An industry body that represents marketing agencies in the UK tried to get agencies to “strike” a pitch earlier this month on the grounds that the client's terms were “despicable” and amounted to “corporate bullying” - but it didn’t work.
The Marketing Agencies Association (MAA) called for agencies to boycott the AB InBev pitch on the grounds that the payment terms, rebates and rate reductions it was demanding were beyond the pale. AB InBev is said to have asked agencies how many free days work they would offer, what discounted rates, payment terms in excess of 120 days, and to fund a CSR programme with rebates above 5%.
But if the terms a client is demanding in a pitch are so terrible, why didn’t UK agencies follow through with the boycott? In a statement seen by AdNews, the MAA outlined that no agencies working with AB InBev felt comfortable going on record to strike against such a large and influential advertiser.
The MAA struggled to find support for the action in its home market, because of what it calls the “vulnerability” of parties close to the matter. However, in the US support has been more forthcoming. Scott Knox, who leads the MAA, is in talks with the New York Times and The Times to out what he calls “corporate bullying” and is also in dialogue with British MPs.
“AB InBev know … the power they wield. To win or lose an account like AB InBev can be game changing for an agency and it gives them the power to bully. Equally agencies don't want to get a unilateral name for being a rebel business,” Knox told AdNews.
Knox, a well-established industry player in the UK, wants industry bodies globally to join forces in calling out advertisers on dubious terms such as lengthy payment terms, dubious rebate demands and rate squeezing, to ensure the long-term health of the industry at home and overseas.
'Healthy dose of facing the truth'
“I am determined that there will be something that we can do together, the creative industries cannot idly stand by whilst this sort of 'corporate bullying' continues to gain momentum. Having been at the MAA for 14 years the last thing we should do is gather together around a nice cafetiere of coffee and a few chocolate biscuits, chat convivially then produce a jointly signed pamphlet. All this achieves is a nicely designed brochure and some self-congratulatory column inches in the trade press, nothing else. I've done enough of these projects to last me a lifetime. We need action, education and commitment. We also need a healthy dose of facing the truth. Agencies must unite to defend the industry we are so proud to be working in,” he says.
Interestingly though, neither the IPA nor ISBA - which calls itself the voice of British advertisers and is the equivalent of the AANA - two of the largest and most widely respected industry bodies in the UK, have not joined the cause.
The UK is not alone in facing troubling demands from clients in pitches and Knox is hopeful that support will come from overseas and other factions. It’s an age-old and ongoing friction point globally – and Australia is no exception. But it’s likely that any moves for similar action here wouldn’t be welcomed – or successful - despite constant gripes from agencies over client behaviour.
“Strike is a very strong and scary term,” says one industry player.
“It sounds like collusion to me,” says another, suggesting that because of Australian regulations, it may be seen as anti-competitive and therefore not even legally possible to take joint action.
Another senior agency figure recently told AdNews that the industry has “lost its backbone” when it comes to standing up against poor pitch practices and there are reports of agencies opting not to enter any competitive new business pitches at all because the demands are unreasonable.
While the “race to the bottom” is a constant battle for Australian agencies that are being squeezed from all angles, in light of the UK situation, agency bosses in this market wouldn’t support such direct action.
Mat Baxter, CEO of UM, says: “There could be a call for similar here, but the chance of it failing is pretty high. An agency will do it [pitch] regardless.
“Agencies are under pressure to grow, and growth comes from new business. No one can go back up the chain [to global bosses] and say 'we're not going to take on this pitch because it’s poor terms.' It just wouldn’t fly. It’s a game of chicken – but who blinks first? How much cowardice? Not pitching isn’t the answer – it needs a more consultative approach. You don’t just get out of the game because you don’t like the rules.”
Peter Horgan, CEO of OMD and chair of the MFA board says he read the story from the UK in “disbelief” calling the events “extreme”. However, he’s of the view that things don’t seem to be so bad in this market, and doubts that a similar boycott would work here either.
“Thankfully there are very few clients that would be so brazen about how they treat suppliers. Procurement is about getting a good deal from suppliers – but one of the first tenets of that is sustainability of the supply of quality service. That seems to have gone out the window [in the UK instance],” he said.
“It seems as though overseas it's as bad as ever, but locally it looks better. This market talks about the race to the bottom. There will always be someone that will be desperate enough to capitulate. That's why the [UK] boycott failed.”
