Agency unrest over e-auctions and hidden agendas

Marketing experts fear a rise in the use of “e-auctions” during new business pitches will lead to the commoditisation of the industry.

The Marketing Communication Consultants Association’s (MCCA) procurement consultant Rosie Doggett warns that media will become a commodity should the trend increase without stop-gap measures being put in place.

She says: “If agencies don’t know how to respond properly then e-auctions are certainly detrimental to the marketing industry.” Others suggest the strategy from certain advertisers risks making media more about cost than strategy, giving procurement officers an even greater role in “marketing” decisions.

One agency head says: “There is a chasm emerging: some agencies will compromise on price, whereas others still won’t. It seems those that do will benefit more from e-auctions where price is a clear differentiator. However, in the current climate it is harder than ever to stick to your principles.”

Increasing trend Abbey, the Santander-owned bank, is just one client that has used e-procurement to kick-start a pitch. It used an online process for media agencies pitching for its planning and buying business, which is believed to have led to some agencies pulling out.

The use of e-auctions in pitching is also spreading to creative and direct marketing services. Abbey was expected to tender its direct marketing account wholly online, although evidence from agencies involved says that is no longer the case.

Mediaedge:cia business development director (EMEA) Keith Tiley says he can see why clients are willing to pursue the online trend but warns that supplying media differs wildly from supplying components.

He says: “The trend is increasing rather than going away. From an agency side, procurement people are driving costs down, but clients face the same pressures. Everyone is being squeezed on margins and we all have to be accountable.”

He rues the over-involvement of procurement departments saying online pitching risks making media a commodity. He adds: “It can commoditise media, which is ironic when you consider that a lot of the marketing community thought that is precisely what would happen when the agencies started to consolidate.”

Tiley adds: “Price is a very simple, straightforward comparison but the frustration is that quite often that doesn’t account for the value of an agency’s skill-set. Media isn’t that cut and dried.”

Doggett, who also consults for Rank Hovis McDougall and Royal Mail, says the online world is here to stay and both agencies and clients must do more to understand how it works. The MCCA is urging its members to sign up for e-auction training and is asking clients to be explicit when briefing for pitches.

Ever tighter margins She says an e-auction is often used near the end of a pitch, after agencies had been told “cost is not an issue”. She explains: “A lot of agencies are unhappy with the way that many clients are positioning e-auctions to them. Agencies are being told categorically that it is not about cost, then weeks later are told that actually it is. Competitive pricing is becoming more and more prevalent.”

One insider explains that while procurement e-auctions work well for items such as stationery, basing marketing services on such a narrow basis “fundamentally misunderstands marketing as a professional discipline with requisite creativity”.

Doggett reiterates: “Effective procurement should be based on a key principle: value for money, defined as the optimum combination of costs and quality to meet the user’s requirement. Optimum is the key word that both sides of the debate should embrace.”

As margins are squeezed ever tighter and media becomes more fragmented, agencies face a difficult balancing act between becoming both cheaper and more specialised than before.