Opinion: Perspective - Why ad agencies should fight for their IP rights

There's a quote from Johnny Hornby in our feature this week, which some agencies would do well to take on board. "We're not in a client service business," Johnny says, "we've got fantastic creative people."

I hope that by creative he means staff from outside the creative department as well as those in it, because now more than ever, agencies need to acknowledge that all departments can be, and should be expected to be, creative. Either way, he's right: ad agencies don't exist to provide good client service; they exist to provide brand-building creative ideas.

But it's something that the 21st-century agency business model allows to slip out of focus. Great client servicing is a crucial agency hygiene and helps ensure strong, hopefully long-lasting, relationships with clients. But nothing ensures a great client relationship like great creative ideas that shift product and enhance brand value. Obvious, really. And no matter how good your client service, it isn't going to make a tangible contribution to the agency bottom line either; creating big ideas that agencies can share in the profits from should.

Except that agencies haven't been very good at making their big ideas pay. As the feature on intellectual property on page 24 explores, agencies give away their big ideas in return for fees that have historically borne little relation to the contribution that the big idea makes to the client's business. It's always been so, give or take a new remuneration system or two. Since the virtual collapse of the commission system in the late 90s, the industry has struggled to find a comparable replacement and most agencies now look for a remuneration mix of fee and performance-related pay.

Both these options have in-built problems: PBR is complicated to institute and agencies can end up being penalised for a sales slump that has, say, more to do with the weather or a competitor's pricing than the performance of the advertising strategy. The fee system is difficult to administer, has no relation to performance and is hard to increase each year once a rate has been set.

But the real issue is that neither of these payment systems have really managed to place a lasting, tangible value on an agency's creative ideas, on the intellectual property it develops on its clients' behalf. Of course, it doesn't help that many agencies have by and large failed to develop their client relationships at boardroom level: only 14 per cent of FTSE 100 companies have marketing directors on their boards.

So what's the solution? The emerging trend for agencies to develop their own brands is one way of establishing a new IP-led revenue model and legitimising the issue of IP ownership. Demonstrating inarguably how agencies can build their own brands will have the knock-on effect of raising the value of the brand-building ideas they create for their clients.

At a time when agencies are too often seen simply as the suppliers of a commodity that can be haggled for, rather than business partners who have a stake in growing their clients' stock, claiming ownership of IP could be one way of raising advertising's status.

The AAR's New Business survey always makes for fascinating reading and the tally for 2006 is no exception. Who'd have thought that the relatively low-key Leo Burnett would have had the most new-business opportunities, way ahead of voracious CHI and Beattie McGuinness Bungay. Or that the minnow Karmarama would prove so attractive to clients with an open field of agencies to choose from.

But perhaps the accolade for smartest new-business strategy must go jointly to M&C Saatchi and VCCP, who top the table for most new-business wins without a competitive pitch.

With agencies spending hundreds of thousands of pounds on pitching each year (in terms of time and money), this is one new-business model that deserves to be applauded.


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