If all the analysts are to be believed, the
UK is in the early stages of a very significant recession. The majority of pundits seem to agree that this recessionary period will last for at least the next two years. This will present a serious challenge to the survival of many small B2B agencies and will, no doubt, result in staff reductions in larger agencies also. We are likely to observe the following characteristics:
§ Significant reduction in client marketing budgets (especially for above-the-line activities)
§ Increase in the number of proposals requested by clients but a reduction in the number that actually get adopted and implemented
§ Lengthening payment terms potentially giving rise to cashflow difficulties
§ Increased bad debt risk as smaller clients (although several large ones have suffered recently also) go to the wall
§ Increased uncertainty with the resulting difficulty of forecasting resource requirements
It has been argued that a recession is the time to increase expenditure on brand building with a view that those businesses that pursue this strategy will be ‘well placed’ when the economy begins to recover. This may well be the case for clients with very deep pockets but, by definition, this is the minority. This view is not one that I subscribe to.
I would suggest that, in this environment, brand will become secondary. Clients (and more specifically the B2B marketers employed within them) will increasingly want to measure and quantify the results of their marketing expenditure. They will want their B2B agencies to be able to clearly identify the volume and value of sales resulting from each activity. In fact, I believe that ‘marketing’ briefs should now include specific, measurable sales objectives. The value of the agency ‘value add’ is then clear for all to see if the objectives are met.
As an industry we need to become more creative, not in the design sense but commercially. If the days of agency retainers were not already over, this recession will kill them dead.
Agencies now need to come up with ways to ‘share the risk’ with clients, building true commercial ‘partnerships’. If marketing budgets are to be cut, then agencies need to think of more creative ways to be remunerated. If we truly believe that the services we offer will lead to increased sales for our clients, then we should deliver our services in exchange for a share of the incremental revenue resulting from our activities. This moves the costs out of the marketing budget and in to ‘cost of sales’. In short B2B agencies will need to ‘put their money where their mouths are’.
In a buyers’ market, we are also going to have stick to our guns on the level of service we deliver. I am sure many agencies are guilty of over-servicing clients. It may seem counter intuitive but we may even need to be prepared to turn business away if we cannot deliver it profitably. Agencies must always consider the opportunity cost of over-servicing clients i.e. are our best staff engaged in continuously over-exceeding client expectations when they could be usefully employed prospecting for new, potentially more profitable, activities?
Finally, I believe clients will increasingly wish to integrate all elements of their marketing activities in order to maximise the return for a given expenditure. I understand the argument that it is better to select the ‘best of breed’ agency for all individual disciplines and that agencies offering fully integrated marketing activities may be viewed as ‘Jack of all trades and master of none’. However,’ clients are increasingly likely to have less marketing management resource to carry out the integration function themselves and may therefore seek agencies with that capability.
In summary, therefore, I believe that B2B agencies will need to constantly adapt to meet the changing needs of their clients and the economic conditions. They will need to:
§ Constantly measure and report on the success, in sales generation terms, of their activities
§ Integrate marketing techniques to maximise overall impact
§ Integrate marketing and sales activities – taking a brief that includes a sales objective
§ Offer creative methods of remuneration to build ‘commercial partnerships’
§ Clearly define service level agreements and stick to them
Not all will survive but those that do will be stronger for the experience.