Do you work for a company that routinely has you take your contracted agencies to pitch every three years? Is this mandated by finance or procurement? Or is this something that the marketing team believe is the best option? We know that many organisations have a habit of going to pitch every three years, just as we know that in every switched-on agency, there is a new business person who marks down the date of your last pitch with a note to call you in two years and six months hoping to get on your next pitch.
But here is the thing you are missing. It is highly likely that while you have justified this practice as being good governance and due diligence, you may be wasting significant amounts of money and possibly damaging your corporate reputation, along with the performance of your brand and business.
Now you may think this is counterintuitive advice from a company that you may associate with pitching. Still, pitches are less than 10% of the strategic management consulting we do. Secondly, it is the other 90% of work on marketing and agency roster performance that has informed this opinion. But let me explain what we have observed.
The popularity of regular tendering
We know this is a popular policy in a wide range of organisations simply by monitoring the trade media around the world, as even the most cursory of searches will show the same clients coming up to pitch, typically every three years. Three years is also typically the term of many agency contracts, possibly with an option for a one-year extension. Of course, the one-year extension is usually enacted because the marketing team are too busy at the end of the contract to run a pitch, so the procurement team has built in an option to buy them time but not get out of the man\dated process.
The usual reason for this mandatory pitching is that it is due diligence as part of the contracting process to go to market and test to see if the incumbent is still the best agency. It is also used to see if the current remuneration model is market competitive, which is often code for ‘can we squeeze some more savings out of the fee in the negotiations’. Plus, marketers will say it gives them an opportunity to test out new or interesting agencies. Some cynically admit it is a way to keep the current agency “on their toes” or “hungry” for the business.
The truth is a marketer and their procurement teams can achieve all of this without the time-consuming and potentially destructive pitch process. Other options are just as effective in testing the market, ensuring a fair and reasonable agency remuneration, and keeping the client/agency relationship performing at a high level without a pitch. But more importantly, going to pitch every three years when your current relationship with the incumbent is performing at a high level can damage the relationship and damage the performance of the marketing communications for the company and the brand.
The dangers of competitive categories
Most categories are increasingly competitive. Start-ups, brands expanding into new markets, and launching alternate brands make categories like automotive, alcoholic beverages, telecommunications and the like incredibly cluttered. Within these categories, it is highly unlikely that an advertiser would be happy working with an agency that was also working for one of their competitors. (As a side note, it is usually explained that they worry about confidential information being shared, but I have noticed that it is often that they fear they will get the second-rate agency team while their competitor gets the A-Team).
We have also seen in several markets and in some particular categories where the market leader will appoint a number of the ‘hot’ agencies to their roster to ensure their competitors do not get to work with those agencies.
So the category becomes incredibly competitive, and while it may be trite to say there are way too many agencies, the fact is in any market, there is always only a handful of agencies that many marketers want to work with and who are, therefore, in high demand. We had observed that when several brands went to their regular three-yearly pitch, the same second-ranked agencies ended up on the pitch list. Why?
They were the only agencies in the market that did not have competitive business as the competitors had already contracted all well-regarded agencies. After all, it is not as if your competitor wants to work with a second-rate agency, so they are probably already with a good agency. If not, they will be waiting for you to go to pitch so they can snap up your incumbent agency if they are well-regarded in the market and the category.
There is something else that makes your incumbent desirable to your competitors, and that is the fact that they have been working with you for the past three years and know your marketing strategy and positioning. I know a procurement person who said they would include a clause that they could not work for a competitor for a set period. However, this is an anti-competitive practice in many jurisdictions and would require you to continue paying the agency a fee.
I have seen it happen on several occasions over the years. The most memorable was when a utility company was about to take their incumbent creative agency to another pitch to renew the contract, unaware that the agency was tired of having to pitch every few years and had been in confidential discussions with a much more aggressive competitor. On being informed of the mandatory pitch, the incumbent CEO politely resigned the account and announced they had been appointed to the competitor’s business.
