TRUST AND RELATIONSHIPS ARE ON SHAKY GROUND AS CLIENTS DEMAND AN ARRAY OF SERVICES AT A ROCK-BOTTOM COST: WHAT PRICE LOYALTY?

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If a new-business prospect came to an agency CEO 20 years ago and said, "Get rid of your current client and I'll give you my bigger account," nine out of 10 agency CEOs would have said no.

"Not today," says Harry Paster, a former exec VP of the American Association of Advertising Agencies.

There is much soul-searching about a lost quality in advertising success -- client loyalty. IBM, Delta, Budweiser, Kmart, Kodak, Amoco, Seagram's and Coca-Cola -- all these venerable brands dumped their long-serving agencies as the century counted down. And it is not only client loyalty that is in question, it is also agency loyalty.

When Phil Guarascio, VP-general manager, marketing and advertising, for General Motors Corp.'s North American Operations, was questioned about client loyalty to agencies, he responded, "When the press report a piece of GM business may be vulnerable, I get calls from well-known and respected agency heads who offer to dump their client if we will give them the business. I'll talk to you about client loyalty after you talk to me about agency loyalty."

No doubt the nature of advertising and client loyalty has changed. So has the agency business. The talent pool includes many different sources. The economics are new and the very underlying principles of the agency industry have changed so much that the next century's advertising business will be structured differently.

Consider the history of the motion picture business for some parallels in the shifting agency client relationship. At one time, the studios were the absolute authority and power of the industry. Cigar-chomping moguls inspired and commanded writers, producers, actors and marketing, sales and distribution executives.

Boutique moviemakers challenged this authority and provided some safe ground for recalcitrant executives. Stars challenged the moguls by forming combines. Then dealmakers invented themselves by linking star writers, producers, actors and directors. Distribution companies came to the fore. The concept of establishing temporary teams to achieve momentous goals became the norm.

Studios did not die; they learned how to adapt and create new sources of revenue. Despite their loss of creative control, today studios are powerful marketing and distribution forces that include some important moviemaking talent.

The same fragmentation that Hollywood experienced is now infiltrating Madison Avenue. If we segment the talent in the advertising industry into creators, technologists, implementers, laborers and managers, we can see the same structural and economic shifts that altered Hollywood now changing the dynamics in the advertising business.

Add another industry-shaking dynamic: A client wants an agency to do more than just make and place ads. A client wants a myriad of services from marketing counsel to expertise in new media, brand sciences, direct marketing, event marketing, sales promotion and public relations.

And the client wants this to be executed seamlessly. This, of course, provides a problem and an opportunity to agencies.

The problem is keeping revenue out of the hands of competing providers while retaining client loyalties. The opportunity is additional revenue sources and the tools to bind a client-agency relationship ever tighter.

The opportunity is also a counter to a third and devastating trend in the relationship between clients and agencies -- cost-cutting. The 15% commission may not be dead, but it is looking sickly. In many cases, commissions have not only been cut but have been eliminated and replaced by a variety of fee schemes.

And then there's the huge shift in the personal dynamic between the agency and the client. "Senior agency executives are not as close to client CEOs as they used to be," Paster observes.

I doubt we'll ever have the same kind of relationships as, say, former Young & Rubicam chief Ed Ney's relationship with a key CEO, who overruled a lower-level manager's decision to take away some business.

We used to call them "Mr. BIGs" (big influence guys). Stu Upson at the old Dancer-Fitzgerald-Sample was the Gary Cooper of advertising to us peons. If we got in trouble, you could be sure that the BIG in the white hat would make a call and everything would be OK. Tom Adams, chairman of Campbell-Ewald, was another one. Adams was an all-American, fighter pilot with the Navy Cross, who spent his entire career at Campbell-Ewald. If something needed fixing at General Motors, Adams would get on the horn and angels would sing.

At J. Walter Thompson Co., there were a number of BIGs, from Norman Strouse to Burt Manning to Charlotte Beers. The best creative Mr. BIG was Andy Nelson, the executive art director on the Ford Motor Co. account. Ford's then president, Lee Iacocca, was being particularly difficult about some magazine photos and how they would reproduce. Jack Ryan, managing director on the Ford account, or the "super suit," called Nelson up from the audience. He brought with him his smoking pipe and a pair of quartz lights. Nelson played them on the dye prints and Iacocca asked, "They gonna be sending these lights out with the magazines?"

Nelson replied, "If you say so, Lee."

Iacocca laughed, puffed on his cigar and gave the go-ahead.

Some years later I was fortunate enough to see Manning schmoozing a client like a lounge lizard working over a lady with big hair. I'll never forget Manning making a client love something he thought he hated.

Relationships meant a lot. And a lot of great work sold and became famous because of personal relationships. Bill Bernbach, David Ogilvy, Mary Wells -- just to name a few -- were BIGs. There are still BIGs around, like Hal Riney, but for the most part the era of the big influencer is gone.

Agency greed, MBA research clutchers and the rise of public agencies have pretty much killed off the BIGs and the people who were influenced by them.

But other types of relationships have evolved to take their place. Gene Kummel, founder of Norman, Craig & Kummel and retired chairman-CEO of McCann-Erickson Worldwide, notes that big advertisers such as Lever Bros., Procter & Gamble Co. and Nestle have adopted a club agency concept. The managers don't have the right to fire the agency. In fact, they are graded on the effectiveness of a campaign they are able to get out of a designated agency.

P&G enlists D'Arcy Masius Benton & Bowles, Saatchi & Saatchi, Grey Advertising and Leo Burnett Co., while Lever and Nestle retain McCann-Erickson, JWT, Ogilvy & Mather Worldwide and Ammirati Puris Lintas.

