The media agency boss was fuming. He'd just won a high-profile media account, but had been beaten to a pulp on the deal. Was it corporate procurement or hungry rivals who had driven the price agenda "down, down", I asked. "Both," he grumbled.
Yep, procurement had leveraged agency against agency until one finally said, "We're out". Only then did procurement stop. So who's to blame? Well, the agency admitted it was business it couldn't afford to lose, but now faced a scenario where it would struggle to deliver on its promises and make a quid.
One of our readers made a blistering observation last week in an online comment about the two agencies which had pulled out of the Optus creative pitch. Whybin TBWA and BWM both bailed because service fees were allegedly too low to do a half-decent job and be profitable.
This debate is older than the oldest bloke still kicking in Australian advertising. But no question, the pressure on remuneration is getting seriously close to a crisis.
Clemenger BBDO chairman Robert Morgan made a point forcefully in the last issue of AdNews (9 September, 2011, page 21) – agencies were to blame, he said, for dropping their pants to win accounts. Whether Optus and SingTel are acting like mercenaries, or agencies have conditioned the market to expect huge haircuts in account tenders is an either-or argument. There are always two sides and Optus clearly has a position it believes in.
But that those renowned dealmakers M&C Saatchi and, to a lesser extent of late, George Patterson Y&R, are still slugging it out probably points to a price war which Singapore will be thrilled about. If street spec is right, Optus wants its agencies to handle the account for a multiple of 1.4. Usually, agencies need 2-2.5.
What's clear in this ongoing saga is that corporates are frustrated with some of the output coming from their creative and media agencies, but are unwilling to pay for something better.
It's at this point a reader named "Sound Familiar?" made a comment that cuts to the heart of the matter. "When they [advertisers] hire people to work internally, do they rate them on the cheapest price too?" Actually, in most cases, no. Any company hiring someone will look for experience, aptitude, attitude, potential and skills. Price is part of the equation. Whispers about the Optus pitch is that it asked agencies to pitch on an enormous contract and then only after they did, delivered the fixed cut-price agenda.
So, the race to the bottom continues. Agencies are their own worst enemies but the myopic nature of corporate procurement means quality has to take a hit. For media agencies, their way out is to start passing on the pain to media owners with all manner of inventive schemes to bolster their own bottom line – some bordering on dubious. Alongside innovative media and production arrangements, younger people with less experience are taking bigger roles, resulting in more client frustration.
The Australian Association of National Advertisers is in the middle of a remuneration survey of its members. The findings won't be as revealing as initially thought, but it might serve as a catalyst for some serious debate that somehow must engage procurement departments.
And there are signs of more sophisticated corporate procurement practices emerging in North America where procurement specialists are driving the corporate agenda – people that understand that the fuzzy world of ad space, creative services and strategy can not be treated the same way as sourcing a box of staples. We can only hope.
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