Smaller agencies filling gaps of declining AOR model

Smaller agencies filling gaps of declining AOR model
Colm is the editor of MarketingTech, with a mission to bring the most important developments in technology to both businesses and consumers.

Business leaders at large multinational companies that work with marketing firms are still mostly relying on Agencies of Record (AOR). A new survey carried out by the Economist Intelligence unit for Globality asked 307 multinational business leaders with annual turnovers of £1bn, finds that 58% currently use an AOR.

But, as many companies face pressure to create more value from their marketing strategies, many are beginning to move away from large agencies and towards smaller specialists. 66% of those surveyed expected to use a small or medium agency in the next 12 months instead of their AOR. 34% said that they will work with individual consultants.

The survey also highlighted the increasing trend towards skillset specialisation. 78% of those surveyed said that they believe specialised expertise to be more valuable to their businesses than agencies who offer a broader, but shallower, range of offerings.

56% reported cost as they biggest challenge when working with external agencies, compared to 45% for management consultants and 48% for legal services. Currently, 74% said that they spend a quarter or less of annual budgets on smaller companies with less than 500 employees, meaning that large scale AORs are still eating up most of the spending.

Creating value

The goal of lowering costs is the main factor leading big businesses to hiring an SME external professional service provider instead of a larger one, with 49% listing this as the main reason. 39% said that they believed the process of sourcing and vetting smaller providers is also often simpler.

In particular, business leaders are having trouble accurately evaluating agency capabilities (34%), negotiating contracts (28%) and sourcing the right expertise (25%).

“The old AOR model is being challenged,” Yuval Atsmon, SVP of Advisory Services at Globality said.

“That’s not to say that these Agencies of Record are not important, many business leaders continue to use one, but smaller agencies are taking on a bigger piece of the pie. Given that costs are the single biggest challenge cited by business leaders when working with external providers, there is potential for savvy boutique agencies to offer better value for money and more bespoke services. However, sourcing, vetting and evaluating agency capabilities continues to be a challenge when hiring new providers. Executives need easier ways to source and vet agencies and technology such as artificial intelligence matching is one way they can do that.”

Monika Schulze, global head of marketing at Zurich Insurance added:

“[Working with an AOR] only makes sense if you have a certain amount of budget, creative and media in order to have a return on investment on the fees you need to pay.”

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