The Rise of the Superagency

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Each month, WPP Group Chief Executive Martin Sorrell checks in with top executives at Ford Motor Co., WPP's biggest client. In wide-ranging conversations they discuss the quality of creative work, talent retention, research and strategy.

"Martin pretty much knows our business in total," says Jan Klug, Ford VP-global marketing. Mr. Sorrell gives Ford a direct relationship with the parent of its agencies. He and his top rivals are changing the business of advertising by redefining the role of the holding company. Call it the "superagency."

WPP isn't alone. PepsiCo last year hired not an agency, but Omnicom. Coca-Cola Co. has a strategic relationship with Interpublic. It's an emerging trend-one superagency CEOs are reluctant to talk about.

As with the proverbial elephant in the corner that no one acknowledges but everyone knows is there, the superagents of the superagencies-Mr. Sorrell; John J. Dooner Jr., Interpublic Group of Cos. chairman-CEO; John Wren, Omnicom Group president-CEO-all declined to discuss the issue for this story.

The superagency of 2002 is a sharp departure from the agency holding company model that took shape in 1961, when Marion Harper created Interpublic as a legal and financial entity intended to solve client conflicts. Mr. Wren still asserts Omnicom is simply "a financial brand," and Interpublic maintains a low-profile corporate suite away from its operating agencies.

But holding companies are no longer the silent partners. Converging trends-agency acquisitions, client acquisitions, global expansion, consolidation of media buying, the rise of integrated marketing, drives for efficiency-have turned top holding companies into active managers of key accounts. This is the era of advertising superpowers: superagencies with superclients.

Marion Harper's idea of the holding company has been turned on its head. Superagencies find clients scanning the holding company for conflicts; top clients have the clout to force conflicting accounts out.

Major marketers like the access to superagency CEOs, who can suggest solutions and issue orders-and, if the customer is not happy, shift the account within the superagency to keep the business from walking.

It was Mr. Wren-not BBDO leaders, not the BBDO pitch team-who joined executives at DaimlerChrysler's Chrysler Group for a celebratory dinner in November 2000 after Chrysler consolidated its account at PentaMark Worldwide, a dedicated agency set up by BBDO and Omnicom.

Messrs. Dooner and Wren didn't seem to object when Coca-Cola and PepsiCo issued press releases about their superagencies (see P. 13). At the same time, CEOs have little to gain when attention is focused on their superagency status. They must walk a fine line: Take care of the giant client, but don't overstep the role of agency executives; and figure out ways for agencies to serve competing brands in the shadow of big global clients.

It's little surprise CEOs are so sensitive about the issue. But agency executives are keenly aware of the trend.

"Now we are on the steep part of a curve in that trend that has the decision-making made by corporate heads and holding company heads [rather than agencies]," says Andy Berlin, who sold his New York agency, Berlin, Cameron & Partners, to WPP in December. "There's no question that the wave is moving that way and that the wave is big."

The question is whether marketers should ride the wave.

PROS AND CONS

Ford became a superclient because WPP created a superagency. WPP bought Ford's biggest agencies, starting with J. Walter Thompson Co. back in 1987, tapping into agency relationships that go back many decades. The Ford relationship now runs across three WPP agencies and countless other WPP-owned companies and is nurtured by Mr. Sorrell.

"WPP just acquired [ Young & Rubicam] about a year ago, so I think this conglomerate called WPP has been growing," Ford's Ms. Klug says. "Martin [also] bought a lot of stand-alones like [African-American agency] Uniworld and research firms like Goldfarb. That does a great deal for us."

The downside: Ford has lost the leverage to play one separately owned shop against another. And Ford would have few options if WPP were to mess things up royally; giants Interpublic and Omnicom have global relationships with General Motors Corp. and DaimlerChrysler, respectively.

The upside: If Jan Klug has a problem, Martin Sorrell will give it full attention. And even if WPP has a lock on Ford, the client holds the keys: Ford is pressing agencies-notably WPP shops-to cut costs (AA, Jan. 21).

With Ford, Mr. Sorrell can win even when he loses. Ford-owned Jaguar last April moved its $125 million global account to Y&R Advertising from a joint-venture of WPP's Ogilvy & Mather Worldwide and JWT. In Europe, Ogilvy and Y&R pass assignments and car models back and forth, often after a creative or strategic shoot-out.

That's not to say a holding company's agencies freely cooperate. Shops in a super-agency may duel for business; if an assignment shifts from one shop to a sibling, the loser rarely steps forward to smooth the transition. It's an open question whether superagencies over time will force shops to eliminate sibling rivalries. On the other hand, the current competitive structure inside a superagency may help the client by keeping the agencies sharp and clearly defined.

Shops that exist alongside a marketer's superagency can be vulnerable. After Ford bought Land Rover in 2000, WPP's Y&R pounced on the non-U.S. business. Now Omnicom-owned GSD&M's days appear numbered on the $40 million North America account. Land Rover likes the Austin, Texas, shop's work, but executives close to the business expect it to land at Y&R this spring. GSD&M President Roy Spence says the agency is focused on building the brand and selling vehicles, adding, "We have a great relationship with Land Rover."

BIRTH OF A SUPERAGENCY

At Interpublic, Coca-Cola has had a long-and sometimes rocky-history with McCann-Erickson Worldwide and Lowe. In late 2000, Coca-Cola issued a carefully worded statement naming Interpublic as global "creative consultant." A superagency was born. Mr. Dooner, agency CEO, in some ways acts as a high-ranking account director on Coke.

