Seven Strategies For Successful Agency Hook-Ups

June 3, 2008

Pharmaceutical Executive

Volume 0, Issue 0

Do you really know who you are hiring? Agency Insider Mark Chataway spills the beans on why the pitch doesn't work, and what you need to do before signing on

People are always saying the agency–client relationship is like a marriage, but really what it's like is an arranged marriage.

Consider: When I lived in New York, I had a close friend who had grown up in an orthodox Sephardic Jewish family. David would often say he was convinced that the arranged marriages of his parents' generation worked much better than all the dating, breaking up, and agonizing of modern, romantic relationships. Back then, the parents from both sides talked endlessly about possibly compatible couples. When they thought they had found one, they would introduce them. After a few chaperoned sessions of tea drinking, the young people were expected to commit to one another or to reject one another. And if they committed, they had to make it work.

If you think arranged marriages could do with a little more mystery, you'll love conventional agency pitches where you send out a request for proposals and wait for some agency to come back with that Eureka idea.

Picking the one

Use recommendations and introductions from people you trust, by all means, but chances are that you will end up pulling a few names from some directory or from the purchasing department's roster of suitable agencies. Here you are then, meeting over coffee. Are you going to tell these strangers everything they need to know about your business, your priorities, your constraints, and your competitors? Are you going to mention the suspected weight-gain problem in the unpublished Phase III? The CEO's fondness for publicity stunts? The marketing director's predilection for releasing money in October that has to be spent by the 15th of December? What about your colleague who left after Italian authorities found out that he had bought a villa for the head of the patient association?

If you don't tell them the whole truth, expect lots of good but useless ideas to come back. You will have an agency that explains, very sensibly, that you don't need a media campaign or eye-catching events, that most patients in this category can be targeted efficiently through a joint electronic outreach with patient associations.

They will then spend a couple of hours setting out the details of their campaign, including a reward of a monthly box of chocolates for everyone who remains in the compliance program.

If you do tell them the whole truth, expect the rest of the market to know within a few months. Agencies take confidentiality agreements very seriously, but many agencies have 40 percent staff turnover each year, so the eager young account executive who pitched unsuccessfully for your business finds herself pitching to your main competitor in a few weeks time as part of her next job.

It would be almost irresistible to point out to them that they might have a major advantage if they focused on the dangers of weight gain. In the unlikely event that you discover how your competitors got a preview of the unpublished data, are you going to track her down and sue her?

Besides the problems with confidentiality, do you really have the time to sit and brief five teams on everything they need to know about your product and your market? It took you months to figure it out; do you think you're so dim that a team of strangers will be able to do it in a couple of hours?

Working it out

Like an arranged marriage, you'll get to meet the family before you commit to an agency contract. Unlike an arranged marriage, you may not find out who you're marrying until some time into the honeymoon.

This seems dishonest, but actually it is a result of what purchasing departments have done to agency economics. The rule of thumb is that each front-line agency employee has to earn 3.5 times their salary for a public relations or communications agency to make an overall profit of 10 to 15 percent. (For ad agencies, the sums are different but the rules are similar).

Whether you see it or not, every six-minute increment of the employees' days will be recorded on a time sheet somewhere. If you are not billed directly for the time, your retainer will be set and adjusted based on how much of each employee's time is allocated to you.

It comes down to money

The problem with the agency model is that agencies cannot make a profit off senior people. A good, but not stellar, vice president is probably earning about $250,000 a year. Do the math: if this medium bright star is willing to forsake family, leisure, and any other interest, he might manage to do 30 billable hours a week—he cannot charge clients for the time he spends on replacing the low-paid staff who keep leaving; fixing stuff that some college leaver has just screwed up; scheming to get his boss's job or, of course, new business. To make a profit, the agency needs to charge that time at about $550 an hour. His boss needs to be charged at $1,000 an hour if she is to justify her salary, and most importantly, get her bonus. In a well-run agency, someone will have tracked how many hours and how much cash it cost to win your business, and that will have to be paid back over the first year, on top of the expected profit. In a badly run agency, someone will be getting a new- business bonus that comes from the same source.

Most clients in the United States cap billing rates at about $300 an hour. In the old days, the difference could be made up through ad agency commissions (media owners paying 15 percent of the cost of space back to the agency), through mark-ups of out-of-pocket expenses, or through generous retainers.

As the client, your company now employs a purchasing department to make sure that none of these things get slipped into the contract. The only way for agencies to make up the difference is by rationing access to loss-leader senior time and by selling lots of highly profitable junior time. A new account executive might be on $65,000 a year. He has no management responsibilities (and isn't allowed a life) so he might bill 45 hours a week. He becomes profitable if he is billed at $100 an hour. If every hour is rebilled at $150, that means almost $50 an hour in extra profit for the agency. The agency wants lots of those hours.

Is who you see who you get?

At the pitch, you may try to find out "Who will actually be working on my business?" The head of the account group will assure you of her lifelong interest in irritable bowel syndrome. The account director will tell you that—by amazing coincidence—the product he has been working on has just gone off patent so he is ready to commit heart, mind, and colon. The creative director, sipping a prebiotic yogurt drink, will tell you that he has always wanted to work on IBS.

Even if all that is true, economics mean you will usually get to talk to the young man in the back who is inspecting your display cabinet of acne gels. So long as you enjoy working with enthusiastic young people who are willing to learn, you're in luck.

A better way?

If, after all this, you decide this no longer is a suitable, or workable, model for the 21st century, then here are seven strategies that will work well:

1 Pick an agency that knows your business. You probably do not have time to train a team in your therapeutic area: If you are working in cardiovascular disease, you will have a wide choice; if you are working in pediatric vaccines, you will struggle to find three teams to pick between (once you have ruled out those working on directly competing projects). Get the agencies you are considering to tell you what they know. Only the most pathetically inadequate will send you a bad set of case studies or an irrelevant set of bios.

