How Loss Aversion Prevents Agencies From Getting Credit For Their Successes

jayfriedmannewData-Driven Thinking” is written by members of the media community and contains fresh ideas on the digital revolution in media.

Today’s column is written by Jay Friedman, chief operating officer at Goodway Group.

Imagine you have $50. I tell you that I’m going to flip a coin, and if you guess the flip correctly, I’ll give you $50 more. If you guess it wrong, you have to give me $50.

This experiment has been performed many times, and overwhelmingly people choose not to participate to avoid losing their money. Although you have an equal chance of winning and losing, our desire to avoid losses makes most of us decline the offer.

The same thing is happening in client conference rooms everywhere, and it’s hurting agencies’ ability to take credit for their own success.

The scene I’m referring to is the quarterly agency digital recommendation put forth to their clients. After months of getting pitched by 100-plus ad tech vendors, the agency finalizes its recommendations for the next quarter and brings that to the client. The agency chooses a list of partners and includes their logos on PowerPoint presentation slides.

It’s explained to the client that this set of partners is the most likely to help the client execute a successful digital campaign. It’s almost always noted whether a partner is continuing the plan from last quarter due to posting successful metrics or if the partner is an addition or replacement, explaining why this new partner seems likely to succeed.

This ritual offers an interesting insight into agency psychology and is one of the most damaging things an agency can do to itself. I believe there are three possible reasons the agency puts so much focus on its partners and getting their logos into the presentation.

The first is the glamour an ad tech company may have from raising tens or hundreds of millions of dollars of funding. The rationale: “If the smartest, richest people in the world think enough of these people to give them all that money, we’d better be on board.” It’s a bit of fear-of-missing-out syndrome here.

The second occurs more often with smaller agencies, where they feel the credibility of a national ad tech brand is greater than their own. “Well, it may just be little us you’re working with, but we’re partnered with so-and-so, and you can’t go wrong with them.”

The third, and I think the largest driving force in this psychology, is loss aversion. When a mistake happens with the campaign or campaign performance isn’t up to a client’s expectations – and this will happen at some point – the agency can simply point to the logo shouldering the blame, tell the client that company is being fired and start fresh without their credibility being damaged in the process.

I understand the allure of glamour. If the client catches that fever it can be a hard mentality to get past rationally. I don’t think the second two reasons are valid, though. In fact, I think they end up harming an agency more than helping them in the long run.

I speak to dozens of regional agency planners, VPs and owners every year, and most of them are as in-tune and digitally bright as people at the largest agencies in the world. Agencies that spend time doing the research and developing knowledge in digital should be proud of their expertise and not hedge with clients by selling someone else as the expert. Some agencies do this well, but not most.

The final reason is the most troubling, though, and is why clients sometimes change agencies as often as they do. While an agency may think it can get away unscathed when a partner makes a mistake or fails, the client still sees the decision to hire that partner as the agency’s. Furthermore, the agency never gets the credit when there is success. The client will always ask which partner succeeded.

The alternative is for the agency to own its work from start to finish without focusing on partners and logos. This will be difficult for agencies whose clients have become accustomed to seeing logo soup each quarter, but this is the direction an agency should head with a goal of ultimately owning accountability for the results.

New business is entirely different, though. It’s a clean slate. The agency can decide from the start who will get the credit. Moreover, if an agency’s new business pitch is nothing more than the logos of other partners, the client can apply that strategy through any agency, or even themselves.

For existing clients, contract renewal is always right around the corner. As this time comes we can rest assured knowing the marketer will not renew because the agency picked one set of partners over another. But we’ve seen time and again when marketers renew or award business to agencies based on their own digital intelligence – even if it was a partner who was behind them the whole time.

Follow Jay Friedman (@jaymfriedman) and AdExchanger (@adexchanger) on Twitter.

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