The Nature and Role of Information 4 страница

Agencies may at this stage be invited to make what is called a credentials pitch - an opportunity to make a presentation proving their worthiness to be on the shortlist. They may not actually say very much about what, specifically, they would do for the client (it might be too early for this and, in any case, the preliminary brief would not give too much vital information away) but they would talk about their own track record and prove that they were worth considering. Credentials pitches do not always happen, for a client may be quite clear as to which agencies are to be shortlisted without such a formality.

Shortlisted agencies would then be invited to pitch for the account - to make a detailed proposals pitch. Advertising and public relations agencies put a lot of time, effort and money into pitching, sometimes going so far as to build special sets and put the presentation team into costume. Pre-pitch activities are not unknown either - an agency might pay for a hot-air balloon to be flown in full view of the client's windows.

The decision as to which agency to appoint would depend almost entirely on the quality of the proposals, the creativity and originality of the ideas and the extent to which the agency seemed to understand the client's needs and requirements. A client must be careful, however, not to be taken in by a polished presentation which cannot fully be carried out because the agency staff who will work on the account lack the necessary experience.

Sometimes the people making the pitch are not the people who will work on the account. It is usually wise to clarify this; if the people who will work on the account are not present at the pitch, the client should insist on meeting them, before signing anything. The ability to make a good pitch is not, in itself, evidence of ability to run a good campaign.

An agency may decline to pitch and may decline to make a proposals pitch even after it has made a successful credentials pitch. Reasons for declining might include:

· The agency is too busy to take on a new account. An agency may be interested in two different accounts at the same time, knowing that it cannot handle them both. If it wins one account, it may actually pull out of the other even after accepting the invitation to pitch.

· The agency does not like the competition: a less well-known agency may not wish to pitch against an agency with an established reputation in a particular field. Agencies do not, however, always know who the competition is nor, even, how many other agencies have been invited. For reasons of security a client may wish to keep this secret.

· The agency does not like the nature of the account: some agencies will not work for tobacco companies, for example. The agency might feel that it cannot work happily with the client or that the client is not prepared to spend enough money.

· The agency cannot afford at that time the cost of preparing a pitch which can run to many thousand of pounds. (An agency in this position might be unwilling to admit to it and, if pressed, might offer a different reason).

Client-agency relations

The agency should be seen as an extension of the client's organisation, not as an outsider. There may be a need to reveal sensitive information and this requires (a) that the client is willing to divulge it and (b) the agency personnel keep it confidential. In some agencies personnel are discouraged (even forbidden) from talking about the account they are working on with other members of the same agency. To some extent they become a quasi-department of the client and some of them will spend a considerable amount of time on client premises talking to and working with client personnel. It is in the interests of the client, when agency personnel are on its premises, to afford them every consideration in terms of a place where they can work, access to company records and access to company personnel. Similarly, on those occasions when the client visits the agency, the client should feel he or she is visiting colleagues not strangers. There will, of course, be conflicts and disagreements, but such things are just part of organisational life anyway and it would be a mistake for the client to think when coming away from a particularly difficult meeting that 'all the unpleasantness could have been avoided if we had just stayed in-house'. Figure 4.1 illustrates the difference between the agency seen as an outsider and the agency seen as an insider.

However, clients should always remember that agencies do not work for them full-time: agencies have their own business concerns as well. There are too many cases of clients who call unnecessary meetings and make other unreasonable demands on agency time only to discover that, at the end of the day, the time has found its way on to the agency's bill. Insisting that agency staff come to the client for discussions rather than the client going to them might show who is the boss, but the client shouldn't be surprised to be charged for the agency's time and expense involved.

Written reports are often as useful as meetings and less demanding on everybody's time - meetings should only be held when necessary. The client should ask for, and expect, routine progress reports and special reports, such as how the agency dealt with some unexpected contingency. Similarly, if the client has in-house meetings at which the agency is not represented, a report should be sent to the agency.

