Big agencies profit from global tactics

Increasingly, multinationals are culling roster agencies and dividing large chunks of work between a small number of advertising networks to cut costs and build global brand awareness.

The unstoppable march of the big agency network is gathering pace. Shell’s decision to slash its roster of European agency networks from three to one (MW January 17) is the latest in an accelerating trend towards global advertising centralisation.

This week, HHCL & Partners joined the losers when Campbell’s shifted its 6m Homepride sauces range into Young & Rubicam, which only joined its worldwide roster in December. HHCL faces losing again when the Mazda realignment into J Walter Thompson is completed later this year.

At the same time, Marmite manufacturer CPC International is starting the same process by reducing its roster of 23 local agencies on global soup and sauce brand Knorr to align it into just four networks – BBDO, BMP, Grey and Young & Rubicam (MW January 17).

CPC refuses to confirm the move, but insiders predict the company will in time move the rest of its brands, ranging from Ambrosia to Bovril, into these networks. It mirrors moves at Nestlé which cut its roster of more than 100 agencies to five (McCann-Erickson, Ammirati Puris Lintas, Ogilvy & Mather, J Walter Thompson and Publicis/ FCB) in 1991.

While not a wholly new phenomenon, it is one which is accelerating with several international agencies reporting that more clients are investigating realignment.

The starting point for many was IBM’s decision in 1994 to ditch 80 agencies worldwide and move its 300m-plus account into Ogilvy & Mather. Colgate-Palmolive, Bayer, and Reckitt & Colman are among those which have followed suit by switching millions of pounds worth of business out of tens of agencies into just a handful.

But now the process is speeding up. Companies want constant “communication partners”, and that means a long-term relationship with fewer agencies. This does not necessarily mean paying less for advertising because some clients see the best way to get good service is to pay fewer agencies, but pay them well. Inevitably clients will save cash internally, through management efficiencies such as cutting the number of senior and highly-paid marketing personnel.

“The less informed clients are doing it more as a cost-saving exercise,” says one agency source on the receiving end of a recent decision. “It is usually the smaller ones with smaller budgets that want to do it to reduce costs. But others, the ones that see the way to create a strong brand is through a global brand, see it as a long-term ideal.

“This (move to a global strategy) will happen more as the old school grow out of jobs at the top of client companies and retire. Then it will be easier for people to introduce and manage global strategies.”

Dan O’Donoghue, joint chief executive of advertising agency Publicis, one of the losers in the Shell pitch, says motivation is the overriding factor for multinational clients: “Rather than cutting the commission of their two agencies and leaving both unhappy, they can see it is more profitable to cut this to one agency on a better commission. The client saves money and the winning agency is well-motivated.”

But it also goes hand-in-hand with client moves to make internal structures more centralised. Clients, under relentless pressure to cut costs, are rationalising their portfolio of brands, and with it the number of agencies they employ. They are exporting their successes into other markets, for example Bass with Caffrey’s Irish Ale going into Scandinavia, and Unilever with ice cream brand Ranieri entering the UK. This is arguably easier to achieve through a network.

The agencies winning the “super-pitches” are those which can demonstrate the best way to administer an account, not necessarily those with the best strategic or creative thinking. But Martin Smith, managing director of Bartle Bogle Hegarty, an agency with an impressive creative track record but no network, disagrees that these developments will only benefit the networks.

“The trend is towards client centralisation,” admits Smith. “This does not necessarily mean a move towards agency networks but does mean fewer agencies. There are fewer decision makers at the client end. Different clients require different kinds of centralisation.”

BBH’s view is that good creative ideas cross cultural divides, so exciting ads can come from a single office but be co-ordinated internationally through strategic alliances with international networks.

This uniform approach to marketing and creative strategy obviously throws up huge commercial opportunities for any client. Levi’s is the classic example, with BBH’s ads running unchanged in more than 20 markets.

For local marketing directors, the simple reality is that if the creative strategy works, who cares if it originates in London, Amsterdam or New York? Local marketers only become demotivated when they are forced to use creative work that does not travel.

But the imposition of an agency, and the loss of autonomy over an agency appointment, can create tensions. According to sources, Sega’s appointment of McCann-Erickson to a pan-European account in 1995 made some local marketing departments angry. Within months, when manufacturing problems hit the company, those local operations were pacified by being given the advertising decision-making power back.

Martin Glenn, vice-president commercial, Europe for Pepsi Foods, says: “It is deeply frustrating if a market is forced to use a particular creative treatment, and it doesn’t work, but the local marketing team is not let off its volume targets.

“You no longer feel in control of your own destiny. If there is a discrepancy between your accountability for sales volume and how you can achieve it, people will leave or they will blame someone else when it goes wrong. It is not the best way to run a business.”

But if advertising centralisation is speeding up, where does that leave Coke? Since the company made the spectacular decision to move its global account out of McCann two years ago, it has put more than 30 agencies on its worldwide roster – moving in the opposite direction to the rest of the market.

Some advertising sources suggest the Coke pendulum is swinging back the other way – most of those hired are working on projects – and that Coke will follow the prevailing drift towards the use of regional networks. Perhaps the truth is simply that Coke is such a dominant force, and knows so clearly what it stands for, that it can trawl the world for the best creative talent and hire whoever it likes.

Meanwhile, the rest of the world is preparing for an agency cull, the like of which has not been seen before.

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