Beware numbers game: 4A's

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The advertising agency business has rapidly evolved over the past decade and there's no denying that consultants have had a tremendous and visible impact on the way we do business today. When reputable consultants are employed in the agency-search-and-compensation process, few would contest their value in helping advertisers and agencies strike fair deals. But when disreputable consultants enter the fray, well, that's an entirely different story.

Over the past months, a growing number of American Association of Advertising Agencies members have alerted the Four A's to questionable and unethical tactics employed by a handful of compensation consultants. The sluggish economy and growing power of procurement departments have emphasized cost reductions, by most any means, and advertiser marketing departments are feeling that pressure. They need a quick fix. A few dishonorable consultants are exploiting these circumstances and promising advertisers huge savings on agency compensation agreements.

Armed with highly questionable data, these consultants are knocking on every advertiser door in town. They're gaining entry with an enticing tale: "Your agency is taking advantage of you;" "We used to work for them;" "We have an `industry database' that shows you're paying 20% to 40% too much for your services."

When advertisers question the source of this information, we're told these consultants say they have confidential information disclosing what other large companies are paying-adding that they can benchmark a client's agency relationship against some proprietary database that "proves your agency is gouging you."

In some of the most egregious instances, these consultants go as far as claiming their database figures are based on Four A's survey results! Or that Four A's standards support their conclusions!

no resemblance

To set the record straight, no such standards exist at the Four A's or anywhere. Period. Indeed, some numbers, presented by consultants as derived from the Four A's, are based on misappropriated Four A's information. That information has been massaged, manipulated, misinterpreted and taken out of context to the point where it bears no resemblance to actual figures cited in reports such as the Four A's Annual Analysis of Agency Costs.

By manipulating and fabricating numbers, consultants dazzle clients with their creative discounted math-maximize the number of hours required of each staff (ask for a discount); push as many costs into overhead and out of direct costs (at a discount, natch); and cap the allowed overhead at some arbitrary figure (how about asking for a discount?).

In essence, these consultants are urging advertisers to ignore agencies' actual cost structures.

Still, the promise of huge cost reductions has swayed some clients. And now everyone is stuck. The client is stuck, having to obtain the best advertising on a minimal, unrealistic budget; and the agency is stuck, unable to staff properly or afford critical investments in strategic/creative thinking due to fee pressures.

Ultimately, agencies are pushed into a loss position on a piece of business that they cannot afford to lose, and advertisers are left with a less-than-optimal marketing program.

Enough is enough. It's time to put an end to the worst practices of disreputable consultants. Advertisers are falling victim to the unethical practices of compensation consultants that promise unrealistic-and wholly unattainable-cost-cutting savings, resulting in a situation that not only demeans and devalues agencies but ultimately jeopardizes marketers' businesses.

When a client is considering retaining a compensation consultant, it seems only fair that these consultants should be required to answer questions such as:

* What is the source of your "industry database?"

* Is it a compilation of data from confidential information supplied to you by agencies at the request of their clients?

* If so, how does the inclusion of this information in your "industry database" square with the nondisclosure, confidentiality requirements under which the agency and advertiser agreed to furnish this data?

* Or is it information taken from a confidential Four A's survey that is not the consultant's to use? And was that survey designed to provide the "industry standards" that it claims it does?

If the answers are ethically questionable and/or fail to quell fears of impropriety, clients might want to think twice about retaining the services of these consultants.

It's time we all recognize that there is a fair way to negotiate-with all cards on the table. The deceitful game of smoke and mirrors that's being played by disreputable consultants-and those who are complicit in their machinations-needs to end now. Only then will the principal players, advertisers and agencies, find effective and equitable compensation arrangements that lead to longer-term, healthy relationships that benefit both parties.

O. Burtch Drake is president-CEO, American Association of Advertising Agencies, New York.

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