Manhattan Marketing Maven

Agency Pricing & Fees -- Benchmarks Revealed

Money makes everybody crazy. Money makes agency executives especially crazy because they are under constant pressure to close business at double digit margins in a marketplace that undervalues agency services. The magic that agencies make is often considered and bought as a commodity.

In a world where clients  buy marketing, advertising and PR services using the same criteria and the same purchasing professionals as they do for buying raw materials and office supplies, setting prices and extracting fees that have any relationship to value delivered is a source of continuing anxiety. Managing competitive pricing while simultaneously managing doubts about the perceived value of agency brands, agency negotiating skills and agency lead generation and selling skills is the target for the newly released Fees & Pricing Benchmark Report produced by RainToday and the Wellesley Hills Group.

This 80+ page book incorporates survey data from 343 professional services firms in the marketing, advertising, and PR industry mixed with analysis from RainToday, a leading sales consultant to professional services companies. It is loaded with data on rates, pricing, fee formulas and selling tactics.

The data shows that the truths agencies tell their clients are equally true for them. Brand awareness and perception drive demand. Brand leaders can charge more, discount less, earn better margins and more frequently manipulate the pricing/billing models. But accomplishing these things isn't easy even for firms with household names. The report documents an industry-wide insecurity about what clients will pay for services, what is the genuine business value agencies deliver to clients and the worry that agencies leave too much money on the table because they aren't good salesman or negotiators.

As you might imagine, the topics on everyone's mind -- those cobbler's son issues that agency executives whine about at the 4As and other venues -- get thorough coverage in this report. Here are some of the key take-aways:

• Almost everybody pays attention to the "going rates." Clients always give away competitive prices during pitches. Many firms actively scout and watch their competitors
• Fixed Fees are very popular because it gives clients predictability and to a certain extent finesses  client's questions and arguments about time/rate/skill/margin mix.
• Everybody discounts. The average variance from the rate card is 25%. Brand leaders discount less frequently and fewer dollars. Bigger firms discount more because they can.
• There is significant experimentation with value-based pricing. But there isn't common definitions of how to do it and no consensus on how clients measure the business value delivered from agency services. Only a third of firms use contingency or success fees in their billing formulas.

Amid the countless charts and verbatim quotes, the emergent prescription for agencies is:

1. Invest in business development. Get serious about lead generation and pipeline management. Aggressively target clients who you know will be right for your firm.

2. Invest in your brand. Make it different and distinctive to attract new business and substantiate better prices and margins.

3. Learn how to sell and negotiate. Get over yourselves. Stop bellyaching about the encroachment of consulting firms and others. Know when to walk away from a global brand with an inadequate budget. Don't let the bean counters push you around.

When Washington Meets the Internet -- Watch Out

The  Internet, eCommerce and online marketing evolved without much government intervention or interference. But as the digital world morphs, expands and impacts on traditional models it collides with existing law, demands new laws and creates questions and confusions for legislators and regulators many of whom have just a passing understanding of what we do, how we think or what will come next.

Attending the 35th Washington Caucus of the Computer & Communications Industry Association (CCIA), the trade association of choice for the online set, was a clarion call to recognize the need to allocate time and resources to address DC audiences, especially those who could threaten our future.

In presentation after presentation Senators, Congressmen and Commissioners, speaking in life-affirming regional accents, made it very clear that there are knotty, substantive issues on important topics like government spying, privacy, health records, spectrum access and allocation, copyright and patent reform or the fair use doctrine that can't be left to legislators or bureaucrats to decide arbitrarily or politically. They also left me with the feeling that on Internet matters the Congress is mostly clueless and likely to default to the positions advocated by phone companies and cable operators.

Its funny how we all know that Congress is a mixed bag of people from all walks of life and all corners of the nation madly wheeling and dealing for resources, programs, dollars and votes in an adversarial hothouse that sometimes reflects reality but often doesn't. Since the beginning of the republic the politics of Capital Hill have been a source of scrutiny and sarcasm as partisans fight tooth and nail for the spoils that only government can dole out. But rarely do we connect this understanding to the business we are building each day or to the medium we are helping to build out.

