When WPP initially started chasing Grey Global, it sparked debate about the prospect of Procter & Gamble, a Grey client, and Unilever, a WPP client, co-existing in the same holding company-it was too big a conflict, said the traditionalists. But with the ink drying on the deal, and the two rivals so far accepting this co-existence, a final nail is being driven into the conflict coffin.
Holding companies have pitched the mantra that siloed agencies can handle rival accounts since Marion Harper created Interpublic in 1960. And, despite the fact that the holding companies have metamorphosed into full-service marketing shops for certain clients, they have insisted on a continued focus on agency brands to reassure clients that there are firewalls.
Of course, it's not up to ad firms. "At the end of the day, the only people who define conflicts are clients," said a senior executive at one top holding company.
Now, however, marketers increasingly appear willing to use services from holding companies that work with their competitors-because it is in their self-interest.
"It's absolutely in the interest of the advertiser to push for a free market and to be obsessed with excellence in creative and innovation," said James Speros, chief marketing officer-U.S. at Ernst & Young and chairman of the Association of National Advertisers. "We have to get back to spending more time on that and less time worrying about consolidation and conflicts."
a shot in the foot
It is inevitable that holding companies handle rival marketers. Omnicom Group, the top firm, works with more than 5,000 clients; No. 2 WPP's roster includes more than 300 members of the Fortune Global 500.
Chief financial officers have their pick of four global accounting firms. Chief information officers have little problem outsourcing to a handful of global information technology firms. Chief marketing officers are coming to terms with a universe of four big agency groups.
Those four-Omnicom, WPP Group (including Grey), Interpublic Group of Cos., Publicis Groupe-account for about 71% of worldwide ad and media agency revenue.
It makes sense to fire an agency if it's doing bad work after a merger. But it's hard to see how an advertiser benefits when it drops an agency post-merger because of a hard-line policy on holding-company conflicts.
Advertisers with too restrictive a conflict policy "shoot themselves in the foot," Mr. Speros said.
WPP Group Chief Executive Martin Sorrell's Grey deal provides the highest-profile opportunity yet to debunk the theory of holding-company conflict. P&G, the world's biggest advertiser and Grey's top client, will share shelf space at WPP with two rivals since the 1800s: Unilever, on J. Walter Thompson Co.'s roster since 1902, and Colgate-Palmolive Co., a Y&R global client.
P&G's reaction? "We value the asset of the Grey network, and we are going to operate the business as usual," a P&G spokesman said. "As long as Grey remains a separate agency network, we have no issue." Unilever and Colgate wouldn't comment.
Grey CEO Ed Meyer put it this way: "I don't use the word conflict anymore. Is it possible to handle companies that are competitive within a holding company structure? Obviously, yes." He added: "You'd get writer's cramp if you went to the directories and tried to copy out all these conflicts."
P&G last year paid Grey about $139 million for services. Ad Age estimates Grey handles about 20% of P&G global creative; Publicis handles most of the rest.
P&G should account for something below 2% of WPP revenue next year, according to Ad Age's analysis. P&G will join Unilever among WPP's top 10 revenue clients. WPP listed Colgate as a 2003 top 10 client, but an individual close to WPP said it's no longer in the top 10.
"Our conflict policy is exactly right for our business and our agencies," P&G Global Marketing Officer Jim Stengel said. "We want to work with the best agencies in the world, and our conflict policy has to be appropriate to that. We have a high trust level with our agency partners that has not resulted in confidential data crossing agencies or causing problems for us or our competition."
Some marketers simply won't share a holding company with their archrival. PepsiCo decamped from Foote Cone & Belding in 2001 after Interpublic Group of Cos., a key Coca-Cola Co. partner, bought FCB parent True North Communications. Coke vs. Pepsi isn't conflict; it's war.
But those are exceptions. Even ad firms with "superagency" relationships-mega clients across multiple units, sometimes with an overseer at the holding company-can manage rival brands. WPP is superagency to Ford, but WPP's Red Cell network handles Fiat Group's Alfa Romeo and is a finalist for General Motors Corp.-backed Subaru account.
Just how marketers benefit from mergers isn't always clear. It appears largely business as usual for Grey: Mr. Sorrell said "very little integration will take place" after WPP buys Grey, which will be separate from other WPP units. Grey clients didn't need a merger to access WPP offerings (P&G already employs WPP's Landor Associates and Wunderman).
Even if huge benefits aren't immediately apparent, mergers needn't raise conflict-alarm bells. Kraft Foods (WPP), ConAgra Foods (Grey) and an executive close to P&G rival Kimberly-Clark Corp. (WPP) voiced no concerns about the merger, since Grey will operate separately.
Some clients likely will walk. Masterfoods USA's Grey relationship appeared tenuous even before the sale (AA, Aug. 23). A Masterfoods spokesman said the merger "doesn't affect us just yet." Mr. Sorrell said WPP factored in the possibility of Masterfood losses when he bid for Grey.
Holding-company conflicts shouldn't exist. But advertisers have every reason to bolt if they're unhappy about the work. It's up to Mr. Sorrell to manage this merger and make sure his agencies deliver the goods so clients have every reason to stay.
written from bureau reports