Horgan says that the MFA and AANA have a good working relationship and are working hard to establish what sustainability and transparency look like for both agencies and clients, but that strike action of the kind attempted in the UK is not “legally or morally” where this market would want to go, saying that it’s not really good for agencies or clients.
Corporate bullying and using client clout unfairly
The slightly downbeat view from across the market though, is that there isn't really a way to stop clients trying to leverage their might in some way. There can be progress - but this kind of “corporate bullying” will always exist.
“There are two different scenarios that have converged [with AB InBev in the UK]," says Tony Hale, CEO of the Communications Council.
"One is badly run pitches, and the second is procurement using its clout unfairly to drive rates below a serviceable level. I don't think that you can stop it – you will always have people that will use their clout unfairly. It's the nature of business, the nature of the world,” said Tony Hale, CEO of the Communications Council.
“It's not contained to this industry but there are a lot of smart agencies out there that can see when things aren't as they should be and are smart enough to walk away.”
But there are others that don't, which undermines progress for all.
Media bosses here seem to be of the view that taking the long view and investing time and energy into educating clients on the realities of pitch terms is the only way to bring about improvements. Things are by no means perfect, but progress is being made.
Baxter believes that “the pendulum has swung” in Australia, however.
“In this market there's becoming a good level of understanding that the rates need to be better. Clients are genuinely, for the first time, starting to see the impact of the race to the bottom,” he says.
“Over the last five years we've seen it happen, but the cracks don't start to appear until well into the relationship. Year one it seems like the client has got a good deal. In year two, they start to notice they don’t have the best team, and aren’t getting the best service. They're starting to see that. That education is appearing in the experience that clients are having. It's not the best for agencies or for the client [in the mean time] but the client has to experience [that it doesn’t pay to squeeze agency partners] to understand it. Clients are understanding that you get what you pay for. I'm confident that the work and the strategy speak for themselves and when clients see that, they will pay for it.”
A lot of the issues seem to stem from multinational or global clients - where local agencies are under pressure to stand by poor terms for the good of a global relationship. But that doesn't mean local companies don't have a history of bad practice. However, there were a number of large local pitches in Australia over the last 12 to 18 months – no names mentioned, but large supermarkets, banks and FMCG firms spring to mind – where a client in the past may not have been the poster child of good pitching behaviour, but this time around were largely seen to be improved, having realised that previous terms were untenable, and not a fruitful way to do business and get good results, according to agency bosses.
Bad corporate behaviour
Ian Perrin, CEO of ZenithOptimedia, agrees: “In the most part pitches here are run well, there are a few that are not as fair as they should be, but we all [agencies] have our own objectives at heart. As an industry we should talk about best practice, but trying to force it doesn’t seem that constructive.
“The thing is that the client will always end up with the agency they deserve,” he adds.
Colin Wilson Brown, founder of pitch consultancy The Clinic, which oversees numerous agency pitches, says: “The issue has always been around, it's like schoolyard bullying, and it's hard to get away from that. No one's been prepared to stand up to it before. It's not exclusive to advertising – look at the retailers who bully suppliers where the threat is having products delisted, so all suppliers have to be careful, but some clients do bully agencies. It's bad corporate behaviour and it should be [named and] shamed, but you can't get rid of pitches. As much as agencies complain, they will all drop their pants because it's a competitive market place and there is less and less profit to go around.
“If anyone's going to do something about it, it would be the CommsCouncil, because clients aren't members and they have nothing to lose. They can say something on behalf of the industry without it being about specific members.”
In fact both the MFA and CommsCouncil are working on guidelines for clients and agencies around pitch practice, with the CommsCouncil looking to publish a guide that will offer pointers on what a client needs to think about before it even calls a review, such as their contractual obligations, how to develop the brief and then tips for both sides. It's using the UK-based IPA's existing pitch guide as a framework.
Sophie Madden, CEO of the MFA, says that while the commercial terms of agency client contracts are not part of its remit, it also works in partnership with the AANA to make sure that best practice is followed on both sides of the equation. Likewise, the AANA already has a code of conduct for members as do most member organisations
Lee Tonitto, CEO of the Australian Marketing Institute, whose member base is largely clientside, but has a growing proportion of agencies, says pitch practices and educating clients is also on its agenda for the year ahead, demonstrated by the appointment of TrinityP3 CEO Darren Woolley as its chair last year. It is working on a set of guidelines for members and education for middle management marketers who may not have the experience to understand the impact of pitch demands and terms on agencies.