Now its time for the bits and bytes people, many of whom couldn't be bothered with the pathology on the Potomac to defensively jump into the fray. Why? Because an awful lot of the laws and regulations on the books are rooted in ideas and technologies that are long past. Few in official Washington have a nuanced or experienced understanding about the online world and the expectations about open access, privacy, user generated content, customer service, fairness or community that millions hold to be self-evident and instinctively consider to be their rights as citizens. Too many important decisions turn on technical arguments presented to newbies or neophytes beholding to partisan or corporate interests.

In some cases there are serious debates to be had about how technology is changing fundamental relationships and kicking over or complicating precedents and traditions. In other cases we barely understand the impacvt of technology now and yet have to project its use and its implications into the future. In still other cases, we need to get the fox out of the hen house and stand-up to entrenched interests and the political allies they've bought and paid for.

The future of of the Internet can and will be determined by decisions, choices and definitions that affect technology, taxation, intellectual property rights, privacy, civil liberties law and investments of government attention, resources and cash.

Why should we look up from our monitors and get involved in DC? Because we -- online companies, online merchants, online marketers -- need to

1.Affect how the rules of the game are written.

2. Influence how the laws are enforced or not enforced.

3. Keep the Congress from politicizing cyberspace and from using online issues to ride political or partisan hobby horses.

4. Increase our visibility on the Hill so that we're heard and considered seriously and so that entrenched interests don't buy our representatives out from under us.

Benchmarking the Online Magic

Every CEO and CFO wants their marketers to benchmark and measure the magic. And with the publication of MarketingSherpa's first ever Online Advertising Handbook + Benchmarks marketers will have a fighting chance.

The lovable geeks, zods and nerds at Sherpa, led by Research Director Stephan Tornquist, have collected 211 pages of data from across the advertising industry including survey data from 577 online advertisers at a wide range of companies of many sizes and sectors.

Anyone who needs numbers to sell in ideas or to justify a campaign or to learn from others' mistakes ought to have a copy of this book. At $497 this fact book is a steal. If you hired a consulting firm to get you this information, it would cost 50 times more and be half as good and much less candid.

These guys aren't afraid of the truth. They write, "online there's a great deal of bad advertising...Where there could be genuine stimulation through interaction there are bad static ads. In a medium that allows micro targeting, there is still mass advertising." They know that only by sharing ideas and information can we collectively harness the real potential of this evolving medium.

Recognizing the infancy of online advertising they have the balls to remind us that online advertising still adheres to the fundamental principles of. advertising. In the executive summary they remind us that branding, placement, frequency, content, targeting plus sight and sound are the critical variables for effective communication and persuasion. And they display, in pedestrian charts, the data to prove it.

Within the extensive data sets there is subtle and not-so-subtle guidance on issues affecting everything from creative units to targeting to media tactics. If I haven't sold you the book yet, consider these tidbits:

• No more than 28% of viewers ever see an ad below the fold
• Display ads earn half the ad revenues of search ads
• 30% of online marketers don't spend a time on behaviorally or contextually targeted ads while another 30% believe these tactics yield the greatest ROI
• Almost 70% online ad analysts say A/B tests yield the best improvements in ad effectiveness
• 53% of marketers think adding pictures make online ads more effective
• 300x250 pixel banners have the best click-thru rates
• 46% of heavy gamers see in-game ads an inevitable
• Without frequency capping you blow your ad exposure too fast on the wrong prospects

   

Haagen-Dass & The Honey Bees: Ruminations on Cause-Related Marketing

The mysterious disappearance of honey bee colonies threatens our food supply and is possibly both a consequence and an allegory for our systematic disregard for or destruction of carefully balanced natural ecosystems. This phenomenon caught my attention almost a year ago, and yet somehow the adoption of the beleaguered bees by Haagen-Daas' gives me a funny buzzing sensation in my head.

Honey bees pollinate almost one-third of our food supply. The rapid and unexplained disappearance of vast numbers of colonies reported in 35 US states, like the disappearance of native American colonies in the Southwest, leave behind empty shells of civilizations with scant clues to the causes for their disappearance. Its CSI meets the Nature Channel with potentially serious consequences for our food chain and the planet.

