Agency cost-cutting mindset endangers marketing effectiveness

A troubling trend has emerged within the marketing agency landscape as leading holding companies increasingly position cost savings as their primary value proposition to clients. On April 20, 2025, just one week ago, Jay Friedman, CEO of Goodway Group, witnessed this philosophy explicitly stated during an industry panel discussion where an agency leader boldly declared, "Our job is to save our clients money. That is our number one job."

What particularly concerned Friedman was the tacit agreement from other participating holding companies, who offered no objection to this characterization of the agency role. This cost-centric mindset represents a fundamental misalignment between agency incentives and client business objectives, potentially undermining the very purpose marketing services are meant to fulfill.

"Advertising and marketing is the single largest growth lever for any business. That your largest vendor of your largest growth lever is focused more on lowering costs than returning growth will kill your business," Friedman wrote in his LinkedIn post detailing the panel discussion. His critique highlights how this approach contradicts effective marketing practice and threatens to diminish marketing's strategic value.

The post specifically identifies three key problems with the cost-cutting mindset that has become prevalent across holding companies. First, it fundamentally mischaracterizes marketing's primary function as a cost center rather than a growth driver. Second, it devalues critical optimization activities that don't involve media spending but often deliver substantial business impact. Third, Friedman argues that "lowest cost models inherently end up opaque and costing the marketer more!" – creating a paradoxical situation where cost-focused approaches actually reduce overall effectiveness and efficiency.

Friedman points to search engine optimization (SEO), conversion rate optimization (CRO), and landing page optimization (LPO) as critical examples of high-value marketing activities that are categorized as "non-working media" in traditional agency models. According to Friedman, "Those are 0% working media in that there are fees paid out and no media launched. However, this is usually the most foundational and sometimes best use of funds spent by a brand."

This critique comes from an industry veteran with significant expertise in digital marketing. Friedman has led Goodway Group through substantial growth since joining in 2006, rising from COO to President and ultimately CEO in December 2022. Under his leadership, the company has expanded by more than 20 times its original size while focusing on "connecting consumers with brands they love through the most intelligent use of digital media," according to his professional profile.

Industry professionals responding to Friedman's post largely echoed his concerns about the problematic incentive structures created by the cost-saving focus. Richard Kramer, Managing Director/Founder at Arete Research, highlighted how percentage-based compensation models create their own form of misalignment: "As an outsider looking in, it always seems agencies are incentivised to spend ALL the clients money if they get a % of that spend." This observation suggests agencies face competing incentives that may undermine their effectiveness as strategic partners.

Mike Feldman, a retail media and commerce leader, reinforced Friedman's point about non-working media value, noting how optimization activities like enhanced SEO approaches for retail product pages might "technically not 'save' clients money but instead create millions in incremental revenue." Feldman questioned prevailing wisdom asking, "What ever happened to help the clients maximize their investments to drive growth?"

The discussion reveals a marketing ecosystem struggling with fundamental questions about value creation and the proper relationship between agencies and clients. Mike Nolan, a digital marketing leader specializing in integrated media and partnerships, proposed realigning incentives through modified compensation structures: "Change your (advertiser) KPI AND change their (agency) bonus structure to insensitive business growth vs 'savings'." This approach would fundamentally shift agency focus toward business outcomes rather than cost efficiency alone.

Mike Sullivan, CEO at The LOOMIS Agency, characterized the cost-saving approach as "a message from procurement than a smart agency exec," arguing for a return to core principles where "ad agencies offer creativity in the service of capitalism." This perspective positions agencies as growth partners rather than cost centers – directly contradicting the philosophy Friedman observed at the industry panel.

Some respondents raised even deeper concerns about the current state of advertising effectiveness. Don Marti, VP of Ecosystem Innovation at Raptive, referenced academic research suggesting conventional advertising may already be failing in its essential economic function. According to a study by Lin et al. cited by Marti, installing ad blockers led to "fewer reported regrets with purchases, an improvement in subjective well-being..." This finding raises profound questions about whether current advertising approaches are effectively serving their intended purpose.

The conversation also revealed concerns about potential conflicts of interest within agency structures. Jordan Witmer, a retail media and commerce consultant, highlighted agencies working "on both the buy and sell side of retail media," which Friedman characterized as problematic since it can lead to money being shuttled "from brands to the retailers we represent disproportionately." Such arrangements further complicate the agency-client relationship and may exacerbate misaligned incentives.

The divide between holding company management and creative agencies emerged as another theme in the discussion. Dr. Augustine Fou, a marketing analytics expert, suggested the cost-saving mentality might stem from holding company executives rather than the creative agencies doing the actual work, asking, "Oh, maybe it's because the panelists were from the holdco and not the actual working agencies, whose job is to make good ads?"

This conversation occurs against the backdrop of rapid change in the marketing landscape, with evolving media channels, shifting consumer behaviors, and new measurement challenges. For marketers navigating these complex relationships, the discussion offers several key considerations for evaluating and structuring agency partnerships.

First, marketers should examine whether their agency compensation models align with desired business outcomes rather than cost savings or media spending alone. Second, they should recognize and properly value "non-working" optimization activities that may deliver substantial returns despite not involving media placements. Third, they should maintain awareness of potential conflicts of interest, especially in contexts where agencies may operate on multiple sides of transactions.

As Friedman noted in his professional profile, a central focus of his leadership is "helping marketers and agencies move marketing to the top of the boardroom agenda." This framing positions marketing not as a cost center to be optimized for efficiency but as a strategic driver of business value deserving executive attention and investment – directly contradicting the cost-saving mindset he observed at the industry panel.

The significance of this debate extends beyond agency-client relationships to the broader question of marketing's role in business strategy. When agencies position themselves primarily as cost-saving partners rather than growth drivers, they risk diminishing marketing's strategic importance and ultimately undermining their own value proposition.

Timeline of Events:

• April 20, 2025: Jay Friedman attends industry panel where an agency leader states "Our job is to save our clients money. That is our number one job"
• April 20, 2025: Friedman observes that none of the other holding companies disagreed with this position
• April 20, 2025: Friedman identifies three key problems with this mindset:
  1. Advertising is a growth lever, not a cost center
  2. Non-working media like SEO/CRO/LPO delivers value despite not involving media placements
  3. Lowest cost models often become opaque and ultimately more expensive
• April 20-27, 2025: Industry professionals respond to Friedman's post, reinforcing concerns about misaligned incentives
• April 27, 2025: Conversation continues highlighting tensions between cost-saving and growth-driving approaches to marketing