BBDO Loses Pepsi as Client Ad Bills Go Through the Roof

(MoneyWatch)  As Ad Age points out, BBDO's loss of Pepsi will be a major psychological blow to the agency. Omnicom did well to keep the business in its network (the account is off to TBWA/Chiat/Day). But none of the coverage says why the brand chose to give BBDO the pink slip. Here's one theory: BBDO was too expensive.

To read the press, you'd think that BBDO and Pepsi have been in a long, drawn-out, hair-pulling drama since about 2004. That was the year CEO Andrew Robertson fired creative chief Ted Sann without telling Pepsi.

Then Sann's replacement, David Lubars, made himself the star of a decidedly mixed profile in New York mag, in which he was portrayed as a vitamin-popping workaholic who objected to the author calling Phil Dusenberry and Charlie Miesmer for comment. But I'm going to bet that this was less of a soap opera and more of a financial issue. Take a look at Pepsico's income statement:

• Revenue rose from $10.2 billion to $11.2 billion in the last quarter.
• But net income went down, from $1.7 billion to $1.5 billion.

Isn't that interesting -- sales went up but Pepsico still managed to make less money.

A look at the line marked "Selling General & Administrative" gives the explanation, that's the line where ad agency bills are recorded. That expense rose from $3.4 billion to $3.9 billion.* The results were similar for the first nine months of the year.

What this means is that although Pepsi's advertising is getting people to buy more products, the ads are actually becoming more expensive than the extra sales they're adding on. Pepsi spent $1 million just to redesign its logo for instance (although that cost was expensed to the Arnell Group, another Omnicom shop.) Not all of this money was spent on BBDO, of course -- it covers all Pepsico's shops on all its brands. But that's the financial environment Pepsi is operating in.

So here's my advice to TBWA/C/D: Make sure you bill at a significant percentage less than your sibling shop in Manhattan. Otherwise you won't hold that account for very long.

*See note in the comments section.