This is a fascinating story, reported on extensively by Elizabeth Kolbert in The New Yorker of 6 August 2007 and covered broadly in both the popular and the science press. At last glance, the leading theory dubbed the "colony collapse disorder" is thought to be some kind of  epidemic, though the evidence and the research into the details, the causes, the consequences or the cure are not conclusive.

Enter Haagen-Daas, a General Mills brand licensed and marketed in North America by Nestle.

The brand has aligned itself with the preservation of honey bees by creating a logo bearing a slogan ( HD Heart (graphic) HB in yellow and black bumble bee stripes), introducing a limited edition Vanilla Honey Bee Ice Cream, doling out $250,000 for bee research at Penn State and UC Davis, creating a consciousness raising  website and running a three page ad in the May edition of National Geographic.

Looking through the ad you can almost hear the brand team thinking ... ecology, earth day, leverage natural ingredients, connect with an unclaimed and unassailable good guy cause, use fruits and berries images plus the organic connection between the bees and our products to leverage the franchise and target the premium taste tree-huggers in eco-friendly magazines. For the cost of a single TV spot we can bankroll legitimizing research which can extend the brand message, focus attention on flavor advantages, and connect the brand to the hearts and minds of our customer base using PR and viral tactics.

Call me cynical or call me a practiced marketer. But I've been in a thousand of these meetings where this kind of cause-related thinking makes perfect sense and builds its own internal momentum and constituency. I could write the presentation deck in my sleep.

A huge MNC-owned brand goes back to its quirky roots to put it self on the side of the angels (or the bees), shape a brand message as eco-friendly advocacy and reach out to the public to raise the alarm and move more product by teaching consumers "how you can help." Although it gets a bit funky when one of the helpful suggestions is " Enjoy a pint of Haagen-Daas ice cream's bee dependent flavors and you'll help fund research with the goal of bringing the honey bees back." 

Maybe I'm getting cranky in my old age, but this feels funny to me. I don't believe that buying and eating more super premium ice cream will save the bees. I'm creeped out by the transparency of the marketing thrust and yet I understand where its coming from. And yet I appreciate the targeting and the integration of brand advertising with bee-related content.

Maybe this is a classic example of brand-ad-content synthesis; the holy grail of integrated marketing. Or maybe its just way over the top for my tastes.   

   

The Shortcomings of Political Branding

It's remarkable. I cannot tell you much about the personalities of either Hillary Clinton or Barak Obama and I know even less about the differences in their positions on critical issues like the war in Iraq, health care, the credit crisis or foreign policy.

And its not as if I'm not paying attention. I'm no slouch when it comes to inhaling the news. So I blame the campaigns. If the first law of branding is to draw a sharp distinction between your product and others in its category and to inform or educate your most likely consumers about the benefits of your product to them then neither campaign has got to first base after almost two years of yammering.

And if I can't tell you, I'll bet few others can either.

It looks as if vapid slogans, set piece photo ops, plain vanilla stump speeches and the desperate hope to avoid media gaffes have taken priority over acquainting the audience with the candidates. Thoughtful voters or those concerned with issues seem to be left to either infer who the candidates are and what they stand for or pore over dense policy papers on the candidates web sites.

Once you get past the obvious and the differences in political biographies, I have no feel for how each might think, handle or organize things in a crisis or under day-to-day circumstances in Washington. How is it that these two people are both simultaneously so visible and so invisible? How come I know more about Aunt Jemima, Orville Reddenbacker and the Jolly Green Giant than I do about either Democratic candidate?

The campaigns need to go back to branding basics..

1. Draw Sharper Distinctions. He's a breathe of fresh air; an example of the new politics and she's the more experienced one; the White House insider. The former is based on appearances and rhetorical cadence. Why not make it clear on a policy level? If Hillary truly has the benefit of experience governing, let's hear what she knows and let's see what she learned along the way. Tell us straight out. Don't leave us to do the math ourselves.

