Marketers slam agency mergers

The recent spate of agency takeovers has provoked strong reaction from those most affected by the mergers – the clients.

Some of the UK’s top marketing directors have hit out at the latest wave of agency mergers, and accused advertising executives of lining their pockets at the expense of their clients.

Marketing Week talked to marketers from top companies such as Shell, Sony, Royal Bank of Scotland, Sainsbury’s and Prudential.

They do accept some of the commercial logic of ad agency mergers and agree that the global consolidation of many brand owners means ad agency networks need to follow suit.

Tim Lewis, Royal Bank of Scotland marketing director for credit cards, says: “Increasingly, companies are trading across country boundaries and demanding global agencies. It can be very frustrating for a client to deal with a number of small agencies in different regions because you lose consistency and it is more expensive.”

But the marketing directors have criticised mergers for the ensuing disruption, distraction of management time, and creation of bureaucratic organisations which, they believe, deliver reduced creativity. Some say bonus payouts to ad executives after mergers inflate egos and can lead to in-fighting among fat-cat directors.

The partners of Rainey Kelly Campbell Roalfe became millionaires after combining with Young & Rubicam, while top executives at the merged Leo Burnett and MacManus, and Lowe Worldwide and Ammirati Puris Lintas (APL), stand to make up to $100m (&£62.5m) each from the deals.

Combining two agencies is a lengthy and bumpy ride for any client. The agency which emerges could be very different from the one the client chose to handle the business in the first place.

When APL announced its merger with the Lowe Group two weeks ago, IPG chairman and chief executive Phil Geier said the deal brought together “the professionalism of APL and its global clients with the creative strength of Lowe & Partners”.

Alan Welsman, UK marketing director of Sony Computer Entertainment, has been through two mergers with his agency TBWA GGT Simons Palmer.

Welsman believes TBWA dealt with its mergers well. He is a satisfied customer and says Sony PlayStation’s creative product has become more “radical”.

But he adds: “To say there is no disruption would be a lie. If you didn’t have a good relationship with your agency initially, you would almost definitely review.”

There is also a strong feeling that clients move down the list of agencies’ priorities after mergers take place.

David McNair, former director of marketing at Sainsbury’s, says: “The main beneficiaries of mergers and acquisitions are the major shareholders in the company.

“Egos within agencies are massaged further by those big pay-offs. But if the two agencies don’t have sufficient convergence of cultures or there isn’t a strong enough management team to create a new culture, agencies could spend more time in-fighting rather than focusing on the job at hand.”

Advertisers are also concerned about the cultural change from independent agency to merged entity. David Noble, director of marketing at Sainsbury’s Bank, says: “If merged agencies become too centralised, clients find it harder to get work out of them because they lose their flexibility.”

Raoul Pinnell, global head of brands and communications at Shell International, thinks agencies make false assumptions. “I see a case for mergers such as O&M and JWT’s media departments into MindShare. I see it as a cost benefit for the clients,” he says. “But some agencies are assuming the clients want all services to be specialist, when all we might want is independent media buying.

“They also talk as though they have consulted with their clients – and as far as I know, they haven’t.”

Advertisers also have concerns that as the agencies grow, the creative work is watered down. “Generally speaking, the bigger the agency, the more bureaucratic – and less creative – it becomes,” says one marketing director.

Pinnell agrees with this theory. He also believes that this will put “virtual agencies, and creative hot-shops” in a good position.

Martyn Lambert, marketing director of Dell Computers, says: “Agencies combine for reach and coverage, but my question is whether that helps clients who usually buy for creativity, execution and knowledge.”

Mergers present problems for global clients wishing to review their business. The list of global agencies which can pitch for business is being reduced all the time.

Mike Sommers, financial services consultant and acting marketing director for Prudential Retail, points out: “Mergers such as APL/Lowe and Leo Burnett and MacManus are bad for clients because advertising is a mature industry. While they take the cost out of the business for the agencies involved, they reduce choice for clients because the agencies already have a global reach.”

McNair agrees: “A lot of clients will be sitting down and considering the implications {of these mergers} to see what choice they’ve got in their individual markets.”

The aim of last week’s &£35m acquisition of the Added Value Company by Tempus is to get its media company, CIA Medianetwork, into chief executives’ offices. Added Value’s services are called on by top executives of companies such as Shell and Coca-Cola to advise on brand strategy. CIA has a powerful new business tool with which to lure new clients.

Peter Dart, chairman of the Added Value Company, believes the tie-up with Tempus is shaping the communications company of the future.

Dart says the intention of the merger was to offer clients a service they are looking for. He says clients are calling out for strategic understanding before the creative solution.

“What comes first is understanding the brand,” he says, “which is what we already offered. But now we can take it to the next stage and help the client understand the world of media.”

Agencies must balance the needs of global clients with those of local clients, but it seems that unless the business is international, it does not count for much.

Agencies must prove to their clients that the bigger, merged agency is a better proposition.

But some of the onus also falls on clients to use their buying power. As Alan Shepherd, marketing director of Iceland, says: “In the end, clients always get the advertising they deserve. If an agency is not giving you the advertising you want, it is up to you to ensure that is sorted out.”

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