What will client-agency relationships look like in 2011?

Happy New Year!

It’s a good time to set goals for the coming year and consider how the marketing communications landscape will develop during 2011. From discussions with brands and marketing procurement consultants over the last few months, I have a few predictions to share with you. Feel free to post responses if you agree or disagree – debate is good! Here’s the first one ….

Direct Cost vs. Overhead
There’s been much discussion in the UK client & agency trade magazines about the shift from retainer to project-based client-agency relationships. Clearly, this is driven by client side cost-saving initiatives, but it suggests a deeper trend. Marketing communications agencies (& advertising agencies in particular) are likely to move towards operating models common to the TV & Film industries. i.e. small core salaried teams (overhead) with larger flexible freelance resource for specific projects (direct costs). The more recent UK agency start-ups already embrace this model, and are able to compete more effectively in an over-supplied commoditised market. What’s becoming clear is that clients are less willing to support the high overheads of large Central London agencies with several hundred people on the payroll. Agency retainers that fund teams of high-salaried staff will increasingly be challenged by clients, supported by the growing ranks of marketing procurement consultants. The long-established large agencies will be forced to adapt as their margins shrink below 10% and we may see some considerable downsizing of permanent staff. It’s true that clients enjoy spending time in the smart West End offices of their agencies – it makes a pleasant contrast to out-of-town business parks. However, increasingly the thought 'I’m paying for this!' will be front of mind for clients as they enter their agencies’ marbled halls. This thought will force agencies to change.