AICP Admits Volume Discounts Exist; Offers Them to Clients Instead of Agencies

Last Updated Aug 27, 2009 3:42 PM EDT

An op-ed piece by Matt Miller, CEO of the Association of Independent Commercial Producers, in Adweek shows that two trends in the business seem to be converging: The push by client procurement execs for closer scutiny of ad budgets; and the fact that once-expensive creativity is becoming a cheap or free commodity.

Miller's piece crystallizes these two dynamics, but not, perhaps, in the way he intended. Miller represents the TV spot makers whose ox is being gored by Procter & Gamble's new policy of creating "preferred vendor" lists with fixed prices. Naturally, he's against it:
I believe P&G's current approach to creating a preferred vendor list is ill-conceived, primarily because it takes the approach of creating a custom product (a commercial) and attempts to quantify its individual costs in the same way it may when buying ingredients for manufacturing a bar of soap or purchasing office supplies.
It's telling that Miller says it is unreasonable to quantify the costs of shooting a spot. Given that the advertising business has shot millions of commercials over the years, the idea that costs still can't be quantified is a stretch. More importantly, clients and agencies are slowly figuring out that digital tools being offered on the web give even rank amateurs the ability to make some of the most compelling and entertaining content for negligible costs. Until the AICP's members figure out a way to harness that trend rather than oppose it, they're going to look like very expensive King Canutes demanding that the tide turn back.

In place of P&G's vendor lists, Miller offers a compromise:
For instance, in exchange for a certain volume of work, a production company might be able to lower its costs; or, if the client was to set up a fair, direct payment schedule with the production company and guarantee timely payment (a rarity these days), the production company could use that cash flow as a consideration to lower overall cost.
This amounts to a Freudian slip: Having argued that fixed prices on a vendor list are wrong because they cannot be quantified, Miller now says that producers might indeed be able to lower their costs. One can only lower ones costs if one already knows what one's costs are ... well, you get it.

And how might these costs be lowered? "In exchange for a certain volume of work." Call me old-fashioned, but that sounds exactly like a "volume discount" of the kind that got Aegis and Interpublic into so much trouble. Their vendors paid the agencies back a rebate on the volume of work they received, and those agencies failed to pass the payments on to the clients whose money earned those rebates. That was once a standard industry practice in Europe -- until lawyers realized it's the same thing as fraud.

Miller's position offers one evolution in the process: He seems to be suggesting that the volume discount now be paid to the client and not the agency. This is a good idea. Clients should take his members up on it.

In the meantime, a preferred vendor list of producers who agree to quantify and fix their costs looks to me as if P&G has decided to skip the negotiation: It's setting its own volume discount, and producers can take it or leave it.

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