agency. There are nine reasons why this is happening, and they are outlined below.


1. Smaller Agencies Respond 38% Faster To Marketing Opportunities. Today, a company’s ability to compete based on speed is critical. And the pressure to respond more rapidly to competitors and customers is growing.

That’s where smaller agencies give CEOs an advantage. According to the research, average completion time for a typical project at a big agency was over 6.2 weeks. Compare that to only 3.9 weeks for the same project at a smaller agency.

And when factoring in lower costs and better return on investment (ROI) one gets from smaller agencies—all discussed below—the advantage of using a smaller agency becomes dramatic.

2. Smaller Agencies Develop Creative To Solve Sales Problems, Not Win Awards. Big Agencies want to be known as “hot shops,” win creative awards at shows like Cannes and The Addy’s, and do TV spots you’d see on the Super Bowl. Many times, this involves celebrities, exotic locations, big media and production budgets, and risk for companies.

One of today’s “hot shops” is Miami’s Crispin-Porter, creators of Miller Lite’s “Men of the Square Table.” It uses celebrities Burt Reynolds and Alice Cooper meeting in a glass room, discussing manly behavior and topics like if it’s OK to put fruit in beer.

After spending millions producing and airing this Man Laws campaign, Miller Brewing pulled it in less than a year.

Why?

According to a Jan 22, 2007 Ad Age article, “Miller Lite's sales lost ground to rivals. Sales fell by low-single digits last year, while rivals Anheuser-Busch's Bud Light and Coors Brewing Co.'s Coors Light saw sales climb in the mid-and low-single digits, respectively.

Miller executives said they “Believed ‘Man Laws’ would gradually seep into the popular culture and eventually boost sales.”

When explaining what it was to accomplish, a Miller spokesman said, “The campaign succeeded in generating ‘social currency’, and that was exactly what we needed at the time."

Huh? Does anyone know what ‘social currency’ is, and what it has to do with growing sales?

Want to know something else? This money-wasting nonsense takes place everyday in big agencies around the country.

Which brings us back to the move toward “right-sized” smaller agencies.

According to Lisa Sanders in Adweek magazine, “Smaller agencies are seeing a shift in their direction by corporations forced by the tight economy and ever-more segmented marketplace. Big agencies are losing touch with target markets and clients. Bigger is no longer considered better, or even safe. And clients are under increasing pressure from top management to ‘Do more with less.’”

Bottom line: CEOs are finding the seasoned agency principals in “right sized” smaller agencies are more sales results focused; yet not glamour-oriented like the big shops. And it’s making a difference for their companies.

3. Smaller Agencies Cost 40% Less. According to the study, the average blended (or combined) hourly rate for Big Agencies (those billing $15 million+ annually is $165/hr. This rate consists of all the services an agency provides: account management, creative, PR, media buying, production, etc. Compare that to the average rate at a smaller agency for the exact same services of just $100/hr. A savings of 40%.

4. Smaller Agency Principals Are More Accessible. We interviewed the EVP/Marketing of a 300+ store retail chain with $3 Billion in sales. He had just fired his big agency.

Asked why, he said: “First, their turn around time was too slow. We’re a retailer making marketing decisions based on speed and what our competitors are doing. We couldn’t wait for them anymore.

“Second, when they did present creative, our team only got one option. If we didn’t like it, we’d have to wait another six weeks. We just can’t work like that.

“Finally, the “A” team and their agency principals came in and pitched our account. After we awarded them the business, we felt like we got their “B” team doing all of the day-to-day work. So for what we paid in a monthly retainer versus what we got, it wasn’t a value. It’s not that we couldn’t afford it. It just cost too much in terms of them wasting our time and creating agony among our team.”

Incredibly, this type of contemptuous relationship goes on everyday at big agencies toward their clients. And it happens because the agency’s bureaucracy gets in the way of both good relationships and work.

Paraphrasing the Adweek article: “In smaller agencies, the principals are deeply involved in their clients businesses. And because they tend to be seasoned pros, CEOs want access to them and their ideas. So they make themselves available 24/7…because their agency’s growth depends on it. Plus, it’s fun to work this way.”

5. Smaller Agencies Understand Customers Better. According to the Second Wind Study: “Companies typically don’t know enough about their own customers. They think they do, but too many things get in the way of properly understanding and marketing to their target audience. Chief among them is the pressure to meet sales goals.”

The principals in smaller agencies tend to have more customer insight simply because they’ve been doing it longer with more success. They also tend to recommend more “common sense” creative approaches having the best chance of making customers notice a company, and take steps to buy from it. It may not win awards or be seen on the Super Bowl, but the increase in sales and profits makes up for it.

6. Smaller Agencies Deliver Cutting-Edge Services With Technology. Big Agencies used to monopolize—and charge premiums for—excellent services in media buying, public relations, research and production of TV, print and radio.

Not anymore. With the internet’s growth and instant connectivity, new graphic and media planning software and production technologies, smaller agencies provide the same “big agency” services—faster and for less money—to clients.

This is one of the best-kept secrets—and a key driver—as to why smaller agencies are catching the attention of more CEOs. It’s a “We Need More Marketing Value for Less Money” proposition…and one that CEOs are choosing.

7. Smaller Agencies Are Easy To Test…With No Risk. Because small agencies have no layers of bureaucracy, they are easy for a CEO to try on a project.

If there’s an agency you’d like to try, do these: First, call and chat with the principal for 20 minutes. Get a feel for how the agency works, how they charge, their clients, and get a sense of “chemistry.” Be upfront about testing them. Next, meet their team. Ask questions. Let them ask questions. At this point, if you’re comfortable, brief them on a project. Let them return and present their ideas. Then judge them on their work.

Notice there are no power point presentations or 75 page “regurge” proposals restating information you gave them six weeks ago mentioned here. The reason is simple: Smaller agencies are more effective for CEOs because no “process” gets in the way of the creative work getting done and into the marketplace…where it belongs. And where it gets sales results.

8. Smaller Agencies Are A Better Value. “Put your money where your mouth is,” the saying goes. Smaller agency principals do this every day, whether in making payroll, equipment purchases, or their own marketing programs. That’s why CEOs find them more responsible with their budgets…because they do the same with their agency’s.

According to the research: “Moving some or all of your business to a smaller agency can translate into tens of thousand to millions of dollars in savings for some companies. Smaller shops, by virtue of being more efficiently run, have better oversight of cost controls and generally handle their finances like business people.”

9. Smaller Agencies Have Passion. CEOs recognize passion. And small agencies—made up of competitive and creative people—have it. And that’s why CEOs are tapping into it.

In my 20 years in this business, the most exciting meetings are when a passionate agency presents ideas to the CEO, and his or her eyes light up with the re-energized recognition of what their company can become.

It’s still magic to watch.

When CEOs give smaller agencies an opportunity to meet them, they always get new insights and ideas about their business and ways to help it grow. At its best, they may find a passionate, strategic partner providing value, sales growth and a little bit of fun for years to come.


FOOTNOTE: ** A “Right-Sized” smaller agency is defined as having at least two agency principals, in-house support staff, and a network of full time strategic partners who are all networked with technology allowing the agency to focus on clients, make communication seamless and reduce client costs.

About The Author:
Tim Lazor is the President of Lazor/Yost Marketing & Design, Inc. located in Oakmont, PA. Mr. Lazor can be reached at 412-423-0044.
© Copyright 2007

---

---