EUROPEAN AGENCIES: The cost of pitching

Despite having no guarantee of return, huge and costly pan-European pitches are now becoming more common. Rhymer Rigby looks at how this affects clients and agencies.

Pan-European pitches are never going to be as easy as single-country ones. Instead of one market, you could have a dozen, each with its own unique set of circumstances - and problems. The sums of money involved are far larger. And there are commensurately more (and often more demanding) constituents to satisfy. It's a bit like the difference between getting legislation passed in Westminster and getting it passed in Brussels.

Still, although it's hardly new, the pan-European pitch (PEP) seems to have taken on a life of its own over the past couple of years. First there was Gillette and Sony, which both dragged on interminably. Next came easyJet, where the client came straight out with it and told those pitching that they were, well, rather "price-sensitive". And, unless we see a sharp reversal of the business trends of the past 30 years, it seems likely that we are going to see more eight-month, meta-national pitch-athons, rather than fewer.

"I think that it's just something agencies will have to get used to," Glyn Hughes, the European commercial director of Initiative Media, says. His agency has recently picked up the pan-European account for France Telecom. "This pitch it started in mid-April and a decision was announced in early October. The days when clients decided on the beauty show are over. It's such a huge amount of money - such a big proportion of the marketing budget."

It has always been the case that PEPs are large, many-splendoured things.

"What you hear a lot," the president of Grey Worldwide, Carolyn Carter, says, "is that they were simple and have got complicated. But they always have been more complicated. They're not just about having a good idea; they've always been concerned with implementation and strategy. Which is never simple."

So, if the PEP has always been a hydra, why all the fuss now? The answer to this question comes down to two interlinked areas. First, for a number of business structural reasons, PEPs are becoming more prevalent and, arguably, more involved. The second - well, it's the economy, stupid.

The dotcom days when worthless companies had stacks of venture capital cash to fritter away and were beating a path to agency doors are long gone. Now, businesses need to save wherever they can. "The climate has changed dramatically," Hughes says. "We've been going through a very tough stretch."

In practice, this means a number of things for the industry. First, client companies are keen to achieve economies of scale - in other words, why have six different national agencies when you can have a single pan-European one? Second, because the sector is so soft at the moment, clients have considerable latitude to negotiate on price. And third, they may be keen to renegotiate contracts while prices are low.

All of these points are well-illustrated by the easyJet pitch. When it bought Go, the decision was taken to replace its dozen local suppliers with a single European one. EasyJet's head of marketing, Alistair Buckle, explains: "When we acquired Go, doing this was a no-brainer. We wanted one agency to work across Europe and across different types of media and, of course, allow us to achieve economies of scale."

EasyJet made no bones about the bottom line being the bottom line. "At the end of the day," Buckle says, "we're a low-cost airline and, of course, we have a duty to our shareholders." Accordingly, the company went in hard on price. Moreover, in order to get the right deal, it ensured it wasn't constrained by deadlines. "You need to have time," Buckle explains.

"It keeps the balance of power on your side. We didn't want to put ourselves in a position where we had to agree to something." The company extended its existing supplier contracts in order to give it the time to negotiate hard.

Buckle cautions, however, that there are limits to how far you should go down this route. "There's no point in driving such a hard bargain that the agency dumps you after a year." So OMD is heavily incentivised to hit targets and if it does so, returns could be impressive.

Other factors have had similar effects. One of these is a general business trend towards centralisation. Quite simply, mergers and acquisitions and globalisation mean that more and more businesses are becoming part of large groups. And large groups tend to divvy up the constituent businesses into geographic units such as North America, Asia-Pacific and Europe.

Moreover, within existing groups, the fashion is also for the centralisation of services, again in the name of efficiencies and economies of scale.

After all, in a world where call centres are concentrated in Hyderabad and manufacturing is done in China, having all your European media under one roof doesn't seem that strange. Why have a dozen agencies when one will do - and probably do at rather more favourable rates?

Of course, from agencies' point of view, this can make a pitch as much an exercise in logistics as anything else.

You have a London-based agency, doing a pitch in Paris to people from half-a-dozen different countries. Many of these will require completely different approaches. What's more, the agency is great in the UK, France and Spain, but it's less well known in Germany and Austrian. Therefore representatives of these businesses are wondering why it's been chosen.

