Do agencies work with clients like genuine partners that invest in useful outputs and creative thinking to help brands and businesses grow? Or are they more like lawyers and accountants: a necessary contract resource? Erin McKenzie looks at IP partnerships, and how agencies and clients are sharing the load for better results and rewards. Part one of two.
Take a look around ad land and it’s a zig-zag of paths. There is not one path to rule them all when it comes to agency models, and no best course of action for clients to take.
Everyone has their own yellow brick road to deliver viable, sustainable, useful and intelligent models.
For Sugar & Partners, its road foundations were laid about nine years ago, when it began exploring intellectual property in IP partnerships.
In no way was it a unique model in ad land, and managing partner Jeremy Johnston says there are a few different structures around the world
at the time and people were making interesting inroads into how it could work.
“I think the reason for it is just getting back to that really fundamental point of difference and value proposition that creative people and agencies have: creative business thinking.
“If you think about it in that way, it strips away all of the silos and sectional thinking — we are not here to deliver a creative department, we are not here to deliver ads, we are not here to deliver digital or retail or anything like that. We are here to bring useful, creative perspectives to business problems and opportunities.”
How it began
While Sugar & Partners made IP a central part of its structure in 2009, Johnston’s journey in IP partnerships began with Fatso, an online-based subscription service that mailed DVDs and video games around New Zealand.
He entered into a sweat equity partnership with the company’s CEO and co-founder, Rob Berman, and created the brand identity and launch campaign.
Given Fatso was a start-up, in lieu of payment Johnston took a small equity stake in the business.
“It really opened our eyes up to the opportunities and the viability of that model,” Johnston says.
For Berman, entering into a sweat equity was the right solution for Fatso. While he’s worked with “great agencies” in the past, he says the traditional model doesn’t work like it used to — particularly for a business at Fatso’s stage of growth.
“We don’t have buckets of cash up front. I don’t want to be paying for inputs (hours), what does that mean to me? I need to be paying for specific outputs that contribute directly to ROI,” Berman says.
“It’s a game changer to have an agency partner that’s willing to invest in and care about the business as much as we do.”
And while he points out it’s not quite as easy to set up, saying you need to have an open mind and be willing to share some upside, it’s not far from other business relationships that have results-driven components to them. “I think it’s the way of the future – and a healthy dynamic to test with your agency. Even if the day-to-day business is still based on the old-school model," Berman says.
“What are you going to an agency for? Creative business ideas right? So all we’re talking about is trying to value and pay for the creative business ideas that actually make the biggest difference. If you stay focussed on that goal, you’ll find a way to make it work.”
Because it’s so viable, Sugar & Partners has set itself a goal of making IP partnerships revenue at least 25 percent of the agency’s total revenue — which makes it an important plank in the agency’s structure.
One partner it’s working with today is Wondermins, which has seen Johnston and Berman team up once again. Berman is the CEO of Wondermins and Johnston is the chief marketing officer.
Wondermins is a direct-to-consumer vitamins business. It uses AI prescription engine technology to understand consumer health goals, provide an evidence-based recommendation and deliver direct personalised, daily packs of high-quality nutrients.
The business concept was initiated, built and launched by Sugar & Partners. It’s just one of a number of forms IP partnerships can take, Johnston says. On its website, his agency promotes its involvement in IP Partnerships with a number of different options, from full-service, an out-sourced marcomms function remunerated via sales commissions, simple one-off licensing relationships, to JVs and sweat equity partnerships.
Talking to Johnston about what it’s willing to enter in to, he gives another example of working within an “IP commission structure” with a client in a way he says is a relative to the traditional media commission service. The time to develop the concept was free of charge and in lieu of paying for the service, a commission was placed on all venues at which the idea was exposed to market.
“If the concepts were successful in market they would be used more. The media commission was a really good indicator of how successful an IP concept was.”
He adds this model had a bonus for clients in that they could brief in more ads because the money was being spent on getting ads in front of people not getting ads made. For the client, this meant being more active in the market.
But not all clients use media. In some cases, the goal is to increase unique viewers so a dollar value can be given to each unique viewer as the form of remunerating the agency.
Similarly, in cases where the project is more of a product development, the agency can be paid a percentage of the sales prices or a dollar value can be given to each transaction.
It may sound straight forward from that explanation, however, Scott Weatherley, managing director of Blackfoot, says it’s difficult to measure an agency based on sales themselves because there are more components that go into a sale than the campaign itself.
“You could run the best campaign in the world for a retailer but if the sales staff are useless then you simply don’t get the sales.”
Looking at IP partnerships, while Blackfoot agency doesn’t have any relationships of that kind, Weatherley is not averse to them. However, he does say if an agency was to enter an IP partnership, there would have to be a great deal of trust and therefore it may be better to do it with an existing client.
And that’s not to say Blackfoot doesn’t have trusting relationships with its clients. In fact, Weatherley says its team feels ownership of their clients’ brands.
“It’s something we feel a part of and we are invested in and I think our clients would see us like that.”
He says there’s transparency in the way the agency operates, from sitting down and having a very frank conversation about what is possible and then being honest when things aren’t working.
“Ideally, you are going to achieve or better what you are saying to the client but you have to be open to is being fluid,” Weatherley says.
“I think you can get yourself into a real trap if you are trying to convince a client that it’s something you can do and you’re over-promising that. From our side, we try to be very straight up and honest with people.”