ROBERT MORGAN: The race to the bottom is getting ugly

By Robert Morgan | 12 October 2011
 
Clemenger BBDO group executive chairman, Robert Morgan.

The vogue for dropping your pants in new business pitches is a zero sum game, argues Clemenger BBDO group executive chairman Robert Morgan. 

"In the last issue, I penned an article for AdNews titled “Beware of the desperate and dateless”. It was a plea for sanity amongst agency management in relation to ‘fee discounting’.

Since then, things have gone from bad to worse. We are now witnessing major pitches, both advertising and media, being decided on the basis of which agency can lose the most money.

In both cases top quality agencies have withdrawn rather than participate in this ‘discount cage fight’. But the bottom feeders are right in their element.

When agencies make a loss on a new client, it is the existing clients who pay for it. Take a media agency that promises to give the new client guaranteed bonus spots/space for some millions. You can bet that the ‘pool’ of bonus space/spots earned by existing clients is being used to fund the new client ‘deal’. If media outlets are supporting this, it is just as bad.

If you’re a client of one of these media agencies celebrating a win – keep a very close eye on your future value delivery. Don’t let ‘market tightening’ be blamed for the ‘evaporation’ of added value. There is a fair chance that it’s been mortgaged away.

On the advertising pitch front, the same applies. Loss-making deals for new clients are inevitably subsidised by existing clients. In both cases, the client procurement departments will triumphantly claim great savings. Marketing executives will be internally lauded. But in truth they will get what they pay for. A commoditised, financially unsustainable agency deal that will cost them by clearly not adding any value. Pay peanuts, get monkeys.

Reputable agencies won’t do this. Those that do will be caught out, as will the clients they have bought.

From the advertising industry’s perspective, it results in diminished credibility, profitability and sustainability. How do they hire, train and attract great people when they are doing unsustainable deals?

These deals are usually being done by international executives, managers on earn-outs or itinerants prepared to mortgage the future of their companies and the industry for a quick win. These people don’t care about the future because they are not part of it.

It’s happened before and the great agencies and new-age leaders that abound will see these interlopers off!

But, in the meantime, if you’re a client, don’t fall for the ‘too good to be true’ deal, because it will be just that. If you’re an agency chief, build your agency for the longer term on sustainable grounds."

Robert Morgan
Group Executive Chairman, Clemenger BBDO

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