Client Category – Global Travel – Agency Remuneration Benchmarking
Challenging Problem:
This global travel client was in the process of moving from a global strategy, executed independently in each of their markets, to a more centralised strategy and creative execution to be marginally adapted and implemented in each market. The issue was that the predicted economies of scale were not being identified.
Creative Solution:
TrinityP3 used the proposed scope of work for creative, digital and media across the 24 markets to calculate the required benchmark level of resources and the associated costs. This included the costs of the global co-ordination team and the results were compared to the various agency proposals. This was used as the basis for the market-by-market and agency by agency negotiation.
Process:
One of the challenges was that while one agency network had the majority of the markets, it was not exclusive. Also this agency network had been replaced by another unrelated agency as the global creative lead, which triggered the change in the structure.
The significant change in the global go-to-market strategy meant that many incumbent agencies faced a significant reduction in fees in-line with the significant reduction in requirements under the new arrangement. Not surprisingly, the larger the agency’s exposure to this reduction, the greater the reticence to facilitate this reduction.
The TrinityP3 scope of work benchmarking meant that we could assess the agency’s proposals by market, by project and by discipline. It was a simple matter undertaking a like-for-like comparison with the agency proposals and then to negotiate the agency positions to be aligned to the benchmarks.
One of the key requirements was to make sure the marketing teams in each market were aligned to the overall strategy as many of the agencies tried to undermine the process by manipulating the local markets with unfounded concerns over the outcomes.
Timeline:
The scope of work benchmarking took four weeks from the time the scope for each of the 24 markets was supplied. The negotiation took almost six weeks due to the resistance of some of the agencies to the process.
Result and feedback:
Ultimately the choice had to be made between driving the agency fee reduction to benchmark level or to implement the reduction by stages with a smaller reduction up front and then a further reduction at a later time.
It was decided that the size of the reduction by market and across regions was so significant, due to the changing requirements of the new go-to-market strategy, that it would be better to make one significant cut rather then two smaller cuts and thereby establish expectations for the new way of working up-front.
The financial bottom-line was that the agencies had delivered a less than 5% reduction globally, when the benchmarking had identified a 28% reduction globally. The outcome of the negotiation process was more than a 20% reduction in agency fees or a reduction of several million dollars, which more than financed the new central global agency appointment.
