Recently we have read reports from the CEO of WPP, Sir Martin Sorell and even our own Executive Chairman, Michael Farmer, talking about the almost irrational motivation of agencies to pitch for and win business at any cost. Certainly, with so many agencies in the market, you would think there is no shortage of candidates to pitch for an advertisers business.
But the fact is that not all agencies are equal, yes, some are more equal, or perhaps more desirable than others. In any market there are a handful of agencies that are considered outstanding and then there are the others and behind them the ‘also-rans’.
The fact is this crème of the crop are in high demand and are increasingly more selective about what business they will pitch for and what they are passing on. In quite a few recent pitches we have undertaken a market search brief for some global advertisers operating in local markets.
In each case one of the key requirements was to find an agency that would drive innovation and creativity in marketing, advertising and media. We would develop the long list and as always check in with the agencies on the list to ensure the agency was available without revealing the advertiser, just usually the broad category they belong to. On approval of the agencies to be included in the tender, we contacted the selected agencies and invited them to participate, with up to three of the agencies declining the invitation.
Usually the agency would state that they were busy and did not want to stretch their resources. Interestingly none of the agencies were from the big four holding companies in any of these examples. In fact the agencies most inclined to decline the tender invitation have been either ‘hot’ independent agencies or agencies from the smaller boutique networks.
Disappointed that we had up to three of a list of eight agencies decline to participate I thought it worth following up with the CEO of the agencies that declined to find if there were any underlying reasons for them not participating in a new business opportunity.
Of course none of the agencies wanted to speak out on this as it could potentially damage future opportunities when the marketers involved would invariably move on to other roles. But confidentially the agencies did not decline because they were too busy, but declined for a number of very pragmatic and tangible business reasons.
The frustrating part is that the people who could potentially address these issues will never know the real reason they were not attracting the best agencies to their tender. So by way of illumination, here are the real reasons great agencies will be declining your invitation to pitch for your business.
1. “They regularly change agencies and use an expensive pitch process”
No matter the size of the market, from relatively small to enormous, advertising is more like a cottage industry, where everyone knows each other or at least everyone worth knowing but more importantly they know what accounts are available and when they are in play.
This means that if you have a corporate policy that states you go to market with a tender every three years, then every agency CEO and New Business Director will have the date of your next tender in their calendar.
Except, if you are a company that every three years puts your incumbent and the industry through a long and protracted selection process only to reappoint the incumbent.
The industry is notorious for gossiping, no matter how many confidentiality agreements you have everyone sign, which means that very quickly everyone knows that the tender was decided on a fee deal and that the incumbent was reappointed based on a significant discount to their current arrangement. (See point three).
They are also aware if you are the type of advertiser who goes to market more regularly too, especially those advertisers who seem to be holding a pitch every year or two. The problem here is that the agency cost for the pitch process can take up to two or three years to recoup (Again see point three), and so if the client is known to turn over agencies on a regular basis then great agencies are less likely to put themselves forward to simply become grist for the marketing mill.
Finally the great agencies are wary of clients who go to market and invite every man and his dog to tender, or worse hold an open tender. Being one of a handful of similar high quality agencies is one thing, but having to battle out and compete with a rabble of agencies of dubious quality and reputation does not look good to an agency with a hard earned reputation.
The problem is if they are unsuccessful, not because of quality but because of price (See point three again), then when the winner is announced it will be known that they lost and that tarnishes the reputation of the agency.
2. “They have a reputation to be high on demands and low on delivery”
If you are going to market to appoint an advertising agency then it is natural that you would want them to be creative and innovative too. But there are many advertisers, especially running global accounts in a local market or region who want an innovative or creative agency, but do not really provide the opportunity to demonstrate their creativity or innovation because the work required is often simply reworking the global campaign to suit the local market.
Creative agencies are well aware of the advertising work various advertisers and categories produce and while they are optimistic that they could improve the creative output of most accounts, there is a limit to that optimism.
If an advertiser is simply delivering modified global work then a great agency is not going to want to take that on. It would be like buying a Ferrari and using it to do the weekly grocery shopping. There is no opportunity for the agency to truly demonstrate their capability. But likewise agencies want to work with clients where they are able to produce work that impacts the clients business and allows the agency to showcase their skills and capabilities.
There is also nothing more frustrating for an agency than to have a client who constantly demands more innovation and better creativity to then simply reject or trash their efforts.
It becomes an exercise in futility that very quickly destroys the agency’s morale and undermines their confidence. It is often the case that when advertisers complain about lack of proactive innovation and creativity, we will often find the agency has piles of proactive ideas that were developed and presented and either rejected or ‘put on hold’ indefinitely for lack of budget.
3. “The procurement team is known for squeezing every last cent out of the deal”
It is quite confronting as to the number of marketing procurement functions who see advertising agency’s services as commodities. Even though the profession will argue that this is rare and that procurement teams work hard to calculate value in their negotiations, the fact is that many have corporate guidelines that prevent them from accepting anything other than the lowest cost proposal. This assumes that every agency tendering for the business is effectively equal in capabilities.
Even when the procurement team do some evaluation of the agency proposals it is often quantitative only, such as the number of FTEs, the average cost per FTE and the rate card analysis of hourly rates. The problem is that these are simply measures of cost and not of quality, value or capability. We have witnessed tenders where the marketing team have specifically selected an agency as a clear preference only to have the choice overturned by procurement based on the cost analysis.
The problem is that for an agency they look at a number of criteria, or at least should, when assessing if they are going to pitch for a piece of new business. Two important ones for assessing return on investment are “Is this a profile project” where the agency will have a chance to build their profile through the work and therefore possibly win more business.
And “Will the project be profitable” allowing the agency to earn a profit for the work done. Agencies have been known to trade profit opportunities for the opportunity to do high profile reputation building work.
Many advertisers want the high profile creative agencies working on their business, but if you don’t represent an opportunity to do high profile work (see point two) or an opportunity to make a profit due to a procurement process focusing on the lowest possible price, (see point three) then it is increasingly unlikely you will attract the best agencies in the market.
What to do if you can’t attract the best
The first question you should ask is do you really need the best agencies in the market?
Many of these global advertisers in regional and local markets are simply going to be getting the agency to re-purpose global work the majority of the time, so if this is you then perhaps you should lower your expectations regarding creative reputation. Being more realistic in regards to your requirements means you are more likely to find the agency that best fits your needs rather then simply the one with the best creative reputation.
Next, if you are using the pitch process simply to negotiate a lower price with the incumbent, there are more efficient ways to do this that do not waste everyone’s time. Rather than holding a pitch we would recommend a detailed review of the incumbent, including remuneration, contract and performance to ensure the agency arrangements are up to date and represent value for both. This means you will not appear to be an advertiser that goes to market like clockwork or at the drop of a hat.
Finally realise you get what you pay for so if you want to pay the lowest possible price it is likely you will get the lowest quality service, resources or outcomes. There are so many ways agencies, who have had their fee negotiated down, can find ways of cutting costs and services at your expense or make incremental revenue on the way through.
The irony is that advertisers are complaining that they can no longer trust their agencies due to issues on media and production transparency, but in may ways it was the downward pressure on agency fees that encouraged this behaviour.
As they say, as you sow, so shall you reap.
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