Agency Turnover in Search Marketing
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Written By Reprise Media | May 25, 2005 | Share This
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Reprise Media’s Director of Strategic Development Randy Schwartz takes a closer look at the factors behind SEM/client churn.
Gary Stein wrote a posting last week titled SEM Agencies: Prepare to Play Musical Clients.
In it, he offers some alarming statistics from recent Jupiter Research surveys.
Here are 3 of them:
- A little over half (51%) of advertisers who have used an agency have used only one.
- 57% of client/agency relationships in search are less than a year old.
- The top two reasons for terminating a relationship with an agency are: 1. The agency wasn’t proactive enough, and 2. The agency was too expensive (roughly 30% for each answer).
These stats speak of the exorbitant rate of turnover between clients and SEMs, and very well might suggest fragile relations and a highly tentative future between the two. His interpretation of the surveys also suggests that churn is imminent and possibly inevitable, based on a variety of factors including the increase in average click costs and client scrutiny of agency work and subsequent valuation of those services.
Now any SEM worth its salt can find ways to combat rising inflation (bid management tactics, campaign expansion, new types of PPC-based channels, etc.). And despite some very public reports of widespread CPC inflation, each SEM retains the ability to put those stats in context, and by doing so, control the way their services are perceived and valued by the client.
Right?
Wrong. There’s a confluence of factors that have led to Gary’s phenomenon of “musical clients”. A great deal of them have to do with the way the search industry was established and has grown in the shadow of traditional media and agency relationships.
Here are a few of these factors explained:
1. Search marketing is a very new field
This sounds obvious, but speaks volumes about the client-agency experience. With a majority of search relations existing for less than a year, the half-life of agency relations can undeniably be attributed to the fact that search barely exploded 18-24 months ago. It’ll take some time for clients to understand the complexity of search markets and the reliability and control that they provide and make decisions accordingly. Previously an agency may have selected the firm with the lowest pay-scale, the shop that showed the greatest interest in the pitch-stage (by leading with only senior management), or simply outsourcing their SEM services by incumbency.
2. Traditional agencies come from a completely different paradigm
Traditional agencies often win SEM contracts through their incumbency. Sometimes they pitch and win it just like the rest of us. However, what’s typically a tremendous competitive advantage - aggregated media buying power - no longer applies. They can’t offer clients bulk discounts or savvy negotiations, and are left to manage a campaign using a completely different skill-set than which they’re accustomed. comScore data that suggests that Google users have researched mortgage rates in the last 9 months hardly suggests the keyword targets or creative that will put an SEM client in touch with their audience and set the stage for conversion.
Beyond the media planning paradigm, traditional agencies hit a critical block financially when they take on SEM campaigns. Because their agency commissions are based on multi-million dollar broadcast budgets, they quickly find that SEM requires more attention than the commission justifies, and wind up with a losing hand. Lacking automated systems, the bulk of the grunt work is done manually. From a straight fiscal perspective, the work simply isn’t worth the pay-out. Unless a traditional agency is structured to handle SEM, a media director in charge of their P&L will inevitably shift resources where they’ll be more profitable.
Occasionally traditional agencies come to outsource their SEM campaigns to specialty shops, but don’t offer client-direct access, which greatly inhibits the SEM to build a proper campaign that can be managed on terms beyond simple metrics. Additionally, because they’re contracted at certain percentage of spend rates, they’re forced to run an agency review for an SEM that will accept even leaner commissions, lest they lose money on their own contract.
3. Interactive agencies share the paradigm, but impose different standards
All the top interactive agencies are attempting to build out or acquire SEM teams, which makes sense. Interactive agencies carry the skill-sets necessary to manage search campaigns profitably, with their abilities to track and optimize campaigns in real-time. Unfortunately, we’ve found that interactive agencies often hold their search campaigns to different standards than the client. When transparency is not being provided, interactive shops may view search as just another means of sourced traffic and manage all online channels (from banners to search to email) on a portfolio basis. In this case they may skew their services towards far more scalable banner and rich media campaigns. As with the traditional agencies, who also work off agency commissions, daily bid management often proves too much work for such a small commission of spend.
4. There are many types of SEMs
Sometimes even clients that contract SEMs directly find themselves with an inappropriate solution. There are many types of SEMs, from Efficient Frontier to Performics, iCrossing to Did-It. These are 4 different firms that occupy four very different aspects of the emerging field of search marketing. EFrontier offers a largely automated solution inappropriate for clients looking for extensive hand-holding and transparency or causality of success. Performics structures services on a CPA or hybrid model, and consequentially won’t guarantee any set volume of leads or balance between SEM and affiliate marketing. iCrossing specializes in search engine optimization, whereas Did-It is more of a manager of paid listings. And while they’re all search marketers with a focus, they each carry crossover appeal and will weigh the value of any given contract or client demand.