Client-agency relationships can run very deep.

Colgate-Palmolive Co. Chairman-CEO Reuben Mark reportedly awards shares of stock to agency employees who contribute to the company's fortunes. Advertising Hall of Famers like Adams, Ney, Strouse, Kummel and Al Seaman had important relationships with key clients. At one time, Paster relates, you could get "punched in the nose" if you disparaged Y&R in front of your staff or client. Ney had the capacity, he says, to inspire strong loyalties among Y&R staffers and clients.

The rule tends to be the same with Ford and GM -- change the people, not the agencies. The rule is sometimes bent or broken, but it has worked well for these high quality, bottom-line oriented organizations. They understand ego and flash are extraneous and that results are what count.

Still, according to a recent Four A's study, relationships today don't last as long as they did 10 or 20 years ago. Says Four A's President O. Burtch Drake, "Keep in mind that everything in American business is moving at a more accelerated pace than in year's past. Test markets are shorter. There is more data available, and faster, than ever before. Competition is more intense, and clients change jobs more frequently. Those factors often translate into higher client expectations, impatient clients or clients who want to create their own team."

The study shows that while agency-client relationships averaged 7.2 years in 1985, the tenure fell to 5.3 years in 1997. Of course, the agency business was never known as a model of stability. The last gasps of the century produced particularly corrosive harangues from clients and analysts about agencies and more private but no less acidic declarations from agencies.

Some weeks the lost client reports are as bloody as WWI battlefield reports. Particularly interesting are the number of losses sustained shortly after campaigns are lauded at award shows. Could it be that some creative work is the product of creative people more loyal to their own book or to peer pressure than their client's bottom line? And could it be that some famous clients don't have a clue about good advertising but get away with their creative onanism because they are more loyal to their fast track than they are to their brand's track?

But as we prepare for the next century of Roller Derby relationships, it may be useful to examine why loyalty is eroding dangerously, where the relationship is headed and what discord is doing to brands. Does loyalty in the client-agency relationship enhance brands?

Would you believe that the firmer the bond between agency and client, the stronger the brand? And the more a client jumps around, the more likely the brand is suffering from identity crisis? This is a chicken-or-egg scenario, but marketers who fail to consider the implications of this phenomenon may be risking their own future bottom line.

Jody Moxham, president of PhaseOne, a West Coast advertising consultancy, says, "A long-lasting relationship between advertiser and agency does not necessarily lead to brand-building advertising, but the reverse is almost always true. Brand-building advertising almost always leads to a long-lasting relationship between advertisers and their agencies."

Still, clients publicly accuse agencies of overcharging and underdelivering in brand advice and creative excellence.The root of this evil: perceived greedy agency moguls.

When agencies went public and were forced to reveal their profitability, many clients went ballistic over the numbers. The year 1986 seems to be the flash point. In February, Dancer (after two years of denials) sold to Saatchi. In April, Doyle Dane Bernbach, Needham Harper Worldwide and BBDO International combined to make the mega Omnicom Group. And in May, Saatchi rocked the industry by buying Ted Bates Worldwide. Loud sounds of gnashing of teeth harmonized with the delicious sound of silky paper and hard silver colliding. After that, WPP Group's Martin Sorrell seized JWT and O&M over the next couple of years.

Paster recounts that years ago he asked DDB's founding partner Maxwell Dane how he could have agreed to a public money-letting after so many years of decrying it. Dane answered, "I never thought I would see a check with six zeros made out to me."

While the legendary Dane can be forgiven for a paltry seven-figure retirement fund, the reports of Bates Chairman Robert Jacoby's nine-figure escape plan probably killed the golden-egg-laying goose. Paster explains that in the pre-public days, agency executives did very, very well. And if a bad year came along, it was easy enough to pull in the belt and nobody outside the board needed to know.

Clients applied a variety of other pressures to agencies. These included the need for expansion domestically and internationally, the need for special services (new media and the like), the introduction of purchasing agent thuggery in the form of consultants and the downsizing of agency revenues.

The agencies responded by creating a new weapon aimed at their own troops: downsizing the work force. When agencies had account losses in the pre-public era, after a decent interval a bloodletting was sure to follow. However, the move from book-value to stock-price mentality decimated the talent pool. Recruiting programs were scaled back. Middle management was dispensed with under the name of "dead wood" clearing. Agency entrance salaries were retarded while client-side starting salaries skyrocketed.

If a bright MBA can obtain $80,000 to $120,000 from a client, why should he or she accept $35,000 or even $50,000 from an agency? In short, an entire generaion of super-smart and super-ambitious clients replaced amiable journeymen in client marketing and advertising departments. The agency business made do with bright, entrepreneurial young people who didn't stand a chance when they hit the front lines. Worse, agency account execs realized they could become client-side mercenaries as agency discipline experts by bashing their former comrades.

Clients started going elsewhere for the skilled positions: marketing advice and creative excellence. Coca-Cola Co. seems to have started this trend when it hired Hollywood to create Coke commercials.

At McCann and many other agencies, long-term agency-client relationships still exist, and will continue to do so, especially if the trend among big, global clients to consolidate their business at a single global agency endures. This will help solidify many agency-client partnerships for the long term, because it is much more difficult to unravel a worldwide agency relationship than it is to take away a U.S. assignment.

As such, I would anticipate that the global alliance between, for example, O&M and IBM, as well as the relationships Y&R has with Colgate-Palmolive and Citicorp, will stand the test of time. These agencies and their clients have made huge investments and commitments to each other.

Sean Fitzpatrick is exec VP-creative resources at McCann-Erickson World Group. He has held posts as chief creative officer of Campbell-Ewald and McCann-Erickson during his tenure at Interpublic Group of Cos. He was the creator of

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