Markets

Why Belgian Ad Agencies' "Pitch Strike" Is Doomed to Fail; Ayn Rand Theory Put to the Test

By Jim Edwards

Updated on: February 11, 2010 / 12:08 PM EST / MoneyWatch

About 20 ad agencies in Belgium have gone on a "pitch strike" -- refusing to participate in competitive bidding contests for ad accounts where more than three agencies are being considered at a time. The effort will be a delightful test of Ayn Rand's idea (in Atlas Shrugged) that talented capitalists ought to go on strike and show the moochers where wealth really comes from. It is, of course, doomed to fail.

The strikers argue that pitches involving 10 or more agencies put them in the impossible position of throwing resources at contracts they are unlikely to win, and that this wasted effort inevitably detracts from the service they're supposed to be providing from their existing clients.

The participating agencies -- which include such big names as JWT, Ogilvy & Mather, BBDO, Saatchi & Saatchi, and McCann Erickson -- have each replaced the front page of their web sites with an open letter to clients that complains, "if 10 agencies are taking part, that's a 90% percent chance that [we're] taking a bruising for nothing." Cleverly, the letter is spread into sections so to read it in its entirety you must click through several different agency web sites. (You can start here.)

It comes on the heels of increasing discontent among agencies with clients who want to know exactly how agencies spend their money. Danone (BN.PA) is suing Aegis (AGS.L) after that media agency was found siphoning lucrative media credits to its own executives rather than back to its clients. And TBWA/Chiat/Day has appointed a chief compensation officer* to wrassle with ornery clients over who gets paid what and when.

This is a battle that agencies will lose. Despite the rhetoric, ad agencies are merely vendors to their clients. They are not strategic business partners, or business owners, or investors, even though they frequently call themselves that.

TBWA CEO Tom Carroll has for years advocated that clients ought to guarantee agencies a profit on their business. But should they? A decorator recently did a horrible job renovating my bathroom and guess what? He didn't get all his money. Why should ad agencies be immune from this type of economic reality?

In terms of the strike, ad agencies should ask themselves if this is really their clients' fault or their own. If you know there are nine other contenders, why would you bother pitching in the first place?

And clients aren't stupid. They know what this is about. If companies agree to only consider three agencies at once, then this artificial restriction of market supply will -- like all restrictions on market supply -- ultimately increase prices. (It's a bit like the way U.S. TV networks artificially restrict ad-buying opportunities into a brief period in May called "the upfront.") Clients will simply regard a three-agency limit as yet another bizarre maneuver designed to make it harder to figure out the best way to deploy advertising money (see "related" list below for further examples of questionable agency billing practices).

A three-shop limit will hurt smaller agencies in pitches. If clients can only choose three, they're likely to go with the big names listed above, not with Tagora, Boondoogle, 7beaufort or Kunstmaan**, who are all participating in the strike. Big agencies tend to control the international industry associations and lobby groups, which is why London's Institute of Practitioners of Advertising and South Africa's Association for Communication and Advertising have endorsed the strike. So expect small agencies to turn scab on this strike at the first opportunity.

Lastly, even if an agreement is reached it will fall apart as soon as the first big client wants it to. If Procter & Gamble announces that its procurement policy will be to consider a minimum of four agencies per pitch, Saatchi will be there wagging its tail in agreement.

*Does absolutely everybody in advertising need a C-suite job title? (You can refer to me as "chief BNET Advertising blogger" from now on.) **I am not making these names up!