CLOSE-UP: LIVE ISSUE/DISCOUNTING - Kimberly-Clark furore lifts lid on pricing practice. The hunt for global clients encourages undercutting, Francesca Newland writes

There can be no feeling quite like winning a global advertising account, so it follows that most agencies will go to great lengths in order to secure one - including, in some cases, kissing goodbye to profits from the business.

There can be no feeling quite like winning a global advertising

account, so it follows that most agencies will go to great lengths in

order to secure one - including, in some cases, kissing goodbye to

profits from the business.



Harry Reid, the international president of FCB, last week went on the

record accusing J. Walter Thompson of ’discounting’ in order to secure

the global Kimberly-Clark tissues account, on which his agency is the

incumbent and for which Ogilvy & Mather also pitched.



His fury is clear: ’Kimberly-Clark said ’lets talk to our suppliers and

get the cheapest price’, despite the fact they fired that agency two

years ago. If they (JWT) make money on this account within 12 months,

I’ll eat a roll of Andrex.’



Predictably, his allegations are denied by both JWT and

Kimberly-Clark.



Mark Robinson, the marketing director at JWT, says: ’We don’t take on

business that doesn’t make money. We look on this as an excellent

deal.’



A Kimberly-Clark spokeswoman adds: ’This decision was not made on a cost

basis. The packages (from O&M, FCB and JWT) were similar in terms of

cost.’



Reid’s words have to be taken with a fistful of salt. Banks Hoggins

O’Shea/FCB, the network’s London outfit, has just lost one of its

biggest accounts - Andrex in the UK alone is worth about pounds 9

million - so he is hardly an impartial observer.



But true or untrue, Reid’s allegations are echoing around the industry

as if ’discounting’ was some kind of dirty word. As one senior

advertising executive warns: ’Beware of global clients: they’re

double-edged swords. They bring the need to compromise creative work and

to discount.’



However, with more and more networks known to be offering discount deals

(although none will admit to it), you have to ask what is so wrong with

the practice?



Jerry Judge, president of Lowe & Partners Worldwide, has an answer: ’The

whole issue is about appreciation and understanding of value.



People who put a low value on advertising will pay less. Agencies which

put value on what they make expect to be paid decently. It enables them

to continue to give clients the best work.’



The feeling is that if an agency charges too little, or is forced by a

client to accept very low rates, the quality of the work will

suffer.



One advertising executive says: ’You have to pay your staff well to get

good people. Over time, discounting will damage the whole advertising

industry, but it will damage the clients involved in it the most.’



He believes that in the kind of markets the global giants operate in,

advertising is at its most important: ’In mature markets, the only

competitive difference is brand values, and advertising is crucial to

them.’



William Eccleshare, the Ammirati Puris Lintas chairman and regional

director, Northern Europe, believes that some discount-based relations

can be short-lived: ’There have obviously been cases where agencies have

bought business and have been unable to service it properly so have gone

on to lose it two years later.’



And what about the agencies other, smaller clients? One international

advertising head says: ’The people paying for the discount are the

agency’s other clients.’



This is one reason why no agency will ever admit to discounting. On top

of this, its other clients will almost certainly ask why they can’t be

cut a similar deal.



But like it or not, discounting is becoming more widespread. Clients

seem to have woken up to their power and are dictating stricter terms to

agencies. Judge says: ’Advertising is becoming more global which

increases the purchasing power of the clients, who then feel able to

seek to reduce cost.’



Eccleshare adds: ’It’s a trend that’s been around for at least 15 years.

Since the demise of the standard 15 per cent, you have to negotiate on

every account. Five years ago the norm was that the terms of business

weren’t discussed until the business had been awarded. You had the

client by the neck. But now the terms of business tend to be part of the

negotiations before the account is awarded.’



Clients witness the grand style in which agency executives live and are

themselves the recipients of some very lavish entertainment from their

agencies, so they could be forgiven for assuming agencies have lots of

cash to spare.



However, Reid argues: ’Most clients are responsible in this area. They

strike a fair deal because they want good people on their accounts. They

want the agency to make a fair profit. Many use incentives - they’ll

increase the agency’s percentage if sales are good to motivate us.’



But discounting would not be widespread if there were not benefits to be

had. There is a lot of prestige in running a global piece of business

like Kimberly-Clark. One international advertising source says of the

JWT parent, WPP: ’Kimberly-Clark’s centralisation into WPP gives the

group critical mass and credibility at a time when it lost (lead status

on) Ford in Europe.’



Even when running a discount on international accounts, there are

financial rewards on offer. Eccleshare explains: ’If you are running a

multinational network you have massive overheads. Every new piece of

international work brings the cost per account down. Every new win

brings some additional overhead recovery.’



With centralised global accounts on the increase, discounting is a

growing phenomenon. It’s a case of having to act responsibly within a

free market.



Agencies and clients should be mature enough not to carve out terms that

render effective account servicing impossible - if they can do that,

both parties stand to benefit.



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