PERSPECTIVE: Squeeze Sir Martin and you're likely to get squeezed back

Well, hello again. Back in the editor's seat after six months off, I knew that the 2002 WPP annual report, published last week, would offer up a juicy theme for this column. Enter Sir Martin Sorrell who has elevated a corporate finger to those margin-eating grey-suited piranhas of honest agencies everywhere - procurement people. I know, I know, deeply easy to criticise and all that, but read on.

"The question remains," Sorrell writes, "whether the procurement process can successfully buy creative services, in the same way that door handles or widgets are purchased ... it seems to be based on the idea that what we provide is low value-added, and that, as we are dependent on significant revenues from large clients, we can be squeezed."

In these few words, Sorrell touches on the single most important issue facing the advertising industry today. No-one has yet succeeded in inventing a way to extract value from the value agencies create for clients. And the dire state of things can be covered in the single word: DuPont.

DuPont recently asked seven agencies to submit online the proposed charges for handling their account and explain how they arrived at them.

Apparently, when they undertook this auction the names of the rival bidding agencies were not revealed - just the price at which they were willing to handle the business.

Before this, the agencies spent three days presenting a global plan for the company's numerous brands before an audience of marketing and procurement executives at DuPont's corporate country club in Wilmington, Delaware.

Now maybe, just maybe, the qualitative differences between the agencies were taken into account. But if Ogilvy won the account with the lowest or even the second-lowest tender, it signals something very alarming for the ad industry.

It highlights the continual failure by the advertising industry to assert ownership of the value it creates for clients. A prime example: the net result of the WCRS Orange campaign is that Orange was sold for £29 billion on profits of £150 million. And yet WCRS, and presumably the present incumbent on Orange, got no more out of Orange than a fee. It was Hans Snook who got the £40 million.

Now, back to Sorrell who is clearly a genius where expediency is concerned.

When talking to WPP investors in the same report he trumpets the achievements of WPP's own procurement people (admittedly they are in areas such as travel purchasing and real estate but they are procurement people nonetheless).

When writing a lofty essay about the issues facing the agency business, he takes a mature, industry-wide view. When pitching for DuPont, he is prepared to play a vicious long-term pricing game with the best of them.

What he doesn't do, however, is ask what can be done to reward agencies fairly. Payment by results has to be the answer, doesn't it?

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