Close-Up: Live Issue - Agencies consider ratecard to fight back on fees

Adland is challenging the procurers by thinking the unthinkable. There is a palpable sense of despair among agency chiefs over what they see as the malevolent and menacing influence of client procurement specialists.

Not even traffic wardens come close to procurers on agencies' "most hated" list. Adland reviles them collectively for knowing the price of everything and the value of nothing. Little wonder that agencies will grasp at anything that may help restore the balance to what they see as a fee-negotiation system weighted heavily against them by the procurers' presence.

"We keep getting beaten over the head and we have nothing to retaliate with," Andrew McGuinness, the TBWA\London chief executive, complains.

Hence the heated debate within the IPA about whether it should compile a ratecard. The arguments for and against such an initiative are varied but the essence of the issue is simple. Would a ratecard provide a vital benchmark that puts agencies on an equal footing with clients? Or would it simply allow procurers to whack them even harder?

One reason why agencies are thinking the unthinkable and discussing the merits of a ratecard is mounting anger at what they see as ISBA's "divide and rule" tactics. The body's Communications Purchasing Action Group (Compag) has distributed data gleaned from members' negotiations with individual agencies for several years.

"Safeguarding data about our performance is always a struggle because so much is audited," the senior manager of a large media independent says. "The small margins between us and the next agency are what makes us successful. In other people's hands, that information is dynamite."

Whether a form of ratecard is the answer remains an open question. "It sounds OK in theory," Chris Hirst, the Grey London managing director, says, summing up a widespread view, "but I can't see how it could possibly work in practice."

The big problem with a ratecard - and the reason why the IPA has previously scuppered the idea - is its inflexibility and the difficulty of differentiating between types of agency. A report to last week's meeting of the IPA council suggested this could be addressed in any IPA set of charge-out rates.

Opposition to a ratecard is certainly not universal. Some small agencies, many of them outside London, may welcome the protection it could offer.

"I cannot see a problem as long as a ratecard is used only as a guideline," Trevor Lorains, the managing director of Manchester's Barrington Johnson Lorains, comments.

However, the consensus is that a ratecard would have little impact. "It would be impractical, unenforcable and, quite possibly, illegal," Rupert Howell, the chairman of McCann Erickson in London and a former IPA president, claims.

"I have a sneaking suspicion the clients and their procurement officers will always have the upper hand," Jeremy Miles, the chairman of Miles Calcraft Briginshaw Duffy, sighs.

Not least because of the cutthroat nature of the business. "As an industry, we don't have a good track record of using our collective bargaining power," Nick Howarth, the managing director of HHCL/Red Cell, comments.

Even media independents, well accustomed to using ratecards as a basis for negotiation, are less than enthusiastic. "The major media independents have virtually become media owners," Paul Longhurst, the managing director of The Allmond Partnership, argues. "They will spend a fortune with a television contractor and decide which of their clients will get the best discount. A ratecard could result in the defection of clients who are not doing very well."

Mark Cranmer, the Starcom EMEA chief executive, says: "Marketing pressures will always force ratecards to bend. And suppliers will keep bending as long as customers keep pushing."

Also, as Hirst points out, income may not be the prime motivation for an agency taking a piece of business. The opportunity to get a toe-hold on a client roster, boost staff morale or gain some PR mileage may be equally important.

Yet some senior industry figures claim procurers are merely a manifestation of a wider phenomenon and a ratecard is not the answer to their growing power.

"Since the stock market collapse of 2000 there has been a drive towards low-cost production and the rise of the procurement specialist is a symptom of a much bigger shift in corporate emphasis," Michael Baulk, the Abbott Mead Vickers BBDO chairman, explains. "We are part of a much broader sweep and must stop thinking of ourselves as a beleaguered minority."

If a ratecard is not the answer, what is? Many agency managers would prefer to let market forces prevail. "You want to negotiate business terms in isolation rather than off-the-peg," one says.

