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Agency Business Model: Adopt or Leave?
Agency Business Model: Adopt or Leave?

By - Kiraithe Daniel Mutemi

Posted - 05-02-2020

The agency business model has been existing for the longest time marketing has been existing too. Agents act on behalf of their principals in delivering value to the customers in a small unit that is closer to them than the company offices. Some industries like the insurance market has for a long time relied on agents to drive sales and penetrate the market. This framework is now used widely to reach more consumers(existing and target) for better service delivery as opposed to be a sales and marketing tool. While some pundits argue this model is threatened by the introduction of technology, it is wrong to abandon it altogether without assessing its potentials especially on a case to case basis.

Automation technology is an imminent threat to agents. It has definitely reduced the bureaucracies in business operations and eliminated some actors in the value chain. However, it has not completely replaced the human capital or the distribution channels in all the sectors. Automation enables clients to get real-time services as opposed to human processes that usually take longer. If one is receiving services at an agent, this time may even be longer. Some agents are limited to offer some specific products or levels of services making them less attractive where a client can access full services by a click of a button. But how many services will be complete without the client interacting with the company? Well, let’s consider a cash withdrawal from the bank. Although the client may withdraw the digital cash, the client might need to convert it to cash at a point if not all the cash is spent digitally. A bank agent or money transfer agent, therefore, comes into play.

Consumer behavior and preferences are ever-changing as environment changes. Adjusting the agency contract to accommodate the needs of the consumers could thus be a barrier to the growth of agents in some sectors. Clients trying new models such as technology-driven may not want to use agents.

However, some consumers especially high net-worth individuals prefer human services to machines services as they value the human relationship more. A dynamic agent who can convince the principal to review their terms of service to include services needed by consumers is likely to navigate this stormy influence of customer preference changes.

Agents do not usually offer a full range of products or all leaves of services needed by all the clients. This limitation may create a negative perception of the agency as ‘incompetent’ or ‘not helpful’. However, where agents can assist a client access some services form the parent company remotely; they increase their relevance and demand. An agent should not turn away a client if there is an assistance that can be offered including contacting the company on behalf of the client. While it is not practically possible to offer all the products at an agency, a thorough capacity building can improve service delivery through this model.

Profitable agency businesses are likely to be saturated with agents thereby reducing earning potential and may end up not improving service delivery. For instance, in Kenya agency model used by the leading Telecommunications companies to offer their mobile money services is oversubscribed. According to the Communications Authority of Kenya data, Safaricom, the leading mobile telephony company in utilizing agents for product distribution has been recording tremendous new registered agents and sub-agents. In 2018, there were over 218,000 MPesa agents up from about 152,000 the previous year. The average earning in commission for these agents continues to dwindle while the company earning grew by double digits.

The agency model can help reduce the number of unemployed people in an economy. However, to reap maximum benefits, an agent should create partnerships with different service providers and get licensed to operate for more than one principal where the law permits. Fortunately, many partnerships can be utilized in the African growing economies from agriculture, financial services, manufacturing, education to other potential sectors.

There are different services demanded by different segments of consumers that present an agent with the opportunity to thrive. Incidentally, changes in technology may not erode the needs of an agent completely. It is worth noting that although a lot of paperwork and human conviction was widely used in rendering some services such as access to credit and system interaction is replacing human interactions, Invoca (2018) argues this trend is different on wealthy people as they trust people more than systems. This scenario presents an opportunity for agents to grow by serving a few wealthy individuals who may have high volumes of businesses.

Businesses also can adopt this model to benefit from improved service delivery occasioned by efficiency, effectiveness, and convenience. The costs of setting up new branches are far much higher than those of establishing and equipping agents. Payments to agents are mainly through commissions which may increase the efforts of the agents as a motivation to earn more. Creating an effective agent requires the principal to commit to equipping the agents with capacity and constant quality check to ensure value is delivered to consumers. An agent can bring convenience to the way customers interact with the company by bringing services closer to them. where customers receive regular services like cash transactions, trust can be built and reduced risks achieved as agents understands their regular customers’ profiles.

In Kenya, the growth of mobile money has been boosted significantly by service providers utilizing this model. Safaricom, the leading telecommunications company and the providers of MPesa mobile money transfer product accounts for about 76 percent of all mobile money agents offered by telcos. Airtel money and Mobikash follows respectively. Banks have successfully utilized this model and its impact is heavily felt. Equity Bank offers a full range of banking services at the doorstep without having to visit branches. It adopted this strategy to decongest its branches that were characterized by long queues and poor service delivery.

This service was adopted in 2011 and as of 2019, the bank had over 40,000 agents serving millions of customers who do not wish to visit the branches. The bank has successfully replicated the model in Uganda, Rwanda, and the Democratic Republic of Congo where it recently started operations through an acquisition. Agency banking is gaining momentum with almost all the other 43 banks in Kenya following suit. Insurance firms also rely heavily on independent agents for sales and services distribution.

The agency model should be considered in place of new branches. Supplemented by strong technological investment, it can help companies reach more consumers on the ground. A proper strategy of recruiting, equipping and training agents is a recipe for success in utilizing this model. However, the influence of technological changes especially automation cannot be wished away. Combining the two strategies in a manner that will optimize the benefits while minimizing the costs can help firms grow even a fierce competition environment as they can offer solutions using both the system and human approach at the lowest level.

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