Tag Archives: omnicom

The Model Isn’t Broken. It’s Fixed.

Sony, VW, P&G, J&J, Bacardi, SC Johnson, Visa, 21st Century Fox, L’Oreal, Coca Cola, BMW, BASF. What do all these companies have in common? They all have placed their media business in review, or recently completed a review. Their incumbent media agencies; the usual suspects—OMD, Zenith, UM, Mediacom, Vizeum, Carat, Starcom/MediaVest. The agencies involved in the review; the usual suspects.

Insanity is doing the same thing over and over again and expecting a different result.

I’ve heard and read that some people believe that industry change (content, integration, analytics) is driving this rash of reviews. If so, why are the same agencies that some clients are dissatisfied with all of a sudden appealing to others? Why would OMD be a good repository for Bacardi, which they recently won, when current clients J&J and Visa have put their accounts in review? Is it because what is shown in new business pitches is not what is used on a daily basis? I witnessed much of this when I was at Initiative, albeit a dozen years ago. The people who work on client business think many of the tools and sexy stuff shown in new business pitches is just that, only shown in new business pitches. It’s not practical for everyday use because the planners have too many boxes of GRP’s to fill in. They do not have the time to solve real business problems.

So what is the value proposition of these mega-media agencies? It certainly isn’t buying leverage because smaller agencies can match the big guys on media pricing—and often beat them. The big guys speak of relationships with the media companies, but the media companies are putting more and more inventory up for sale in the open market, using exchanges to eliminate the human aspect of transactions that is rife with inefficiencies.

Others suggest that the reviews are procurement driven, which explains why only the usual list of invitees are participating. These big agencies hate losing business and they’ll promise everything to win. They have a beast to feed to perpetuate their own myth and they believe their own BS.

You don’t have to. If you want the same-old solutions join in the Mad Hatter’s Tea Party. If you want real change you really have to want to change.

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Repercussions

The fallout from Jon Mandel’s statement at the ANA about Agency kickbacks has led to a number of anonymous executives admitting it has happened under their watch and some even confessed to participating themselves. Now, this doesn’t mean that these individuals received kickbacks, but that they allowed their agency/media company to take or give money for a media buy. Initially I thought Jon Mandel was overstating a problem, but apparently it is more prevalent than we could imagine. This is certainly more significant than an agency taking the 2% cash/pre-payment discount–which is still sometimes offered–and not offering the money back to the client.

In my last blog I focused on the kickbacks that were occurring out in the open via mega holding company specialty shops. Read that blog for background. So to go into more detail, here’s how the mechanics would work in two scenarios:

  • Moving buys through a barter division. To simplify things, media companies sometimes want to take clients on a trip or schedule a sales meeting in a nice venue away from the office. Rather than pay cash for these trips the media company will offer future access to media inventory at a reduced price or for free to a barter agency. This is easier than going to management and asking them to pay out-of-pocket, but the media company offers value of inventory that is higher than the cost of the trip. The media company can be more lavish and less cost-conscious, especially when it comes to taking clients on a trip. The barter agency sells the inventory either internally or externally at closer to market pricing and makes a significant profit. The barter division of the mega agency holding company tries to move this inventory internally first, where they can ask for equivalent market pricing. If they sell it externally it needs to be sold at below market pricing. Suddenly a 2% commission on national Cable TV becomes 25% or more–I’m being kind. Remember, some of this inventory can be accessed for free. Barter division provides kickback to media agency to ensure the deal goes through.
  • Non-disclosed media buying. Marketers less familiar with the agency process or infrastructure might be led to believe that their media buying is falling under the master contract with a creative agency when, in fact, it does not. The media agency adds their commissions into the media prices they quote, taking a high commission rate. The creative agency keeps all of their fees, not having to pay for media service while completely offloading the labor. Sometimes they even get a kickback above and beyond their fee.

Both of these scenarios would pass muster on an audit because the audit only goes one transaction deep. The auditors are not examining every transaction nor do they know there are secondary transactions. The kickback would always be treated as a separate transaction, not discounts on invoices.

The more you know, the more you don’t want to know.

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My Agency Can Beat Up Your Agency

The business world is abuzz with talk of the merger of Publicis and Omnicom.  Like it or not, two of the largest advertising agency financial holding companies coming together will have major impact on the industry.

These two companies coming together can mostly be viewed as a positive for smaller independent marketing service agencies. The more consolidation there is at the large holding companies the ‘safer’ the decisions that they have to make. These are public companies whose primary interest is increasing shareholder value.  Public companies answer to Wall Street. Wall Street prefers predictable results in financial reporting. This forces companies to make short-term decisions that could harm them in the long run; like laying off expensive personnel to make quarterly numbers despite whether those people can help you in the tomorrow. I worked at a large agency holding company ten years ago. I was a casualty of numbers despite being the only person in the agency’s New York office bringing in incremental revenue. The agency I worked for has been down more than up since I left and I’ve gone a more entrepreneurial route.

These financial holding companies were already big. They just weren’t the biggest. Now they are. But the obvious question is how does this merger benefit clients? I don’t see it. Clients that wanted a large pool of resources already had that. Clients that wanted stability already had that. Is there a benefit of the new ‘clout’ of the combined media agencies? No. Because they should be negotiating each client deal separately AND the media sellers aren’t going to roll-over just because these guys are now even bigger. In fact, this merger can hurt clients because the agencies are now negotiating against themselves. Fewer players in the market negotiating shifts the power balance back to the sellers.

So what is this merger about? Is it the personal war between Maurice Levy, CEO of Publicis and Martin Sorrell, CEO of WPP, the world’s biggest agency holding company until today? It’s no secret that these two do not like one another. Could it be that Levy is on an acquisition spring just to thumb his nose at his rival? If that’s the case what will Sir Martin do to one-up Maurice? And why is this “my agency is bigger than your agency” nonsense good for anyone?

While not a good move for clients of these two holding companies in the end there might be greater value placed on smaller more integrated marketing agencies who will likely have less turn-over, fewer distractions, less bureaucracy, and better talent working on client business.

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