2. Take a Tough Stand. Pick a lightening rod issue and get out on a limb. State a clearly different and even radical stance to make the differences in outlook, posture, and positioning clearer. If you read the candidates' positions they range from vague to mealy-mouthed because they are hedged and caveatted to offer maximum flexibility in fending off political attacks. No one can attack them as naive or hot-headed. Similarly no one can see them as bold leaders either.

3. Be More Specific. Take the positions on the key issues. Boil them down to simple phrases and pound away at them. Make us understand that Hillary Means Universal Health care or that Obama will be Out of Iraq fast. Give us something to brab onto and a reason to believe. 

Selling Uncertainty

Hiring a law firm isn't much different than hiring an ad agency or a marketing firm except for the fact that most clients think they can do advertising and marketing as well as their vendors. Yet lawyers not only leverage their positioning as licensed specialists they invoke the language and the customs of their guild to enhance the pitch process.

Both sets of professionals are retained to address uncertainties in business, usually high stakes uncertainties with many variables where some combination of skill, insight, experience and luck determine the outcome or the consequences which can be dire. Both trade on knowledge clients don't perceive themselves to have to affect future events and both offer fresh fruit and cookies in the early engagement meetings.

Having witnessed several law firms in pitch mode this week, here are the lessons they offer marketers.

1. Establish Credentials Upfront. Send preliminary materials and brochures ahead. Emphasize the practice areas most relevant to the prospective client. Be understated not over-the-top about who you are and what you can do since they are in the room because they believed the credentials you sent earlier. Don't belabor the point. Don't parade every partner or department head. Don't talk about yourself because they only care what you can do for them.

2. Connect the Dots Early and Often. Link your expertise with the prospects problem in the first 2 minutes. "You're being indicted; we're the best criminal defense guys in town." Cut to the chase early and often and zero in on the prospect's anxiety. "We got Exxon out of the same mess because we've got specialists in that area of the law and because we lobbied the regulators." Or remind them that you've done exactly what they need done zillions of times. "We were in front of the FCC just last week. We filed a motion identical to yours. In fact our partner Sally went to law school with the Chairman and our associate Bob is sleeping with him."

3. Punctuate Forecasts with Bold Statements. Outline the dependencies and contingencies that could impact events. But rather than say "if this happens" or "on one hand" which makes you appear to be unsure punctuate the prophecy with bold statements on several issues (the more insignificant the better) that eliminate the perception that things are uncertain or risky. As you lay out all the likely and unlikely things that could or might happen pause dramatically and say "but no court will issue a declaratory judgment on this issue!" By signaling firm beliefs you take the edge off the murky, hazy and nasty view emerging from the crystal ball and reinforce your standing as an organization that can weather a storm.

4. Give them the Odds. Clients buy outcomes and want success. The perception of do-ability directly influences their perception of value and often determines who gets the deal. Nobody wants to hear that whatever they want can't be done. So even in situations where things look bleak, offer hope by citing  odds. Say things like " based on what we know now and on our experience in dealing with these matters, there's a 60 percent chance we can get this done in 6 to 9 months, assuming the Treasury Department doesn't do X."  Or try "there's only a 1% chance you'll be led way in handcuffs." And even though prospects know to immediately discount the quoted odds by as much as half, they take great comfort in your willingness to risk a forecast. And if you can, for good measure, throw in some guild argot or a Latin word or phrase to reinforce your expertise and general willingness to stare down the abyss. Instead of saying " there's a tiny chance" boldly assert "the risk is diminimus!"

5. Ballpark the Numbers. Tell them flat out, with as many caveats as you like, how long it will take and how much it will cost. Everybody is a price buyer on some level and prospects hate the conceit that you have to carefully scope this all out or that you are wishy-washy about money. They know that long before the meeting, you've figured out, at least provisionally, who is going to do the work, what it will entail and roughly how much you need to charge to make your margin. They also know you have several different ways of calculating costs and several pricing models. So tell them right then and there. You can always hem, haw, stammer, back track, discount and generally grovel for the business later.

2 Personal Productivity Tools: Desperately Needed

In a self-service 24/7 digital world I need some serious help to keep my data in synch and to get all my fabulous gizmos to work with me rather than against me.

