Will agency fee erosion 'kill the sector'?
A view from Staff

Will agency fee erosion 'kill the sector'?

While the MAA claims the relentless screwing down of agency fees will "kill the sector" if continued unchecked, some marketers believe shops should just "get...

Fair pay for agencies is one of adland’s hoariest old chestnuts, a subject that has been chewed over so many times over the years that the flavour has long left it. So maybe it’s no surprise that the Marketing Agencies Association should be attempting to put some spice back into such tedious fare by claiming that the relentless screwing down of agency fees will "kill the sector" if allowed to continue unchecked.

Hyperbole or not, the fact remains that examples of what seems to be excessive parsimony by clients keep surfacing. The latest is highlighted by a seemingly curious decision by WPP to withdraw from the contest for the McDonald’s consolidated creative account in the US.

WPP has not explained its decision, although industry sources link it to the onerous conditions reported to have been imposed by the fast-food giant. One is said to be that the winning agency should operate at cost, essentially breaking even.

Hyperbole or not, the fact remains that examples of what seems to be excessive parsimony by clients keep surfacing.

On the face of it, this would seem to bolster the MAA’s contention that agency fees are in a race to the bottom. One example is the average charge-out rate for a creative, which was £133.33 a day in 2002 but has now fallen to £119.58.

According to the MAA, this is the result of procurement being allowed to rule the company roost and that agencies will not be properly valued again until marketing departments wrest control back from the finance and procurement specialists.

Ad industry leaders believe what has happened is a consequence of the 2008 economic crisis, which allowed procurement specialists to thrive in the new austerity. Agencies abhorred what they saw as procurement’s blunt-instrument approach, which, they claimed, drew no distinction between advertising and other supplier services.

A lot of clients, however, argue that agencies have not woken up to the new realities and deplore what one describes as their "woe is us" attitude.

New research from ISBA suggests that fees to agencies are actually increasing for the first time in 20 years, although it admits this may be connected to the broader range of services that agencies now offer clients. Moreover, ISBA claims that only 18% of client agreements with agencies are negotiated solely by procurement specialists.

"Blaming procurement for what’s happened is completely wrong," Debbie Morrison, ISBA’s director of consultancy and best practice, says. "It has become an easy target on which the industry can blame its troubles. Agencies need to be showing more confidence in themselves and their abilities."

ISBA claims only 18% of client agreements with agencies are negotiated solely by procurement specialists.

Matt Barwell, Britvic’s chief marketing officer, argues that the issue is not about marketers seizing back control from procurement but in forming mutually beneficial commercial relationships.

But he warns: "I think there is a risk that we lose sight of value as we chase costs, given the pressure we all face to deliver top- and bottom-line growth. We want creative agencies to attract the very best talent and, as a brand owner, I want the best of these working on my brands. To achieve this, we need to pay our agencies fairly."

Paul Bainsfair, director-general, IPATrade body

Paul Bainsfair, director-general, IPA

"Although it’s not fair to say that the erosion of agency fees is killing the sector, the situation is causing it serious damage.

"It’s been exacerbated by the ‘new normal’ that emerged after the 2008 financial crash, when companies began believing that screwing down suppliers and paying them late was the way it should always be rather than just a response to a crisis.

"In general, agencies have done a good job in remodelling themselves to do what clients want for less money, although it hasn’t been easy. We can only continue engaging with clients and making the case that advertising services are not a commodity."

Marketer

Peter Duffy, group commercial director for customer, marketing and product, easyJetPeter Duffy, group commercial director for customer, marketing and product, easyJet

"I suspect that we’ll still be having the same debate about agency remuneration in ten years’ time. The fact is that procurement departments are increasingly active across big companies and not just in marketing.

"As a result, I don’t think marketers can ask to be exempted from more robust controls. Far better that we’re fully involved with the procurement specialists.

"We pay VCCP handsomely for the services they provide and that contract is negotiated together with our procurement team. It’s up to our management team to get the right talent for the right price."

Consultant

Tina Fegent, marketing procurement consultantTina Fegent, marketing procurement consultant

"If agency fees have been eroded, the blame can’t be laid entirely at procurement’s door. There may be any number of reasons why this has happened. The market is oversupplied and sometimes agencies will work for less than they should because the client is important to them and they have the resource.

"Also, agency finance directors need to be stronger. I’ve seen some shocking examples of time management at agencies.

"The answer is mutual understanding. Procurement people have to understand that they can’t buy advertising services like other supplies. But agencies need to be more proactive in getting procurement people in to see how they work."

Marketer

David Wheldon, chief marketing officer, Royal Bank of Scotland; president, World Federation of AdvertisersDavid Wheldon, chief marketing officer, Royal Bank of Scotland; president, World Federation of Advertisers

"Whingeing about procurement has become endemic in the advertising business and it helps nobody. Marketers need to understand the needs of procurement but it’s also up to agencies to protect themselves. Bartle Bogle Hegarty has always been excellent at defending itself and not working for clients that refuse to pay a fair price.

"Agencies have traditionally not been good at managing themselves financially. I don’t recall them complaining in the 1980s in the days of full commission and when life was easy.

"There’s no need for a big debate. Agencies just have to get over it and get on with it."