$46.8B Record U.S. agency revenue in 2015
In an ordinary year, just a small handful of pitches can be a drain on an agency's time, money and resources. Drain was an understatement last year, which saw an unprecedented number of large marketers put their media accounts up for review, including Unilever, Procter & Gamble, L'Oreal and Coca-Cola. That caused newfound frustration among agencies dealing with the fallout and pitch costs.
Media agency bosses, including MEC North American CEO Marla Kaplowitz; Carat U.S. CEO Doug Ray; and UM U.S. President Kasha Cacy; came together at the 4A's Transformation conference in Miami to discuss the old and new complexities associated with intense pitching.
"I once received a stipend of $5,000 [for a pitch]," said Ms. Kaplowitz. "It was generous, but I don't even know if it covered travel."
The costs of pitching have skyrocketed, and agencies are sick and tired of giving away insights and strategy for free, especially when they don't win business. But some of it is par for the course.
"Building trust with a client you want a relationship with… that does take time," Ms. Kaplowitz added. "It's about relationships and people. They need to see that there's chemistry and the right kind of thinking. It's not realistic to think that's going to change over time unless we all agree to change that."
"We're complicit in this," said Mr. Ray, referring to himself and the other panelists. "I'd love to say 'Let's put our hands together and we're not going to be giving things away, sharing our pricing templates and turning [information] over to auditing firms that [helps them] understand the position of where all companies are.' When push comes to shove, you can link arms and say, 'We're going to do this,' but there's always this outlier who will do anything to win business. We've somewhat done this to ourselves."
Pitch costs and idea ownership aren't the only distractions for agencies competing for new business. They also have to deal with heightened competition from each other, and with consultancies like IBM and Deloitte, as industry vet and moderator Jack Myers pointed out.
"More often than not [clients] were looking for a single partner who can help them manage that complexity and drive their business forward," said Ms. Cacy. "The industry goes through lots of ways of dealing with this. Right now, we're moving toward more centralization rather than [clients] picking off piece parts and divvying them up to lots of different agencies. In an era of data and technology, [consultants] have capabilities I don't take for granted at all."
It's that data and technology that can also be an opportunity for agencies, as more clients look to shops for broader business support.
"In almost every pitch in 2015, agencies were having conversations about helping clients make sense of their own data strategy and addressing business challenges," said Mr. Ray. "In 2014, that wasn't the case."
A content capability is also a differentiator and a financial booster at a time when agencies are complaining about reduced fees, he added. "It's no surprise that margin contraction is happening," he said. "The media buying business is actually compressing." Still, revenue is good, thanks in part to "diversified services that clients are looking for more and more. They're paying for those services."
The reason there's an opportunity to create more content is in part due to an increase in demand for premium digital video.
"We looked at 50 brands and found that online video delivers 50% higher ROI than traditional TV, but TV still delivers four to six times the volume," said Mr. Ray. What's optimal, to see a significant increase in total volume and sales, is spending 20% to 30% of a TV budget on video, he said.