The outsider agency

Systems boundaries

Linkages across boundaries

The 'insider' agency

Systems boundaries

Linkages within overlapping boundaries

Fig. 4.1 The agency seen as outsider or as insider

The agency should know who is the contact person in the client's organisation and how contact can be made. The agency should also have a clearly identified person to liaise with (such as the account handler in an advertising agency). This is particularly important when trying to co-ordinate the work of several agencies or to co-ordinate in-house work with agency work.

The contractual and financial arrangements

It is sensible, before making a final decision, for the client to be clear about the legal and financial arrangements. Signing an agency up for three years may prove a costly mistake if after six months the client feels that things are not working out. The legal conditions for terminating an agreement must be clearly understood and set out in the contract. Break clauses may be used which say, for example, that the contract is for three years subject to an annual review. This lets the client get out of an unsatisfactory contract and also gives a dissatisfied agency the ability to quit. Generally speaking, the duties and obligations of both parties must be clearly defined, together with the procedures to be followed at all stages. There are no standard industry-wide contracts and it is in the interests of both parties, as the Society of British Advertisers puts it, 'to avoid misunderstandings that might damage the relationship... Legal advice should be sought where special provisions need to be included.'

A constant source of unhappiness between client and agency is the financial relationship and this particularly should be very carefully covered in the contract. There are several ways of paying an agency or, to put it differently, there are several ways in which an agency can charge for its services.

Table 4.1 A £15 million media campaign

Agency invoiced by media at rate-card price less 15 per cent	£12.75m
Agency invoice client at full rate-card price	£15.00m
Agency mark-up	£2.25m
NB £2.25 million is actually 17.65 per cent of £12.75 million. A mark-up of 17.65 per cent to the client is the equivalent of a 15% commission from the media.

Commission

Commission is the traditional method for advertising agencies. It was used exclusively in the early days of agencies and insisted upon by media owners. The agencies buy advertising space at a published rate (as on 'the rate card') from the media and sell it to the advertisers at the full rate-card price. The media, however, charge the agencies the rate-card price minus 15 per cent commission. In effect, this means that the agencies were making their profit out of the media and providing their services to the advertisers 'free of charge'. But it was not always perceived this way by the advertisers who saw themselves being charged a mark-up of 17.65 per cent and soon began to question the fairness of the system. Some thought that they should buy from the media direct and pocket the commission themselves; others thought that the agencies should share the commission with them (now called 'commission rebating') and many complained that the system simply encouraged the agencies to spend money recklessly on the client's behalf to boost their commission earnings. Table 4.1 shows how such a system works, using a £15 million media campaign as an example. If, as often happens now, there is a rebate in operation, the agency might pass on, say, 5 per cent of the commission to the client and take only £1.5 million itself. The rigid commission system is no longer enforceable and specialist media buying companies can work on a profit as low as 2 or 3 per cent, rebating as much as 12 per cent to the client. A less happy development is the suspicion that the media buyers give a larger than proportionate rebate to their biggest clients and a smaller rebate (sometimes no rebate at all) to their small clients in spite of the fact that all the space is equally rebatable.

Fixed fees

An agency may work on a fixed period fee, usually annually or quarterly. For an agreed fixed sum, it performs the client's needs for the contract period. Difficulties arise when the agency is unusually busy on the client's behalf and feels, towards the end of the period, that the money has all gone and that the client has had all the advertising or public relations to which it is entitled. The client may not see it this way and may insist that the agency carry on as per contract. Sometimes the client can be persuaded to top up the fee and sometimes an agency will carry on even though it is no longer making a profit on the account. On the other hand, the agency may have a quiet time and the client may wonder just what it is getting for its money.

Ad hoc fees

Another kind of fee is where the agency contracts to carry out one specific task, for example, a direct-mail shot or a sponsorship deal. It is unwise for either party to sign an ad hoc contract before the project in question is fully costed out, otherwise the same problems can arise as with fixed fees: one side feels cheated and the other is more than satisfied with the outcome.

Hourly rates

Hourly rates are used by some public relations agencies, particularly on small accounts where there might not be much in the way of creative or production costs and the major input into the account is time itself. Hourly rates may be as much as £250 an hour for a senior executive or as low as £25 an hour for clerical assistance.

