That decision paid a huge dividend late last week when Colgate became the first package-goods giant to consolidate all worldwide advertising at one agency, leaving New York-based Y&R with 85% of its $650 million budget.
Y&R's Colgate billings should hit $550 million next year, which would be a 57% jump from about $350 million in 1995-making the consolidation slightly bigger than IBM Corp.'s at Ogilvy & Mather Worldwide in May 1994.
The news stunned officials at Chicago-based True North Communications, which loses more than $150 million in billings. Chairman-CEO Bruce Mason knew nothing of the consolidation until Colgate Chairman-CEO Reuben Mark informed him in New York Nov. 29.
"To continue our market-share growth, we must execute our best advertising strategies and ideas simultaneously around the world," Mr. Mark said. "This can best be accomplished by having one truly global and highly motivated partner to serve us everywhere."
In the sense that a package-goods marketer with hundreds of brands has chosen to use a single agency worldwide, Colgate's decision is unprecedented in size. And some agency executives wonder whether Y&R-or any agency-can handle so many brands for one company.
But Y&R and other agencies are successfully managing similarly complex assignments. P&G, though it uses nine core agencies in the U.S., splits up the lion's share of $2 billion in international spending among Leo Burnett Co., D'Arcy Masius Benton & Bowles, Grey Advertising and Saatchi & Saatchi Advertising. And Y&R, O&M and J. Walter Thompson Co. each handle Kraft Foods brands in more than 30 countries around the world, with Y&R having close to $300 million from Kraft.
Still, Colgate's direct competitors aren't expected to embrace as dramatic a change. One Unilever executive noted the "complexities of our business since we have cosmetics and perfumes as well as soaps and detergents would make that difficult, as would the scarcity of conflict-free agencies."
A Unilever spokesman said: "We will not speculate what we may do in the future."
There continues to be talk that P&G is looking to consolidate at four to five agencies, though the company denies it.
Colgate is somewhat unique among U.S. multinationals in that it spends more on advertising internationally, allocating just $82 million to U.S. media, according to Competitive Media Reporting. Two-thirds of its $7.6 billion in sales comes from markets outside the U.S. By comparison, P&G draws roughly half its sales from North America.
Colgate's objectives are to save money and "enhance creative effectiveness," Mr. Mark said. John Steel, global senior VP-marketing and sales, said the company wants to make advertising and other elements of the marketing mix as consistent as possible throughout the world. Colgate now has 15 global campaigns, Mr. Steel said.
To ensure that agency and client work together in brand building, Mr. Steel said, Colgate has asked Y&R to help set up 10 Creative Centers of Excellence.
"We have four to five at the moment, including one in New York, and expect to have six to 10 over the next few years," he said. The centers pull together talent from across the world to focus on particular products.
Only a few senior Colgate executives participated in the decision, laying the groundwork six months ago as the company prepared for last September's worldwide restructuring in administration and manufacturing.
Not even Colgate's agencies were told. Y&R was only clued in that something was afoot a month ago when it was asked to review what it could handle on a "what if" basis.
There was no competition between the two agencies. Colgate preferred Y&R's international network, Mr. Mark said.
That's a blow to True North, which had $5.1 billion in worldwide billings in 1994 to Y&R's $8 billion. It also puts extra weight on the outcome of a global agency consolidation about to be concluded by Germany's Bayer AG: True North's Foote, Cone & Belding is one of three finalists being considered for $350 million in billings (see story on Page 3).
A spokesman for True North said the agency is already gearing up its new-business team to hunt for replacement business in the consumer-products market.
Some agency executives say the loss of Colgate gives True North added incentive to acquire Bozell, Jacobs, Kenyon & Eckhardt, which it has talked with this year. The stumbling block has been price. But a BJK&E deal wouldn't significantly strengthen True North's international power, since fewer than 25% of Bozell's billings comes from outside the U.S.
The loss won't put much of a dent in True North's New York agency, FCB/Leber Katz Partners, which handled Colgate brands Palmolive, Fab, Ajax and Mennen in the U.S. Leber Katz has had a banner year in terms of new business, and Colgate represents less than 3% of the agency's billings, said Leber Katz CEO Brendan Ryan.
Foreign agencies in the True North network will get hit harder by the Colgate loss, and some layoffs are expected.
While the consolidation gives Y&R a huge chunk of billings, it also makes it tougher to turn a profit on those billings. Instead of the previous commission-plus-performance system, Y&R will be paid on a cost-and-performance basis that effectively means Y&R-and Colgate-will have to perform well for the agency to make a profit on the account.
But Y&R Vice Chairman Tim Pollak said that's how agency Chairman-CEO Peter Georgescu wants it. "This is something that Peter absolutely loves," he said.
Colgate has had a good year so far, with sales for the first nine months up 12% over a year ago, to $6.2 billion. And its global strength in many categories has prompted some rivals to put Colgate on their wish list of merger partners.
Colgate had consolidated its global advertising at True North and Y&R in early 1994. Since then, Y&R has worked for Colgate in 50 countries, and True North in 30, some of them overlapping.
New York-based Siboney USA, a True North subsidiary, will keep Colgate's U.S. Hispanic advertising. McCann-Erickson Worldwide will continue to handle Colgate's recently acquired Kolynos oral-care line in Latin America. Genova Hartwick Juliano, Greenwich, Conn.-dropped and then quickly reinstated in 1994 due to conflicts on Murphy-Phoenix cleaners-didn't survive this cut.
Jane Hodges contributed to this story.
Other account consolidations
Billings: $350 million
Cutting roster from 40 agencies to 1 or 2; decision expected by yearend.
Billings: $450 million
Cut roster from 40 to 1, selecting Ogilvy & Mather, New York, in May 1994.
Billings: $100 million
Cut roster from 10 to 1, selecting Campbell Mithun Esty, Minneapolis, in November 1994.