Recalling the Shell pitch, Jane Ratcliffe, the joint managing director of MediaCom, explains: "The problem was aligning 30-plus business centres around the world." Then, on top of that, she says: "Centralisation involves consultants and auditors and, as with any other business, whenever you get more people around the table, they are all out to justify their salaries. Plus you have four or five points of contact when, before, you may have had one or two."

Although she says she enjoys working on these monster pitches, it is a process than can last close to a year - and with no definite reward at the end - so it can be a pretty long slog. One of the biggest problems is keeping your team motivated.

Of course, business is as prone to fashions as anything else, and centralisation is in vogue at the moment, regardless of its merits. Therefore, while it is true that some businesses have done very well out of putting all their eggs in one basket, others, you have to suspect, are in love with the buzz-words and concept - and following a fad that, in the final analysis, has little to offer them.

"It can be very difficult," Nick Fox, the senior vice-president for DDB International, says, "to encourage very different businesses round Europe to sing the same song." There are undoubtedly cases where it would be better off not trying in the first place.

Then there's the "P" word: procurement. Procurement teams tend to get something of a bad press, largely because nobody likes a cost-cutter, except, presumably, the person whose costs they are cutting. But does the use of procurement teams lengthen pitches?

"In my experience," Ratcliffe says, "'procurement weren't the people responsible for the length of the pitch. They're bought in once the agency has been chosen, in order to get the price down."

Fox says: "Certainly, procurement has become a definite stage in the process. And, in some of the worst cases, procurement teams are actually making the decision. The worst example I've ever heard of was one company in the US putting the bid online."

Like Ratcliffe, Fox doesn't finger procurement specifically but speaks of a whole raft of "clients, consultants, auditors and procurement". "The danger is you fall in love with the process and forget why you're doing this."

So, is the answer to strip out some of these peripheral people? Not necessarily.

"The growth of consultants," Carter says, "has largely been a positive - it can help focus clients."

When it comes to large and unwieldy solutions, Carter says: "Consultants can be very helpful in making people understand what is important." She has a point: a dozen countries, half-a-dozen media channels - it's unlikely that one team of people can handle it all.

There is also another, rather more intriguing, reason for using a procurement team. After the deal has been concluded, the client's marketing team and the agency have to be on speaking terms. Buckle says: "All contracts above a certain value are managed by the legal and procurement team. And there's a good reason for this - they are people who don't have to manage the day-to-day relationships. You don't want marketers to have to sit down and work with people after a bloodbath."

Of course, some of this will change when the long-awaited media recovery happens. And those who have become lean and mean in a downturn will be well placed to respond when business, and rates, pick up. "I think it will get better," Fox says. "It'll take a while for prices to climb back up to a healthy level. But it's been tough for everyone - not just agencies, but clients too. I think most mature clients and agencies have been looking into each others eyes and saying 'help me now' but things will improve - and you have to look on the bright side."

But what will this light at the end of the tunnel mean for PEPs? Unless current business trends reverse and fragmentation is suddenly in vogue, it is very unlikely that we'll be seeing fewer of them. But a stronger economy could make them less onerous. It ought to mean better prices, slightly less cut-throat competition and a tendency for clients to negotiate more gently, which could make for some reduction in the length of pitches. But a better economy also tends to result in an increase in mergers and acquisitions, which, in the medium term, is likely to mean even more businesses centralising their Eurofunctions.

So the overall forecast? Probably more PEPs, but they may be less of a schlep for those involved and the rewards at the end should be greater.

No-one likes working for nine months for an uncertain outcome, but agencies have to deal with this. Of course, there is the question of being paid to pitch, but this is probably a non-starter. As Ratcliffe muses: "I know everyone's said that we should be paid for pitches. I don't agree. But I do think there ought be some sort of time frame. Perhaps we should get fees after six months."


European Network Group European

ranking billings*

2002 (dollars m)

1 Carat Aegis 11,160

2 OMD Omnicom 7,740

3 Mediaedge:cia WPP 7,070

4 MediaCom Grey Global Group 7,045

5 ZenithOptimedia Publicis Groupe 6,465

6 Initiative Media Interpublic 6,410

7 MindShare WPP 6,100

8 MPG Havas 4,985

9 Starcom MediaVest Publicis Groupe 4,970

10 Universal McCann Interpublic 4,885

11 PHD Omnicom 650

Total networks 67,480

Source: RECMA.

Note: * included 1st quarter 2003.