If Coca-Cola helped start the superagency trend, PepsiCo advanced it. In a move unimaginable a few years ago, PepsiCo and newly acquired Quaker Oats Co. last September simply handed $350 million in business to Omnicom. Quaker's new agency at Omnicom didn't even exist except as a promise by Mr. Wren.

Both Omnicom and WPP now have formalized superagency relationships by naming holding company executives to coordinate key accounts. WPP last week gave Tim Davis, global business director for Unilever at JWT, the added role of WPP worldwide account coordinator on Unilever. And Omnicom has its own PepsiCo czar, Matt Seiler, a former BBDO Worldwide account executive who acts as a gateway for PepsiCo to see all that Omnicom has to offer. While he keeps a desk at Omnicom, he spends most of his time at PepsiCo's headquarters.

Mr. Seiler was in charge of a successful promotion pitch last month by Omnicom's Tracy Locke Partnership, Dallas, to consolidate PepsiCo's Frito-Lay snack food business with Pepsi-Cola's North American promotional business. Lacking a title, he was called for the purposes of the pitch "director of insight and integration."

"It's true Omnicom's role over the last five years has begun to change," says Allen Rosenshine, chairman-CEO of PepsiCo shop BBDO Worldwide. "The change is not so much to superagency status but to logistics and resource management on behalf of large clients who benefit from single-source resource management and compensation discussions."

Superagencies can't have it both ways. Foote, Cone & Belding Worldwide Chairman-CEO Brendan Ryan and Mr. Dooner, for instance, fought a losing battle to house Coca-Cola and PepsiCo under Interpublic's roof.

Interpublic announced plans last March to buy FCB parent True North Communications. FCB handled PepsiCo's Aquafina water and two brands that would come into PepsiCo with its August 2001 acquisition of Quaker Oats Co.: Tropicana orange juice and sports drink Gatorade.

A Coca-Cola spokesman in August confirmed "conversations" with Interpublic regarding conflicts, adding: "We think they will take appropriate action."

Interpublic thought it could keep both marketers. But on Sept. 19, Mr. Ryan's phone rang. PepsiCo and Quaker's $350 million in billings were decamping. PepsiCo issued a press release with a headline redefining holding company as agency: "PepsiCo to consolidate advertising at Omnicom."

COMMODITIZATION

Some top executives at agency networks inside the superagencies are troubled by what they see as commoditization of ad agencies, replacing loyalty with a mutually convenient attachment. They fear that clients unimpressed with an agency's first effort will demand resources from elsewhere rather than trying again with the team that knows them best. "I can see the motivation for large clients," says one executive at a superagency shop. "They're shopping around within a larger shopping mall. It puts the client in a much stronger position. It's easier to say, `I don't like what I'm hearing. Give me someone else."'

Matching superagencies with super-sized marketers could come to resemble a Cold War era standoff of mutually assured destruction. If a relationship goes wrong, a billion-dollar client could threaten to pull spending from a single holding company only to have trouble finding another suitable group that does not already have a mega client in the same product category.

"These [holding company CEOs] have access and credibility," one agency head explains. "They say here's what we can do, and these guys really can do it. The problem is, what happens when the great agency network comes up with shitty ideas? Then the head of the agency holding company looks like a dope."

A wily client might lock down a second superagency, as Coca-Cola did when it gave some business to WPP through Ogilvy.

Interpublic's five top clients-General Motors, Nestle, Unilever, Johnson & Johnson and Coca-Cola-accounted for 15% of 2000 revenue, or close to $1 billion, according to the company's annual report. Coca-Cola contributed $90 million.

At Omnicom, DaimlerChrysler was already the company's biggest client, worth $320 million in revenue in 2000, before Omnicom's BBDO won a shootout against True North's FCB for the consolidated Chrysler Group assignment.

It's not cheap to secure a holding company relationship. A $300 million ad budget may not do it. When Interpublic bought True North, McCann's $300 million global Reckitt Benckiser business was sacrificed because rival S.C. Johnson & Son, arriving with FCB, refused to share a holding company.

In the end, the superagency trend has costs and benefits for client and agency. Because of Omnicom shops' extensive relationships with Anheuser-Busch Cos., ad agencies across the Omnicom network generally can't pursue other beer assignments. But it cuts both ways. U.S. Hispanic agency del Rivero Messianu DDB, Coral Gables, Fla., just finished its first Budweiser spots, and Martin/Williams, Minneapolis, recently picked up a Michelob Golden Draft project through Omnicom ties.

"That's the culture John Wren has created to work together as a whole unit," says an Omnicom agency executive. "That came totally from the top."

WORK BETTER WORK

But any superagency's work better work. "At the end of the day," says Dave Park, chairman of the American Advertising Federation and CEO of Omnicom's DDB Group in Los Angeles, "advertising is about insight, ideas, judgment, taste and knowledge. And none of that is a commodity."

What if marketers start to see their agencies' work as a commodity?

"The industry dies," he says.

In the 1990s when holding companies were growing exponentially, a joke made the rounds: Eventually there will be only one holding company with a single client. The client will fire the agency and go in-house. The superagency version of that joke would have a different ending. The single superagency and its one client would grow to detest each other, but they would stick together to avoid mutually assured destruction. n

contributing: hillary chura, alice z. cuneo, jean halliday, kate macarthur, lisa sanders, rich thomaselli

Fast Facts

Global magnets for global clients

Interpublic

Lowe

Foote, Cone & Belding

McCann-Erickson

Omnicom Group

BBDO Worldwide

DDB Worldwide

TBWA Worldwide

WPP Group

Ogilvy & Mather

Red Cell

J. Walter Thompson

Y&R Advertising

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