Having a code of conduct or guidelines is all well and good, but, says Wilson Brown, the clients that are likely to support a code of consult are those that would probably behave well anyway. Meaning those that aren't, wouldn’t sign up to a voluntary code.
Tonitto adds: “Marketers need to walk in agencies' shoes and understand what is being asked of them. They may not be experienced enough to do it.”
She warns, however, that that while pitch practices is a serious issue, the UK case shows that it's becoming emotional – when it should remain about commercial issues.
“Where there is emotion, people can amplify an issue. It’s our responsibility as a professional body to make sure there are guidelines and education in place,” she says.
It's not just clients creating the pressure though, internal agency KPIs play a role. Some speculate that when agency objectives are purely on bringing in billings, it can skew the output and mean that less than fair terms and rates are accepted, which has the long-term effect of putting strain on the agencies internally.
Nick Behr, CEO of Vizeum, also thinks that forced action would be destined to fail, and that education rather than forced action will be what makes the difference in the end.
"All agencies have their own unique objectives and KPIs and as long as some are purely focused on bringing in billings, that's what will stop [boycotts of poor terms] from ever happening. Agencies don't have to pitch, no one is being forced. Someone will always come along and do the work, but clients will find that they get what they pay for. Clients have to pay for service too - so we have to be continually educating them about what that's worth."
However Knox is adamant that relying on the slow drip of education alone won't work.
Part of the reason the MAA in the UK saw AB InBev’s pitch terms as “truly unbelievable” was the four tiered blind process that required agencies to fill in forms, tick boxes and enter rates – without being able to demonstrate any of their capabilities.
Knox tells AdNews: “We've seen reverse e-auctions before, there are many systems used where agencies put in their rate card fees and then start dropping them in the time slot made available. As if that commodity purchasing isn't bad enough, what AB InBev did next was beyond belief.”
It’s something that is an issue here too.
Baxter says: “Clients that are asking for [untenable terms] don’t understand the relationship between marketing, media and the bottom line. What clients see as value is too low and we need to keep showing them that and prove it through execution. If we can prove that for every $1 invested in media they get $4 back – it helps. But if, as an agency you can’t show that, and a lot can’t, that conversation is difficult. If you don’t know, you'll get treated like a pencil supplier. If you demonstrate the value and the strategic skill [behind the rates] clients don’t always want to buy cheap.
“The problem is when pitching becomes about blind auctions. They should be qualitative opportunities for agencies to show their strategic and data analytics skills, the strategic and cultural fit. When a pitch degrades down to an online auction about discounts and cheap rates it defeats the purpose of the pitch to show what an agency can do. My responsibility as an agency is to bring that to the table, but if the pitch doesn’t allow that opportunity, and we're just asked to fill in an online form, you can't demonstrate capability – or educate the client on why it’s important.”
While AB InBev was asking for in excess of 120-day payment terms, there are reports in the Australian market of clients looking for terms from agencies of up to 150 days for payment. While it's rare, lengthy and unfair payment terms are creeping in, according to agencies. Read more on payment terms here.
To help its cause and gather examples and evidence, the MAA has also set up a website (pitchwatchdog.com) and helpline which allow agencies to anonymously report unscrupulous practices during pitches, make complaints and make the body aware of the goings on within pitches.
It says it was set up to “provide a safe space to talk about good and bad cases of client practice in pitching” and was set up after member agencies voiced concerns.
It could go some way to encouraging wronged parties to speak up without the feat of repercussions. It's unusual for pitch terms such as AB InBev's to be in the public domain, because agencies are tied into strict NDAs at the very beginning of pitching but it could be a way to monitor practices.
There is no such forum in the Australian market, but in a market the size of Australia, it shouldn’t really be needed, say industry commentators. Baxter also believes that the market feels more confident to call out bad behaviour now than it has been in the past.
What do you think? Are clients still pushing too hard, asking too much, without knowing how it impacts agencies? Let us know what you think in the comments below.
Read AdNews editor Rosie Baker's opinion column on the subject here: Stop bending over and stand up straight
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