Instead, ask for a couple of hours to meet (or talk on the phone if you want to be really considerate of their time). Tell them not to prepare anything formal, but to be ready to talk about the big issues in the field. Say you're not expecting answers, but an appreciation of the problems and opportunities and some idea of the processes that they will use to think them through. Tell them that you will run the discussion, and that everybody who is invited to the discussion from their side will be expected to contribute. If you're not comfortable doing this, enlist a colleague who is (most senior people in medical affairs love chairing discussions).

Then make sure you listen. They'll try to get you to talk, because many of them will think that their job is to tell you what you want to hear. Play the strong, contemplative type—at least for a couple of hours. Ask open-ended questions and explore their ideas, but don't tell them what you are thinking. (You will need to do this separately with each group that you are interested in—no one will discuss their real insights in front of the competition). You'll see who really understands the area. You won't yet know whether the people who impress you will actually do the work for you, but usually you'll know who you want to work with.

2 Pick an agency with the right skills. If you want to convince dermatologists to stick with proven treatments, you need one mindset; if you want to mobilize patient groups to participate in hunger strikes, you need another. If you can, find an agency that knows the therapeutic area and has the right skills. If not, it is easier to pick up a new set of category learning than to develop new skills. You might not feel qualified to judge, for example, how good an agency is at patient group relations, but approach it with the same method: listen, question, play stupid if you need to, and decide how much they really know.

3 Hire them all. If you have time, do what a client did to me years ago: She awarded three small projects to different agencies, and said that she would review things in six months. She did not commit to consolidating but, in the end, she did. Six months was long enough for the two big agencies to assign their usual team of bright adolescents—the client later told me that the final straw with one had come when an earnest young man told her, very confidently, that it would cost a lot to "translate into Indian." Because the contracts were not explicitly linked to a big future opportunity, they slipped under the new-business radar systems at the agencies, and she got to see what working together would really be like. One of her tests was how well the agencies worked together—she figured that those who focused on blaming a competitor would probably blame her or her colleagues for future problems, while those who found the solutions to collaboration problems would behave the same way when they had all the business. This gives you the freedom to try smaller, newer agencies that seem good but don't have a track record in delivering.

4 Use the German model. If you don't have time to follow the dating model I've suggested above, give each shortlisted agency a small, well-defined task and pay them a reasonable amount to propose a framework for handling it. Tell them that you may or may not assign more work to any team that impresses you. You will then own the answers and can use them as you see fit. Again, you will short-circuit most agency new-business systems—this will be treated as a paid project and you will get the teams that real clients get. For example, you might ask for three innovative ways of activating men with IBS who are willing to talk to a doctor. Ask for them to be explained in detail and cost, but say that you will not decide between agencies based on the quality of the creative materials; good creative thinking takes lots of trial and error. Nor will you expect them to approach third parties on your behalf. You will get a flavor of working with each. Call the most junior person listed as working on the project to discuss the ideas soon after you get them—do it without warning. ("I just wondered if you had a minute to clear up a few questions?") Then schedule a proper team discussion.

5 Try them out for access. While the agency is in new- business mode, they will do all they can to give you access to senior people. If you have trouble getting through now, expect big trouble later. (You should be a bit more tolerant with staff who explain to you why they were difficult to reach, and if the explanation involves prioritizing existing clients.)

6 Use a consultancy contract, not an agency one. Award an agency (or several) a job, not a marriage. Their job is not, for example, to do anything you might ever need on IBS; rather, it is to help you to grow the market, reaching a target of 20 percent of patients getting physician consultations within 18 months, with a budget of up to $2 million. You might award the same agency several different tasks, but be clear that each will be evaluated separately.

In general, you want to pay more for senior staff, less for junior staff, and almost nothing for overhead. Our consultancy has a model where we can make money selling the time of very senior consultants for about $600 an hour. We make this affordable to clients by not giving lots of work to junior staff who have to figure it out on the job—it costs less to pay for three hours at $600 than 20 hours at $150. Many of the things that junior agency staff know how to do (bulk e-mailing, for example) can be done more cheaply and more efficiently by administrative staff or contractors. In an age of virtual teams, agencies do not need slick offices in big cities; if they still have them, you're footing the bill—the more opulent the meeting room, the less senior staff time you will get.

Review progress on each contract at a meeting every quarter—follow it with a quick e-mail restating what you are happy with and what you're not. The former will motivate the team; the latter will help them get better. If one task is going wrong, assign it to someone else. When you need to change the task, change the agreement. This does not need to be a big legal amendment, just an e-mail setting out which of your expectations have changed and what the implications are for the budget, including due dates, deliverables, etc. (Or get them to confirm these changes back to you.) If you want their blue sky thinking, add a contract line for "ad hoc counsel." Make sure that you get monthly reports on how far they have progressed toward their targets, and how much they've spent.

7 Name the team in the agreement. Set out which individual will do what sorts of work—the young man with acne will probably do a very good job on meeting reports, but you want the superstar for your ad hoc counsel budget line. Be clear about who your day-to-day contact will be. Spend time with him or her one-on-one before you agree to the contact. It's not a guarantee about who will actually do the work, but it does make clear the expectations. When a significant person leaves, retain the right to end the contract within a reasonable notice period. This will enrage the agency, but is a perfectly fair request—the chances are you hired one or two people who wowed you, not some long-retired founder's vision.

Most of all, remember my friend David's key point: If we make a decision to treat one another with respect and honesty, all sorts of unlikely alliances will work beautifully.

Mark Chataway is co-chairman of Baird's Communication Management Consultants. He can be reached at mark.chataway@bairdscmc.com