Referrals On The Decline and In-House Agencies On The Rise-What’s An Agency to Do?

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If you’re not feeling it yet, you will. 

The changing agency and marketer landscape has significantly impacted the way agencies find and win new business.

No longer can agencies exclusively rely on referrals and networking to drive the success of their firm.

Once an almost exclusive source of new business for marketing agencies, referrals from marketers as a source of agency new business have dropped significantly since RSW/US first started measuring their importance as a new business resource in 2007.

In 2007, 94% of marketing agencies selected “referrals” as one of their three primary sources of new business for the firm.

Back in the day, agencies worked their networks and there was less of a need to actively and proactively search for new business.  Agency principals would network, the phone would ring with a new referral, and the business would grow.

Today there are more agencies going after fewer AOR opportunities.  There are more big networked agencies pursuing opportunities they would have never considered a decade ago.  There are fewer marketers because big conglomerates are consolidating companies and cutting staff.

In 2011, the number fell to 71%.

And in our most recent Marketer-Agency Survey, the importance of this source dropped to an all-time low of 64%.

So why the decline?

We believe one of the primary reasons for this decline is the fact that a significant number of marketers are now using in-house agencies.

In this year’s survey, 67% of marketers stated they had an in-house agency. 

Last year, 61% of agencies stated that the new business they won involved working with an in-house firm.  So it’s clear this trend is not reversing itself any time soon.  With more agencies sitting inside the four walls of a marketer’s business, there are fewer opportunities for marketers to be exposed to outside firms – thus lessening the number of potential referrals.

While this is somewhat concerning, I don’t expect this trend to consume the industry to the point of it going away.  Just like we have seen marketers ebbing and flowing on consolidating agencies and expanding rosters over the past decade, I suspect we’ll see the same thing here as well.  The other heartening statistic is the fact that most marketers are using in-house firms for basic design work and social media.  So while social media firms and one-off designers should be concerned, I don’t believe we will see wholesale shifts to full-on in-house firms – like we’ve seen at places like AARP.

Project “Sampling” on the Rise

In addition to the growing number of in-house agencies limiting the number of opportunities for new business, the other changing dynamic is the growth of project work (versus retained work).  This year 41% of agencies state that 51%+ of the business they received was in the form of project work.  While only a slight uptick from last year (40%), we see it each and every day.  Our clients are either winning project work outright as their first assignment with a new marketing client, or they are actually having to compete for project work – something they have never experienced before.

We suspect what is driving this growing trend to push out project work versus assigning a single or a couple of AORs, is the fact that there are simply so many agencies knocking on the doors of marketers.  In this same survey, 60% of marketers stated they receive 6-10+ calls a week from agencies, so the competition is fierce.  This creates less of a need to refer agencies or seek referrals when you have the ability to “sample” agencies via the use of one-off projects.

The risk for marketers is mitigated when all they have to do is push out a project, versus dedicate their entire business to a single marketing firm.

 

So…What is an Agency to Do?

It’s clear agencies can no longer sit back and wait for the phone to ring or rely on networking events to find new business.  In order to win new business, they have to get more aggressive.  If your agency isn’t reaching out to make a connection, there are plenty of others filling in for you.

So, some advice on how to offset the potentially weakening stream of referrals:

  1. Follow the PR firm example and define your “practice areas”. Where can you call out your expertise and convince marketers in this same space that you are expert in their space.
  2. Be relevant. Marketers tell us in our surveys that agencies talk too much about themselves.  Find out something about the marketer you’re reaching out to and have a conversation, not a sales call.
  3. Be persistent, but polite. If you don’t put together a full-on outreach program to stay in front of the marketers you want to work with – all the time – you will find it extremely hard to win.  You need to be part of their consideration set from the day you start your outreach, until the day you win their business.  Stopping and starting can cause you to miss what could be an incredible win for your agency

Be yourself.  Consider what Leo Burnett told his agency when he gave his valediction speech in 1967.  He told them to not forget what made their agency great – to never veer off of that path.

And he told them that if they did, he no longer wanted his name on the door.  So be what made you great and it will shine through to the marketer on the receiving end of your call.

Author: Mark Sneider

Mark is a 30-year veteran of the consumer packaged goods, advertising, and marketing service industry. Mark started his career at DDB Needham in Chicago prior to earning his MBA from the J.L. Kellogg Business School at Northwestern where he majored in Marketing and Economics. Prior to starting RSW/US in 2005, Mark was General Manager for AcuPOLL, a global research consultancy. Sneider worked in Marketing for S.C. Johnson and KAO Brands. Sneider has been invited to speak at numerous Agency events and network conferences domestically and internationally including the 4A’s, Magnet, NAMA, TAAN, and MCAN. Sneider has been featured in prominent industry publications including Adweek, Media Post, e-Marketer, and Forbes. When not working (which often seems like not often), Mark likes to run miles, go to church, and just chill with a hard copy issue of Fast Company.