The difficulties in competitive categories
Often when we talk to marketers about agencies they would like to work with, it is usual for them to name the agencies working with their competitors. This is understandable for two reasons; firstly, they are in the same category, and so the marketer is more likely to be aware of the work they are doing with the competitor. Still secondly, it is not unusual for marketers to move around within the category. So they want to work with the agency they worked with when they were with a competitive company.
Also, marketers will ideally like the potential new agencies to have category experience. That means the agency is either currently working with a competitor or was recently dumped by a competitor. If the former, then there are conflict considerations and if the latter, then the appointment may be perceived in the category as picking up your competitor’s rejects.
If the purpose is to test the market to see if you have the right agency, then the pitch is flawed if the incumbent is performing well. This is because, in a competitive category, you have to assume your competitors, like you, have already selected the best.
Unless you want to pick up their recent rejects or have one of them lure your incumbent away with a better deal, all that can be left are the second-tier agencies. It explains why often the marketers will end up staying with the incumbent, but usually at a lower retainer cost due to the diligent efforts of the procurement team.
Sure, you could luck it in and pick up a new emerging contender, but the timing would need to be perfect so that your market-leading competitor didn’t throw them a retainer to take them out of the market. Believe me, it happens.
Cost in time and effort
You also have to consider the time and effort it takes to run and manage a pitch properly. I am not talking about the agencies here, which I will get to soon, but the time it takes the marketing and procurement team to do the process justice. One of the big complaints of agencies is participating in a tender where the marketing team are disinterested and distracted, often changing dates and delaying the process because they have more pressing demands.
And it is not as if the marketing team has the extra hours required over a two to three-month period to meet with the agencies and brief them, and review the work. Marketers are usually stretched for time simply delivering the current marketing requirement, so the additional time pressure of a pitch can potentially compromise the current marketing performance.
Add to this the additional time and effort committed by the incumbent to pitch against the market while still delivering the day-to-day requirements for the brand. The process is stretched and potentially compromised. I know marketers will often try and schedule these routine contract pitches or tenders for a quiet time in the marketing program, but in an increasingly always-on world, those quiet times are harder to find.
There is a cost associated with all this time consumed in the pitch and tender process for both the advertiser and the agency. There are also the risks of compromising the incumbent and the marketing team taking on the additional burden of a pitch. Yet there are less disruptive and more cost-effective ways to achieve the outcomes that the mandatory contract pitch is meant to deliver.
Practical alternatives to pitching
Suppose you are running a contract pitch or tender to achieve the following. In that case, we have more cost and time-efficient and less disruptive solutions that are equally effective as a pitch and provide the same level of due diligence and governance:
- Wanting to test the market choice – We often provide marketers, throughout Pitch Perfect or Market Search, with a list of suitable agencies currently available in the market and identify those with competitive business. We even encourage them to meet with those agencies on an informal basis to satisfy themselves that they are not missing out. We have had clients take this one step further and had an agency they liked undertake a small project. This is much less disruptive than a full-blown pitch and allows the marketers to explore the market without jeopardising or disrupting the incumbent relationship.
- Wanting to ensure the agency fee is market competitive. This is where we can undertake an assessment of the agency scope of work delivered in the previous 12 months and, using our Verificom Agency Fee Calculator, determine how the agency remuneration compares to the market. But more importantly, we will also review the current agency contract as part of this process to make recommendations on how and where to update it, and it costs a fraction of the cost of a fully managed pitch process.
- Wanting to prove to management we have performed due diligence – For more than 15 years, we have been providing these services. We have found that when the CEO and the CFO see the level of analysis, and not just opinion, in both the market search report and the agency remuneration and contract assessment, they are usually very comfortable with the level of governance in the process, especially when they become aware of the risks associated with openly going to tender or pitch.
Of course, if the incumbent relationship is underperforming, and all efforts to improve or correct it have failed, then it is probably time to go to market. But this is justified, unlike going to market because the contract term is up.
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