Is there any difference between an Agency and a Marketing Supplier or Vendor?

A common question marketers ask us is, “How many agencies are ideal for a roster?”

The short answer is “as many as are needed to complete the range of tasks that need to be done and as few as possible.”

But an interesting observation is that in this process, most marketers believe they have only 2 or 3 agencies when, in some cases, we have gone on to identify ten or more times as many.

Even when confronted with the spend data from their organisational finance reports, some marketers will tell us they are just marketing suppliers or marketing vendors, not agencies.

So it raises the questions:

1. What is the difference between an agency and a marketing supplier or vendor in the mind of a marketer?
2. Why are agencies so important, while their suppliers or vendors are almost forgettable?
3. And why do they put so much importance on their agency arrangements and then undermine them by using these vendors and suppliers to erode their scope of work?

The history of the agency

While today, very few client-agency contracts define the relationship as a principal-agent, the terms agent and agency live on in creative agencies, media agencies, digital agencies, and the like. 

However, it is not applied to design companies, public relations companies and firms, or research companies.

However, the original agents and agencies were agents of the media owners. The media owners accredited the agencies to allow them to buy media on behalf of advertisers in return for meeting financial and professional standards that would guarantee payment to the media owners.

This initial agency agreement developed, and the agencies became agents of the advertisers, providing not just media but also the advertising that was to run in the media (known as Above the Line costs) and non-media-related advertising services (known as Below the Line costs).

Today, few, if any, arrangements are actually agents, but the importance of this relationship appears to live on. This is possible because with the agency comes a fiduciary duty to the principal to ensure complete transparency in financial transactions. This inherent concept of trust is implicit in the terms agency and agent. The question today should be, are your agencies still acting as agents?

Is it strategic or financial importance?

It could certainly be that the term ‘agency’ is reserved for suppliers who fulfil an important strategic role in the marketer’s roster. Or it could be because the marketing budget invested with these suppliers, especially media agencies, is significant, with 95% of the spend going to the media owners.

But we have observed enough exceptions to question this. A prime example is how data analytics and market research are usually exempted from any roster consideration, with marketers seeing this function as outside the agency distinction. Yet these skills could be considered particularly important for informing the marketing strategy.

Another exception is in areas such as sponsorship management and activation, which are also often excluded from the marketer’s consideration of roster size and composition. Yet, like the media agency, the total sponsorship spend for some corporate marketers is commensurate with or even exceeds the media spend.

Number of suppliers by spend per supplier

When we review the marketing spend of some of our larger advertisers, we often identify hundreds of suppliers. This is often a shock to many advertisers and marketers, either because they do not have a complete view of the roster or they mistakenly have an artificial filter on what constitutes their supplier roster.

Many of these forgotten suppliers in the marketing roster could often be considered negligible, undifferentiated agencies that provide various services such as creative, graphic design, studio, digital and website development. In each case, the spend with each supplier is relatively small, often between $10,000 and $50,000 in the past year. This is just about the total of a project or two or more, yet possibly small enough to be overlooked by finance and procurement.

The issue is that when you multiply these small spends across the large number of suppliers of this type, the totals quickly exceed millions of dollars in spend. It is clear from analysing the spend pattern, that these additional suppliers are undertaking work that would usually be placed with the main agencies on the roster. It effectively leaks from the main agency revenue into this plethora of small and forgotten suppliers.

Eroding spend from your core roster

This leakage of spend from the core roster to a multitude of smaller suppliers comes at a cost. Often, the additional suppliers are justified because they have lower rates. Still, the loss of scale and the extra cost of managing a growing roster means this is a false economy.

Just because a marketer does not account for a particular supplier or a category supplier in defining their roster does not mean that these suppliers do not come at a cost. The following aspects need to be considered:

1. While hourly rates may appear lower, new suppliers often charge additional hours to learn the brand and business.
2. The leakage away from the core agency could mean that the core agency continues to be paid the retainer but does not do the work.
3. Smaller suppliers often do not have agreements and contracts in place, so terms and conditions regarding liability and intellectual property are not covered, which poses a risk to the advertiser and their organisation.
4. Each supplier adds a cost to the company in establishing the supplier as a vendor and then managing payments.

Agencies are suppliers and vendors.

Marketers and advertisers need to ensure their roster of suppliers is structured and operating as efficiently as possible; otherwise, their budget will be leaking away.

One of the issues appears to be a lack of awareness of the actual roster size and composition. While there is awareness of the total marketing spend, this lack of insight into the multiple suppliers within the roster means that the leakage often goes unseen.

We recently assisted a client who reduced their roster by more than 70%, simplified the management of their suppliers, and, in the process, delivered almost a million dollars in savings in their marketing spend.

The problem appears to be that this focus is on the core agencies, often referred to by the agency and client alike as their partners.  A better approach is to think of all your agencies, vendors or even ‘partners’ as suppliers and all part of your roster. This ensures you take a holistic view of the roster and see all of the opportunities.

So, we have two questions for you: “How many agencies and suppliers are on your roster?” and “How much is that costing you?” If you don’t know, perhaps it is time to find out.

TrinityP3’s Roster Alignment service helps you to untangle your supplier roster, understand its strengths and weaknesses, and develop an optimal structure to improve your performance.