by First name Last name on 09/12/2011 | 5 Minute Read
Recently, I've read several news items signalling tough times ahead for packaging design agencies. Regardless of whether the world enters a double-dip recession, the rising cost of raw materials is now seriously impacting bottom lines. This means that to keep their shareholders happy, our clients will need to pass those losses off to someone else. In some cases, consumers will take the hit (as with Nestlé and Purac). In other cases, it will be suppliers who will feel the pressure. And in many cases, it it will certainly be both.
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This will inevitably lead to further unpaid pitch invitations, more negotiations with unsympathetic procurement managers, and continued commoditization of our craft. Undoubtedly, this comes as unwelcome news to agency financial directors who were seeing budgets beginning to creep upward after multiple months of downward trending.
Agencies faced with further pressure have two potential courses of action -hunker down and prepare for even more belt-tightening, or look for ways to prove value to their clients. Agencies who choose the second route proactively find ways to save and make money for their clients -becoming an indispensible resource in particularly tough times.
In the last downturn, our own agency was positioned well to maintain competitiveness. The strategies on which we built our business have not only made us Central and Eastern Europe's premier branding agency but also helped us to avoid the pitfalls that led to drastic cutbacks and staff reductions amongst our competitors. In this article, I will share some of what worked for us in the past and can likely help your own agency in the future.
Proving return on investment has always been the holy grail of creative work. With so many factors and players influencing each brand, figuring out who deserves credit for what is next to impossible. This ambiguity leaves agencies at a huge disadvantage when negotiating fees. While some companies, such as P&G, inherently understand the value of design and instill that understanding to all employees, others still see design as a commodity provided by a revolving door of interchangeable agencies.
Agencies want to be paid for great creativity. Clients want to continue actively developing their brands while minimizing unneccesary risk. One sales model with the potential to satisfy both, borrowed from HR placement agencies, is success fees. By accepting a smaller up-front fee, an agency agrees to a large payout if the results of work surpass pre-negotiated KPIs. By large payout, we mean larger than normal as the agency now shares the burden of risk with the client. The key here is the negotiation and choosing truly demonstrable KPIs and appropriate fees. Done right, the success fee is an absolute win-win and may be the big trend of the coming recession.
Here at Cocoon Group, a recent beer project in Russia used a similar work-payment structure. Success in initial stages led to an increase in the scope of the project, with increasingly large payouts for as the project progressed. We walked away understanding that our work was appreciated, and the client walked away with some amazing strategy and creativity.
Agencies willing to expand their own capabilities can absolutely save money for clients. Are you aware of the latest money-saving print technologies and materials? Eco-lean lightweight packaging, for instance, saves on energy costs, materials costs, transportation costs, and disposal costs, saving companies a ton of money across multiple non-design disciplines. Are materials like this available in your own markets? Do you know how to work with them? Can you make these sorts of cost-saving recommenations on behalf of your clients? Do you know which local printers and available print technologies run most efficiently? If you can make yourself an expert in materials, technologies, or the local printing landscape, you can help clients save money without cutting your own creative budget.
If an agency can bring innovation into its core competencies, it can multiply its worth to clients a hundred-fold. There is some overlap here with 'become an expert', since expertise requires awareness of new technologies and materials. However, an innovation-led agency also knows what is trending with consumers, what is happening across multiple markets, what works and why, and is able to bring that knowledge to bear on clients' needs. An innovation-led agency has tools for uncovering innovation internally and with the participation of forward thinking clients.
Everyone loses when the data is wrong or instructions are miscommunicated between strategic agencies, design agencies, repro houses, DTP studios, and printers. The answer is minimizing the number of cooks in the kitchen, which an agency can do by adding technical experts, artworkers, or print management capabilities. The more work that can be done under one roof means less knowledge-loss and mistakes 'bridging' the project from one agency to the next. It means that creativity benefits from the participation of in-house creatives or technical experts at every stage under agency control. It means faster turnaround as work is not subjected to interruptions between stages. And, most importantly, it means less cost for clients and more revenue for the agency.
If an agency rarely deals with the true decision-makers, or is only invited to projects after the strategic decisions have been made, then none of the above strategies will benefit them. An agency must move up the food chain. It seems that design agencies often play second-fiddle to advertising agencies when it comes to client coziness. However, agencies today have the chance to reposition themselves as the frugal, creative, expert alternative to advertising agency extravagances.
This is something that has been repeated for years by industry insiders despite continued movement by clients in the opposite direction, but it's now more important than ever to build profiles as true partners. Your clients need to view you as an expert resource rather than an expense mitigated through bullying, pitches, and constant pressure to deliver more, faster.
As a leading regional branding and design agency, we have survived and even thrived through the difficult times by enacting a series of strategies and investments to better show and increase our value to clients. By looking at these strategies for your own agency, regardless of your current size or situation, you may be able to embrace the 'new normal' without painful cost-cutting measures.