Payment by results

It is suprising that any agency will contemplate a payment by results system when the results of its efforts are so often outside its direct control and in some cases may be extremely difficult to measure. It may be thought that only new agencies anxious to make a reputation for themselves or agencies struggling to attract new business against a shrinking client list would expose themselves to the risks involved. The conventional view is that a client pays the agency for its efforts on its behalf and that it is the work done by the agency that the client pays for. Results are, of course, important and may affect the decision to carry on with the agency, but paying the agency on a basis directly related to those results may be to pay an agency for 'results' arising out of some other circumstance (such as a competitor attracting some very bad publicity) or to penalise an agency for circumstances outside its control, such as results being adversely affected by poor distribution.

There are some situations where payment by results might work. A direct-response advertising campaign where the number of responses can be directly measured, for example, or a public relations campaign to raise name awareness. But even with these, payment by results is not an entirely satisfactory method. A reversal of this thinking is the practice of rebating part of an agreed fee if performance does not meet an agreed standard. A direct-mail list-broker may rebate if too many letters are returned unopened. This is not so much payment by results as penalties for non-results.

Retainers

A company may pay an agency a small annual fee as a retainer in case that agency should be required. Even if the agency is not required, it keeps the retainer.

Mark-ups

Mark-ups are not in themselves a method of payment and may be used in connection with any of the above systems. The basis on which an agency marks up the work which it itself contracts out to another house is, nevertheless, part of the financial package and should be considered in this connection.

Some agencies prefer to stick to one method of charging, but others will use more than one method. It has been argued that if, after seeing the pitches, it is difficult to choose between two agencies on the basis of the proposals, then the client might as well choose on the basis of the financial packages the agencies are prepared to negotiate.

Terminating the relationship

A relationship may be terminated by mutual consent without acrimony, but if for any reason the client is dissatisfied with the agency the client the may terminate the relationship. It is usually easier to do this when the contract comes up for renewal, but in extreme cases it may be thought necessary to 'sack' the agency in mid-contract. This, of course, is easier if the contract is worded in such a way that the law is on the client's side. It is usually wiser to look for a new agency before sacking the old, otherwise the client may be unrepresented at a crucial time.

It is possible to terminate a relationship simply because the client believes that a new set of ideas and fresh minds are called for or because the work is being taken in-house or because the client can no longer afford it. Whatever the reason, the decision to seek a new advertising or public relations agency will almost certainly involve the decision to begin a new campaign. The existing campaign will have come about as a result of the creative talents of the current agency and cannot just be taken over by the new agency. The new agency will want to develop its own ideas anyway.

However, it may be the agency which does not wish to carry on and which, in effect, 'resigns' the account. Again, the usual time to do this would be when the contract comes up for renewal, but if the agency felt in mid-term that it could not carry on working with an apparently unreasonable client it might seek to resign the account earlier. When the tide began to turn against the commission system, some agencies resigned accounts rather than give in to demands for commission rebates.

In the relatively small worlds of advertising and public relations, it may prove hard to keep secret the intention to terminate. Whatever the reason for terminating (and whoever's decision it is), the other side should not hear of it from a third party. It is very unsatisfactory for an agency to discover that one of its clients is looking for a replacement other than from the client itself; this only adds further rancour to a possibly unhappy situation. In any case, it is possible that both sides can get together to discuss why either or both of them wishes to part company and any difficulties might be resolved.

Case Studies

1 Saatchi & Saatchi

Large, internationally known firms do sometimes deliberately break up into smaller companies for good strategic reasons. ICI and Zeneca provide an example. However, when the world-leading advertising agency Saatchi and Saatchi broke up, the break was far from amicable and the story gained headline media attention across print, television and radio. Leading tight and co-founder Maurice Saatchi was forced out of position after a bitter boardroom struggle and promptly put in place steps to set up a new advertising agency to compete against his former brain child.

