Advertiser Perceptions of Fair Compensation, Confidentiality and Rapport: The Influence of Advertising Agency Cooperativeness and Diligence

Advertising agencies have witnessed a steady erosion of their share of their client’s marketing budgets over the past twenty years. In shifting their budgets away from advertising agencies, clients are indicating that full service agencies cost too much for the market impact they deliver. This paper explores how advertising agencies can use client service to strength agency-client relationships. Specifically, this study shows how advertising agencies can improve client perceptions of fair agency compensation, agency confidentiality and rapport by behaving cooperatively and attending diligently to problems that arise within their relationships. Alarmingly, when the client observations of agency service were compared to the perceptions of their advertising agency, rather large discrepancies were found. The risk seems to be that, while there are numerous ways agencies can improve their relationships, many agencies may incorrectly believe that they are already doing a superb job. Introduction Several trends have disturbed the once cozy relationship between advertising agencies and their clients. One trend is the movement by advertisers to give increasingly larger assignments to media independents, direct mail shops and promotional specialists (e.g., Michell, 1988). A common response by advertising agencies has been to emphasize creative accomplishments, to offer a full range of services and to introduce new services. Even so, advertising agencies are still experiencing a major decline the share of their client’s marketing budgets they receive. Marketing budgets, themselves, have declined as slow market growth, fierce competition and strong skepticism of marketing expenses has prevailed (Business Week, 1995). As a result, advertising agencies find it difIicult to build lasting rapport with clients and face demands for less compensation for which they must be more “accountable”. Recent demands by Bayer and Colgate for performance-based compensation illustrate the seriousness of “pay for performance” initiatives (Advertising Age, 1995a, 1995b). The “age of interactivity” is another dangerous trend, if advertising agencies do not take notice of their clients wishes (e.g., Artzt, 1994). Study Objectives Although macro-factors, such as the business environment, mergers, organizational size and product category, can have a dramatic effect on agency-client relationships (Michell, 1988; Michell and Sanders, 1995) these factors are usually beyond the control of advertising agency executives. In contrast, an agency’s service behaviors can be directed by agency executives. The current study questions whether advertising agencies’ poor standing with advertisers may be attributed to agency service behaviors, as a step toward developing stronger and mutually rewarding agency-client relationships. Specifically, this paper reports on how client perceptions of fair agency compensation, rapport and agency confidentiality in on-going relationships are influenced by two key agency service behaviors: cooperativeness and diligence. The clients’ perception of agency behaviors is then compared to their advertising agencies’ perceptions to determine how well the agencies’ understand their clients’ view of the agencies’ services. Finally, the results are discussed to support recommendations for how advertising agencies can use client service behaviors to strengthen agencyclient relationships. Prior Studies of Advertising Agency Client Relationships The dissolution or weakening of an advertising agency client relationship represents a serious and costly problem for both the agency and the client (Doyle, Corstjens and Michell 1980; Henke, 1995; Warner, 1992). To reduce the incidence of such relationship terminations, authors have proposed improving the agency selection process (e.g., Cagley and Roberts, 1984) charting the determinants of client loyalty (Michell and Sanders, 1995) and understanding the development and maintenance of these relationships (Henke, 1995; Verbeke, 1989; Wackman, Salmon and Salmon, 1986). To this end, researchers have asked agencies and clients numerous questions to identify the key variables that influence agency selection and client satisfaction. Several studies factor analyzed these variables to identify a smaller set of general factors that underlie productive agency-client relationships (e.g., Cagley, 1986; Verbeke, 1989). This approach helps identify the underlying dimensions, but assumes the dimensions are related to client loyalty and not to each other. The questions associated with the general factors identified in prior research range from accounts of agency behaviors (e.g., agency reacts quickly) to client beliefs (e.g., agency compensation is fair) and client confidence (e.g., we are willing to trust our agency). Unlike prior studies that have mixed client perceptions of agency capabilities, behaviors and client sentiments by using factor analysis for data reduction, this paper examines whether these factors can be represented by a structural model. This model proposes interrelationships between factors in addition to examining