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5 reasons why advertisers paying for pitches will not work

Tony Hale and Mumbrella
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This post is by Darren Woolley, Founder of TrinityP3With his background as analytical scientist and creative problem solver, Darren brings unique insights and learnings to the marketing process. He is considered a global thought leader on agency remuneration, search and selection and relationship optimisation.

Recently the new CEO of the Communications Council, Tony Hale, announced in a Mumbrella Google Hangout that he believed advertisers should pay agencies for pitching for their business.

This is a common belief held by many agencies and some advertisers. Currently the decision to pay for pitches sits with the advertiser. Tony believes that paying for pitches will make the process more disciplined. On the surface this looks like common sense, but the fact is that every time the industry tries to make this work it fails.

I have previously written on when and how advertisers should pay for pitches, or at least compensate the agency for some of their costs or pay for the intellectual property at a fair commercial rate. But a blanket policy of having advertisers pay for pitches is flawed and here is why it will fail:

1. How do you value the agencies participation?

When marketers consider payment for pitching the first consideration is, what is the advertiser actually paying for? With agencies reporting up to $100,000 in internal costs for some of the larger speculative creative pitches, is it the responsibility of the advertiser to compensate for this cost? Or are they paying for the out-of-pocket expenses of the agency for their external costs? And if so, does this include any freelance resources they choose to bring in?

The problem is that payment needs to be linked to compensating the agency for their participation. To do this we need to agree what is being compensated to ensure consistency. Getting this agreement is next to impossible as each advertiser and each agency has very different expectations.

2. How much should be paid before it becomes token?


In the past payments for pitch participation have been set at a token amount, usually $5000 – $10,000. The amount is typically based on what the advertiser can either afford (budgeted as the cost of the pitch) or thinks is ‘reasonable’. In the face of agencies reporting total costs of ten times this or more, does it mean that the cost is really a token amount?

Isn’t this actually diminishing the value of the agencies’ work in the pitch rather than compensating or rewarding them for the outputs they prepare for the pitch? In the process, as I will explain further, it creates expectations on the advertisers side that further diminishes the intellectual property value of the agencies’ creations.

3. How can you regulate compliance?

I remember when President of the MADC, the graphic design association AGDA passed a resolution that no member would participate in a speculative pitch without payment for their services. In fact it is still part of their Code of Ethics.  The resolution was token, at best, as it was reported that even members of the committee, that passed the resolution, were breaking it. As a pitch consultant, I know that when it comes to be included in a pitch list, or not, many agencies are happy to accept almost any terms and conditions for the opportunity to win new business. So if a client refuses to pay pitch fees, would agencies refuse the opportunity to win new business?

This raises the question of market control. It is currently at the discretion of the parties as to whether or not pitch fees are paid. Advertisers decide if they will pay them and agencies have the option of not pitching without them. Making this a mandate on the market, actioned by any party, is potentially acting in collusion and is anti-competitive. Therefore it is literally impossible to enforce. A fine gesture and an easy statement, but largely empty.

4. Would the process achieve the objective?

Tony believes that pitch fees would bring greater discipline to the process. But my personal experience is that in actual fact it is inclined to make advertisers make more demands of the agencies. Many advertisers will feel that if they are ‘paying’ the agencies, even a token amount, they can then demand and expect the agencies to do more work and meet even higher demands and expectations than if they were not paying.

Also, while Tony quickly added that intellectual property or copyright was not included in this payment, when the advertiser is paying the agency to undertake speculative creative work, they will often assume that the IP is included as this is the way the standard advertiser contract operates.

5. Is it in the interest of all parties?

The problem here is that the solution is not matching the problem. The problem is not pitching because pitching is one of the key sources of new business for an agency. That is why the incumbent will hate pitches and hopefully will work to avoid their client going to pitch and why agencies love pitches as a way to show off what they can do and win new business.

The problem is the requirement in pitches to run a speculative creative process, which is often a huge waste of agency time and resources and offers very little in the way of assistance in selecting the right agency to work with. It is only worthwhile if you are planning to only run that campaign and even then it is hit and miss.

In actual fact we have been successfully running pitches without speculative creative since 2007. We have also been running pitches without pitch fees, unless the client demands speculative creative as part of the process. Most agencies (certainly most of Tony’s membership) seem to be very happy with this process as are our clients.

A better solution?

The fact that it calls for compulsory payment of pitch fees is popular with agencies. It is an easy policy for agency organisations to champion, even though the chances of success are very slim.

Many years ago I suggested that a good starting point for the Communications Council (or the AFA as it was then) was to agree and set, along with the AANA, some ‘Rule of the Road” for pitch consultants (and procurement). Just as their equivalents in the USA, the ANA and 4As had done many years ago. But as usual, possibly because it was not invented here, the AFA killed the idea and it has never been raised again.

Perhaps if the new Communications Council CEO is so keen on this topic he will want to raise this initiative again. He knows where to find me. I am waiting.

 

To find our how TrinityP3 Marketing Management Consultants can help you further with this, click here.

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Darren is considered a thought leader on all aspects of marketing management. A Problem Solver, Negotiator, Founder & Global CEO of TrinityP3 - Marketing Management Consultants, founding member of the Marketing FIRST Forum and Author. He is also a Past-Chair of the Australian Marketing Institute, Ex-Medical Scientist and Ex-Creative Director. And in his spare time he sleeps. Darren's Bio Here Email: darren@trinityp3.com

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