There are two tools that I desperately need. They may or may not exist. If they exist and you know about them I implore you to call, contact or cue me about how to get them. If they don't exist I beg you to invent them, mash them up or get somebody in India to create them fast. I hereby renounce all claims and future royalties.

Universal Address-book. The idea is to update things once in a single place and then quickly and easily share the data across platforms. I want a tool that will allow me to data enter and store my personal database of addresses and contacts on the web and download it with a click to every computer, phone, PDA and other intelligent device I have. I've tried to concentrate all my updates and changes in Outlook and though Plaxo claims to have a tool like this, I can't download it and can't seem to use it.

Global Cellphone Dialing Software. I want a software program that will know when to dial the extra zero and when to dial the access codes necessary to use all the stored numbers in my phones. Unfortunately the numbers I enter are keyed to the national system or to my providers' protocols. But when I travel, there's always an added access code or you have to dial 08 in-country versus 8 from abroad. I want a patch that will suss out this stuff digitally and automatically understand what I've got stored and do whatever is needed to make the connection, save me time and reduce my anxiety. 

If I could get, find or discover these tools, I'd have a lot more time to contact, connect or converse with all those people at all those numbers I've been madly collecting, storing and updating.     

An Afterthought About Inventors

Inventing is a defiant assertion of our vitality and humanity. An inventor rejects the status quo refusing to accept what is in favor of what might be. An inventor assumes there's something different and something better to come.

Inventing is an act of supreme optimism which refutes the existential notion that we are helpless creatures marooned on a rock spinning in space subject to the repetitive cycles of nature, tradition and convention. The act of invention articulates our ability to change our own lives; to make something happen rather than have things happen to us.

And while not all of us can invent things, we can all celebrate the revolutionary impulse which inspires us to think, to adapt, to experiment to build and to strive for discovery --- the driving force of our civilization.

5 Marketing Lessons from Inventors

Inventors aren’t like you and me. They think about little things, odd things, manufactured things, and things that don’t yet exist; things that aren’t there. They operate on a different frequency.

They iterate, incubate, massage, manipulate and relentlessly test ideas. They seek to fix things and fill voids that you and I aren’t conscious about. Some ideas are radical, some incremental, some innovative, some ingenious, some simple, some complex, some inventive, some derivative, some sequential and some inexplicable. Some turn into real things. Others are just fantasies. Some become prototypes and some, though far fewer, become viable products.

Attending the 36^th Annual Salons Internationale des Inventions in

Geneva

reminds me how small the box, I try to think outside of, really is. Being in the company of engineers, mechanics, grease monkeys, practical thinkers, fantasists, futurists, gear heads, wizards,geeks, nerds, zods and nudniks has brought on a full marketing gestalt reminding me of fundamentals that are too often taken for granted. And seeing these people vie or attention and ways to commercialize ideas reinforces my understanding of how ruthless and competitive the marketplace for products and ideas truly is.

As a species we are incapable of standing still. There always has to be a better way. Inventors can’t rest. They can’t except the status quo. They have to fix it, find it, create it, built it, fabricate it, re-route it, re-wire it and make something new.

A good idea is just a starting point. Many good ideas die alone in the dark unknown, unfound and unfunded. A million guys will smile, nod and offer compliments. But it takes at least one guy with a hunch, a belief, some gumption and a checkbook to make the leap from good idea to serious product.

As you might expect there are incredible new inventions in the fields of energy utilization, ecology, bio-tech, electro-magnetics, mechanics, optics and the usual areas for scientific or industrial experimentation and discovery.  And yet tucked into this cornucopia are people with same mindset and methodologies tinkering with practical and silly ideas.

Among the inventions that caught my attention were … the self-making bed, the ironing board-step ladder combination, t-shirts made from bamboo fibers, a vagina tightening device, superglue for dentures, an anti-snoring pillow, artificial nose hair, a tool for making more whipped cream in less space, an automatic music page turner, anti-stink socks, chess sets for the blind and beach towels with pockets.

