Long a staple of advertising, the days of the traditional agency of record could be numbered

Several factors, including cost-cutting, are shaping what brands want out of the agencies they hire.
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5 min read

Agencies scored plenty of wins in 2023. Major advertisers like Verizon, General Mills, and Kimberly-Clark all named new creative or media agencies of record this year, indicating that the AOR relationship is still valued among marketers.

But according to data from marketing consultancy R3, there have been roughly 29% fewer media pitches year over year in the US, and while there have been 45% more creative pitches, revenue from those pitches has remained almost flat.

One potential reason? Some brands are looking for specialized agencies as new technologies like TikTok and AI become more important, according to Moya Fry, senior global consultant at R3.

“On the creative side, more pitching for the same money is signaling to us that marketers are growing frustrated with the [AOR] model and so they’re parsing out projects and running specialized pitches,” Fry told us. “They are finding the agency or the partner that can do a specific job versus in the past, when there was an AOR, which was sort of the jack-of-all-trades.”

Other factors, like the pandemic and economic uncertainties, have also led many marketers to more closely consider what, exactly, they want from the agencies they hire. So what are they looking for? After talking to several marketers, we narrowed it down to three C’s: consolidation, creativity, and cost-cutting.

Consolidation: Agency consolidation will be a big theme in 2024, Lisa Colantuono, president of agency search firm AAR Partners, predicted onstage during Advertising Week New York in October.

That’s in part because there’s been an uptick in specialized agencies that are attracting business for specific use cases. This year alone, for example, Drinkware brand Stanley tapped Omnicom’s GSD&M and RoC Skincare hired Gravity Road, to be their first-ever TikTok agencies of record. But as more specialized shops have joined the fold to support evolving marketing needs, it’s led to some additional complexity, Jay Wilson, VP and analyst at Gartner, said.

“There’s a lot of benefits to working with multiple agencies, having a specialist,” Wilson told us. “At the same time, it becomes incredibly difficult to manage.”

In response to brands’ evolving marketing needs, new types of agency structures have popped up as potential alternatives to the AOR model. Agency X&O allows clients to pay a fixed fee for work on specific marketing projects, which the agency will complete in a one-to-three-week sprint. X&O structure is designed to enable flexibility, encouraging brands to engage them in a project-based manner and leverage them for specialized projects instead of pursuing an AOR arrangement.

“We’re getting more digital specialists [and] of course AI specialists, folks that really understand innovation and growth because that’s a big pressure point now for CMOs,” Eric Segal, founder of X&O, told us.

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Some holding companies are also responding to brands’ changing needs with options within their own portfolio, pulling from their own agency rosters and strategically combining agencies’ specialized services to customize work for brand clients, Fry said.

Creativity: Brands are also focusing more on a potential AOR’s creative output, experts said. Brands can sometimes “get stuck in a rut” when working with a single agency, Wilson said, which can lead to antsiness, according to Colantuono.

“When an agency becomes complacent, or the marketer feels the agency has become complacent, that’s when the nervousness starts and the itchy feet start in terms of ‘I need to find another agency, because they’ll be more motivated to do the work that I need to be getting done,’” she said at Advertising Week.

Marla Kaplowitz, president and CEO of the 4A’s, said that a lack of communication between agencies and clients may contribute to reviews.

“I think the real issue is the No. 1 reason why clients put agencies in review,” Kaplowitz said at Advertising Week. “Fifty percent said it is to find a new agency that will be more motivated. That’s really disappointing to me because it says that the communication is not where it needs to be. The relationship is not where it needs to be.”

Cost-cutting: Brands have 99 problems and money is one, or whatever JAY-Z said. Agency reviews can be costly, and brands’ marketing budgets are being squeezed, Wilson told us.

Prior to the pandemic, marketers were getting about 11% of overall company revenue as their budget,” he said. “Then in 2020, into 2021, that dropped down to 6.5%. It’s rebounded a bit over the past couple of years, but it’s still relatively flat at around 9% of overall company revenue.”

Charles Littlefield, CMO of Mast-Jägermeister US, said at Advertising Week that agency reviews can take as long as six to seven months to complete, potentially adding to costs. They can also require staffers to step away from their day-to-day duties to dedicate time to the process.

According to Joanne Davis, founder of Joanne Davis Consulting, many brands moved parts of their reviews online as a result of the pandemic, which helped save money. But even a lower price point isn’t necessarily a magic bullet.

“If the problem is at the client,” she said, citing an example where one of her clients felt that a new account leader wasn’t a good match with agency staffers, “a change of agency isn't going to solve it. We have to look inward before we can look outward.”

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