Agencies Fight Against Procurement Execs - a War They Will Surely Lose

Last Updated Nov 2, 2009 11:57 AM EST

The procurement process is a simple one. It brings in finance professionals whose job it is to drive down costs for the client by asking, Can we do this cheaper? Ad agencies who can do the job for less win accounts, those who cannot, do not.

Although companies routinely source their vendors based on price, ad agencies historically have believed their costs should be immune from such examination. They are commercial artists, after all, and their genius cannot easily be priced. As such, agencies are engaged in a long-term war against common sense, a war they will ultimately lose.

There were no fewer than three articles on advertising procurement in last week's Ad Age, all of them dedicated to agencies whining about the idea of their costs being subjected to scrutiny by professionals who actually understand billing. (Chief marketing officers, famously, remain largely ignorant about it.)

In Ad Age, comparing prices for advertising was descibed as "over-the-top," a job done by "inexperienced paper-clip purchasers" who hold "knee-jerk positions" "that don't make sense."

Of course, only one agency executive had the cojones to say anything on the record about it (the others appeared to be anonymous sources from the Volkswagen pitch won by Deutsch and the UPS pitch won by Ogilvy & Mather). That exec was JWT Chairman-CEO Bob Jeffrey, who wrote after bowing out of the UPS contest:
"They need to treat us or any agency as a partner, and it doesn't seem that is in their culture. We've invested significant time and energy in pitching this business, so we are not taking this decision lightly."
The mistake Jeffrey is making is thinking that JWT -- or any agency -- could be a client's "partner." Agencies are not partners. They are vendors. The clients pay the bills, not the agencies. The clients approve the work, not the agencies. The clients hire and fire shops, not the other way around.

If you examine closely what agencies are complaining about, their complaints are wholly unreasonable. In the Danone Group review, for instance:
"From the get-go, obviously both fees and media prices were a critical issue," said one agency executive close to the review.
The source objected to questions such as:
"Can you improve your net CPM?" "Can you improve the net GRP?"
Really, media buyers? Is it so unreasonable to ask you whether you can get the cost of advertising down? Especially as airtime is bought in aggregate, as a commodity, based entirely on price?

The ne plus ultra of the agency world's desperate fight against reality and transparency came from Matt Miller, CEO of AICP, the commercial producers' lobby group:
Did anybody explain to procurement that hard costs are virtually the same for all and are in check through competition and bidding, that cost differential is truly about approach?
So let's get this straight: Miller admits that "hard costs are virtually the same for all" and yet objects to a client looking for a "cost differential" due to "approach." This is the same Matt Miller who recently admitted that volume discounts do indeed exist in the TV commercial production business, and offered them to directly clients (instead of to agencies, who have traditionally tried to keep them as an extra revenue stream).

Agencies: Wake up. With the cost of creativity falling, you compete on price. Don't delude yourselves otherwise.