AMV and Grey have responded to the changing environment by hiring former client procurement specialists to sit in on fee negotiations. Tina Fegent, formerly of Orange and now Grey's commercial director, says: "Rather than creating an industry standard, we should be working towards paying an agency a fair price. You can't put a price on a person."

Howell thinks it should be obligatory for the managing directors of IPA member shops to be trained in fee negotiation, an area in which agencies are seriously deficient.

"The problem is many agencies are leaving board account directors to negotiate with clients," Paul Jackson, the chief executive of Ogilvy & Mather, points out. "Their forte is giving strategic and creative advice. They aren't financial specialists."

In the end, ratecards may be seen to be a superficial suggestion that fails to address a fundamental problem. "We shouldn't be fighting for standardisation because that leads to commoditisation," Gwyn Jones, the Bartle Bogle Hegarty chief executive, insists. "We should be fighting for ways to justify being paid a premium for a value-added product."

It is generally agreed that issuing a ratecard would represent a watershed in British advertising. As McGuinness puts it: "Once we've done it, there's no going back."

- "It's right that the IPA should be looking to protect its members but a ratecard would be impractical, unenforcable and, possibly, illegal. Clients are perfectly entitled to ask agencies to work for nothing. The problem is when everybody says 'yes'. We need a new study on what constitutes a reasonable agency margin. And it should be obligatory for the managing directors of every IPA member agency to undergo training in fee negotiation." - Rupert Howell chairman, McCann Erickson

- "Since the stock market collapse in 2000, there's been a drive towards low-cost production. The rise of procurement is a symptom of a much bigger commercial shift. It's not that the industry is being singled out for a kicking. We are just part of a broader sweep. Procurement people don't give a toss when we try to explain what sensitive flowers creative people are." - Michael Baulk chairman, Abbott Mead Vickers BBDO

- "As an industry we've never been very clever in the way we operate and undercut each other. Clients have procurement skills that agencies, generally speaking, do not. We don't understand the rules of engagement and we leave our board directors to negotiate with clients. Their forte is giving strategic and creative advice. They aren't financial specialists." - Paul Jackson chief executive, Ogilvy & Mather

- "The ratecard idea is flawed because it's out of line with the way our business is going. This is a time when agencies should be working with clients to find ways of linking remuneration to the value that's added. Also, ratecards don't allow flexibility and I have no faith in the IPA's ability to enforce them. As an industry, we don't have a very good track record of using our collective bargaining power." - Nick Howarth managing director, HHCL/Red Cell

WHERE ISBA STANDS ON THE ISSUE

ISBA is playing down the significance of Compag's practice of sharing confidential fee negotiation information among its members.

Debbie Morrison, the director of membership services at ISBA, claims that only general information is disseminated.

This would only reveal whether or not an agency is based in London, whether it is full service, media or creative, or whether the deal was based on a resource fee.

Its purpose, she asserts, is to enable procurement departments to evaluate agencies' services so marketers are better equipped to fight for marketing budgets.

Nick Smith, the director of marketing at British Gas, says: "Procurement's role is to help clients get the best value from their agencies. They supplement us, they don't lead us."

However, the problem lies in evaluating what an agency provides, which will vary wildly from brief to brief. And the fact that the creative execution is not quantifiable under ISBA's terms is widening the divide.

However, Morrison says transparent negotiations are already working successfully with some agencies, citing Clemmow Hornby Inge, Fallon and Mother as prime examples."They don't trade. They just say 'if you want our service, this is what it costs'," she explains.

"This attitude is successful. That is why such agencies are on the up curve while the others are flat because they are not prepared to trade on cost."

Morrison supports the IPA's discussions about agency fees. "Any hard information that informs the debate is just what procurement and marketing professionals are looking for," she says.

While she agrees there is a need for the two bodies to resolve this issue, Morrison claims the IPA has been dragging its heels. "I've been talking to the IPA about this for the past three years. We set out an agenda last year and I can't progress it with them. They're not talking to us," she says.

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