Sorrell's claim came in a Q&A about how tough clients are becoming in the recession, something that BNET has noted here and here. As an example, he said agencies were not just promising reductions in fees, but if they went out of business were promising to pay back clients the promised reduction in addition to the foregone fee:
I think price cutting is more common with the media agencies. However, there are certain incidents which make the situation even more disturbing. I know of two media agencies in particular which have guaranteed media pricing not only against their fees but beyond their fees.(BNET Advertising would love to know which agency is being sued, which client is the plaintiff, and in which court this paperwork can be found. Email jim edwards 123 at hot mail dot com with answers!)
Let me explain: Let's say the client has a budget of $100 million and the fee for the media agency is $2 million. These agencies guaranteed their respective clients a price reduction of $5 million and in case the agency fails, it will not only do away with its fee of $2 million, it will also pay another $3 million to the client. Earlier, what they used to do is guarantee the client a price reduction of $5 million, and in case of failure, they would do away with the $2 million fee, but now it's beyond that. I know of an instance where a client is suing a media agency because it failed to deliver that guarantee as promised.
Life is tough at WPP, too: Its TNS unit just ordered staff to take two weeks' unpaid vacation. Translation for Americans: Given that the Brits get four weeks vacation a year anyway, this means they'll be on holiday for six weeks -- more than an entire month. Oh! What a lovely recession.
- See previous coverage of WPP:
- P&G, Reckitt Production Changes Threaten Volume Discounts for Agencies
- Citi Cuts WPP to "Sell"; Sorrell Defends "Suicide Pact" on Pay; Attacks Obama on Taxes
- Sorrell's Comments on Procurement Reveal Opacity of Agency Billing Practices
- WPP's Sorrell on Y&R Lawsuit: "Bring It On!"
- WPP: Sorrell Sees No New Client Dollars; Layoffs Possible in Europe; Zimbabwe Eyes an Opportunity
- Could WPP Chief Sorrell's Successor Be Lord Stephen Carter?
- WPP Stock Down 11% as CEO Sorrell Gets $95 Mil. Pay Package. Coincidence?
- At WPP, Sorrell's $95 Mil. Pay Package Gathers More Foes -- But Passes Anyway
- WPP's Sorrell Wants $95 Million Pay Package; Sparks Protest at "Unnecessarily Complex" Scheme
- WPP Alleges "Secret Payments" Spoiled Deal With George Patterson, Communications Group
- WPP's Sorrell Dusts Off Latest Wacky Recovery Metaphor: "An Italic L, Flipping Up"
- Sorrell Prepares to Leave WPP Amid 7,000 Layoffs