The frenzy of competition within this booming market has exploited a weakness within the field, in that SEMs have positioned themselves to be all things to all clients. This point speaks to a lack of client education and a issues of salesmanship. As such, competing SEMs haven’t had a chance to create many unique position points. Clients, on the other hand, aren’t necessarily looking to understand these finer points. Many clients view search marketing as a commodity and respond to price over service or track record.
5. There’s a lack of transparency on both sides
Typically a client wants to protect their data, and in the interest of privacy, withholds resources (even if they might better inform the search campaign). Such resources may include traffic and referral logs, composite sales and product data, past campaign experience and reports. Sometimes this reluctance to open up to a new SEM comes from a need to protect themselves. Relationships are relationships, and every time a client moves from one agency to another, the bitterness grows. You see a client approach the new SEM hardened. Looking to be impressed, the client will ask the agency to conceive a better campaign through sheer skill and intuition alone. That new SEM gets shortchanged from the start because they’re being asked leading questions, to which the client already knows the answer. Coming from a similar place, clients often assign benchmarks without explanation, and the SEM comes to sense there might be a better metric to suggest more appropriate benchmarks. But they lack that collaborative relationship to openly explore such a dialogue.
One further, clients don’t necessarily understand how SEM is a constant uphill battle requiring daily attention and optimization. Some may question why an SEM should make the same money in Month 4 as they did in Month 1, which might lead them to cut back on commissions, with the SEM seeing their profits dry up. Additionally, past successes may tempt the client to raise the bar. More aggressive goals inevitably lead to lower volume, which leaves the SEM feeling conflicted and set-up for failure.
There can be a lack of transparency coming from the SEM as well. Search marketing is this ever-elusive segment of online and Google’s stock keeps increasing in value. There’s a lot of hype coming from the space and clients want to see what it’s all about, from every possible angle. But problem is, markets move so fast that agencies might be ill-equipped to provide that kind of granularity on a daily basis. Bid management technologies, for example, seldom keep a log of all the different CPCs you’ve paid at all the different positions you’ve held for a given keyword throughout the day…So there’s a question of what exactly these clients expect to see, how much data is enough to make them feel like they’re openly invited to the party.
This doesn’t work for SEMs because agencies don’t want to focus on keywords and bid prices and all the granular stuff. That’s not how you make strides. Many SEMs focus on the broad strokes - that’s often where the value lies. On the other hand, in a much simpler sense, SEMs are reluctant to offer the secret sauce. Having built an SEM, we are not worried that a client is going to learn everything they need to know by shadowing us on their particular campaign, and then taking that knowledge in-house to manage the campaign equally well. There’s too much going into these campaigns, from the cross-vertical insight to the ever-changing technologies that may or may not affect the way an SEM provides their solution. But nobody wants to risk a brain-suck and it becomes not only inefficient, but counterproductive to document every last detail that’ll give the client a true understanding for the market complexities.
Gary’s blog states that as average click costs increase, “clients will scrutinize their agency’s work and consider whether they’re getting the best performance at the best value”. Ultimately, there have to be causes for this turnover beyond simple notions of market inflation and cost-savings. A recent SEMPO report shows that on average, advertisers said they could afford prices increases of 33%, which certainly nullifies the 10-15% cost savings clients can claim in firing their SEM.
Instead of offering excuses for the client’s doubt or dissatisfaction, SEMs need to strive to provide solutions. Especially if they’re to stay competitive as traditional and interactive agencies build their own search solutions in-house, and search becomes graphical and thus more brand-based. Those solutions may start with the sales team, to better prospect clients. Not every client’s going to work out, and there are definitely agency partners that have exposed gaps in perspective and philosophy that SEMs and contractors simply can’t overcome.
But beyond prospecting the clients, SEMs need to understand their client’s prior experience and agency solutions. They need to understand whether those solutions were provided in-house, by a competitor, an interactive/traditional agency, or by the engines themselves. History no doubt shapes the client’s perception of what’s possible within the field of SEM, and what their business is worth. SEMs need to understand how their partners view or value search marketing, to what standards they’re being held, and ideally how those benchmarks are derived.
Finally, to best manage expectations, SEMs should look to traditional agencies to revamp their style of account management. Just because your revenues stem from media commissions doesn’t mean the relationship won’t live or breathe with your client management. The issues outlined above mainly speak to conflicts of communication.
Bottom line, SEMs can better manage clients by providing more specific strategies and frameworks that show the client how campaigns are built, how decisions are made, and ultimately over what timeframes increasingly positive results can be achieved.
Topics: SEM: Firms |