Last Updated Dec 16, 2008 2:50 PM EST
Clients often like to see three competitive bids on any work that costs more than a certain amount, for instance $25,000. For a bidding process to be fair, the bids should be made blind -- i.e. no individual producer should know what the competing companies bid. When you have an in-house producer bidding, the risk is that the in-house shop will know what the agency knows -- how much the competing producers bid and whether there are any special quirks that the client wants satisfied. Thus an in-house producer can undercut competing bids and take all the work -- and the client's money ends up going to the agency, not to the best producer.
This process still has the apparent advantage of directing commercial production to the cheapest bidder, as the in-house shop must still undercut the competition to get the work. However, in the long-run, the client ends up paying more -- and the agency ends up keeping more -- because the price is really being set by the two outside bidders instead of three outside bidders. Thus, the client gets the lowest of two bids rather than three. In-house commercial production has proved controversial in the past. In 2006, former Deutsch exec Steve Dworin sued Donny Deutsch for defamation. The complaint contained a laundry list of alleged sins committed at the shop, including the use of an in-house TV commercial production shop, Jones Films, noted Ad Age:
Perhaps the most serious allegation in the suit is that the agency generated revenue ``improperly, unethically and illegally'' through the use of a Deutsch-owned-subsidiary, Jones Films. ``Deutsch clients were misled to believe the agency's producers were fairly and ethically executing the traditional, blind, triple-bid bidding system, yet, unknown to them, they were hiring a Deutsch subsidiary that was given an unfair advantage in bidding. In addition, clients did not know the company was often making money twice,'' Mr. Dworin said in the suit.WPP's shop is called Sharp Shooters and will service all WPP agencies in India such as O&M, JWT, Grey Worldwide and Bates, according to the Economic Times.
- For more of BNET's coverage of ad agency pricing issues:
- Levi's Asks for Transparency and Media Buyers Balk