The threat of a new Saatchi-led agency compounded the difficulties faced by the original firm which took on all the characteristics of a crisis situation (see chapter 16). The reputation of the firm suffered as the boardroom disputes were widely reported and rumours of managerial incompetence at the highest levels added fuel to the fire. The share price collapsed, savaging (by about 30 per cent) the value of the original firm and triggering off elements of a financial crisis as major lenders nervously looked on. The resignation of top account and creative directors in support of Maurice Saatchi and the steps taken by major clients to move their accounts elsewhere - notably into the proposed new Maurice Saatchi agency - added to the firm's operational difficulties.

Major clients British Airways and Mirror Group Newspapers quickly removed their multi-million pound accounts and, at the time of writing, question marks hung over the Dixons and Tory Party accounts. Saatchi directors embarked on a crash programme of personal visits as they fought to hold on to threatened accounts and lawyers scrutinised every word of the contracts.

The Evening Standard of 12 January 1995 made much of a story that a secret £1m loan from Saatchi & Saatchi to the Conservative Party effectively tied the party to the agency whilst elsewhere it was claimed that only Maurice Saatchi had the stature to run the Tory account anyway. Threats of legal action to prevent Maurice Saatchi from poaching accounts were in the air.

Client contracts were not the only ones to be scrutinised and the contracts of employment of Saatchi & Saatchi executives were also put under the spotlight, particularly with respect to their freedom to accept positions with the new agency. Typically, resigning executives are contractually prevented from setting up new agencies or taking senior positions with competitive agencies within a stated period of time but in practice such requirements are often overlooked.

In setting up a new agency, as Maurice Saatchi decided to do, an entrepreneur has three strategic options (see chapter 3). He can wait for the share value of the original firm to fall so low that he can simply buy it back and change its name. He can seek to buy an established agency with global connections and change its name or he can start from scratch, building on the loyal team which followed him out.

Such a new company would be initially small and would probably consider networking worldwide with local agencies (building a sort of international value chain) and sub-contracting out specialist functions like media-buying.

2 Kenning Tyre Services

What must count as one of the shortest relationships on record was the ill-fated signing by Kenning Tyre Services in 1988 of agency Klein Grey. After a four-way pitch, Klein (the business-to-business arm of Klein Grey) won the £2m account only to lose it a fortnight later.

Apparently irreconcilable differences emerged almost immediately after the signing (and this in spite of Klein Grey's obviously winning pitch). Kenning Tyre Services notified Klein of its decision, effectively sacking the agency, and almost straight away went back to considering other agencies, some of whom had been amongst those involved in the original contest.

4.10 Summary

· A very wide range of promotional activities can be carried out either in-house or out-of-house and there is an equally wide range of agencies to do them.

· A company has to decide between in-house or out-house activities and there are several criteria which can help such a judgement.

· If the decision is made to go out-house, the question becomes whether to seek one full-service agency or to split the work between two or more agencies.

· Selecting an agency should be done with care and involves shortlisting, credentials and proposals pitches.

· Client-agency relationships are very important. The agency should, ideally, be treated as an extension of the client and not as an outsider.

· If the relationship becomes strained, the client can 'sack' the agency or the agency can 'resign' the account; but, in any case, the two might part company quite amicably when the contract has run its course.

· One of the most common causes of poor client-agency relationships is the financial arrangements. It should be established as clearly as possible what the terms of business are and agencies should account for any money spent. There should, in any case, be a clearly drawn up contract.

· The circumstances in which an agency might be used vary from relatively simple exercises, such as renting a mailing list, to very complex international advertising campaigns and this should be borne in mind in giving weight to any of the comments made in this chapter.

4.11 Assignments

1. With reference to a specific problem, such as opening up a new market or launching a new product, discuss the arguments for and against using an external agency.

2. Choose an established product, preferably one for which you can get recent data, and take note of current and recent campaigns for it. From the point of view of the client, explain how you would go about selecting either an advertising agency or a public relations agency for this product.

3. Discuss the importance of good client-agency relationships and the steps which can be taken by either client or agency to maintain good relationships.

4. What would be the advantages and disadvantages of using a full-service agency?

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