As I made my way through the hundreds of exhibits, here’s a quick summary of the lessons these guys either taught me or put me back in touch with.

Experience is Everything. We are sentient creatures. How we feel determines what we want and what we do. The feelings are the drivers not the rational arguments or the features and benefits. Marketers have to communicate or stimulate feelings to move the needle. On the flip side marketers have an incredibly difficult task if the experience is negative.

Everything is Filtered. There are no pure, new, fresh or free experiences. Everything is filtered by language, culture, anatomy, experience, media and context. Every communications choice – words, color, image, music, tone, face etc – hits pre-set buttons which condition the response. The woman in the Muslim head scarf, the guy with the waxed moustache, the dwarf, the giant, the black guy with the big ears each fires feelings and impressions that each individual carries with them.

Before we start, some part of the audience has already made up their mind. As high-minded as we’d like to be, we all bring a huge bag of pre-judgments to every experience and every message. And while we know that the most potent messages are rooted in nuance and idioms, they simultaneously exclude audiences who can’t or don’t get it. And their meaning changes over time as the marketplace and the media contexts change.

People React in Predictable Ways. There’s no better barometer of human nature than watching random consumers react to something new. You can almost see the mental gears grinding as people sort, filter, file and associate the new thing against their stored databank of information and experiences. And yet the range of responses is finite and somewhat predictable.

Some are surprised. They bug out their eyes, blush or gasp. Other’s are more demure but instantly articulate a “yeah” or “nay” opinion. Few are bashful. Some instinctively point out the flaws the limitations or the potential downsides while others take on the inventors’ perspective and instantly riff on the new thing adding features, changes, colors, applications and functions or connecting it to other things they like or associate with it.

Understanding the spectrum of predictable reactions, marketers can anticipate the experiences of the new and shape both the initial presentations and the immediate secondary follow-up messages.

We Live in a

Tower

of

Babel

. As if transmitting messages and insuring physical or mechanical reception weren’t enough, when you attend a global meeting you experience synchronous use of many languages sometimes in orderly translation but more likely it bits, pieces and fragments punctuated by wild spikes in voice modulation, random gestures and comedic pantomime. When you suppress the feeling of incredible stupidity because you barely speak one language when everyone around you has 3, 4 or 5, you realize how hard it is to frame a single idea and communicate it to a room full of people who comes from different places, think differently, use words differently and hear differently.

The inherent difficulty of framing and transmitting commercial messages hits you in the face. There are no common definitions for words, no common understandings about what is funny, cool, sad or ironic. It increases the challenge of copywriting and even creative thinking by a full magnitude.

It’s All About Differentiation. What’s new, what’s different, what’s better and why should I care are the inventors’ and the marketers’ benchmarks. If it isn’t different or different enough it dies. Marketers must exert as much effort and creativity into positioning and framing the difference as inventors must in creating something different.

Pay-Per-Click Dayparting Didn't Work

In the evolving world of Pay-Per-Click many of us, especially those older than 35, try to adapt media tactics from traditional media to the business of adwords and clicks. Sometimes it works sometimes it doesn’t.

In the case of dayparting, a tactic for optimizing budgets by attacking an audience when they are actively engaged in a medium, the results are mixed according to my favorite PPC jockey “Silent Jeff” Petrosillo of Solid Cactus.

Our client has a well known brand name. Management has little or no understanding of PPC and even less cash to spend. By looking at e-Commerce buying patterns we determined that they did the vast majority of their online business from 11a till 8p Monday through Friday. We reasoned that if buyers were active in this midday day part so were prospects. So we concentrated our spend and limited the campaign to branded keywords in this smaller time frame.

Previously we were running a 24 hour schedule of branded keywords and achieving an ROI of 23:1 where our average cost per click was twenty cents. But our dayparting strategy depressed our results in two ways; our ROI dropped to 14:1 and our conversion rate dropped from 5.06% to 3.77%.

It seems that a constant exposure yields more total impressions and perhaps repeat impressions against active shoppers which boosts average conversion rates, while the more limited time window reduces our shots on goal. I still want to test time-sensitive offers but in the short run we’re returning to a longer rotation and better results.