It's too early to know if DaimlerChrysler will get what it's seeking: the same level of advertising creative and service it had before, but at a far lower price. If it succeeds, it will have proven a point. That is that a big advertiser can get quality work for less if it bundles its ad business, puts it out to bid and expects the winning holding company to share the benefits of "economies of scale" in the form of lower overall fees.
In the auto industry, this sort of pressure on suppliers to help their customers' bottom line is now a familiar story, and DaimlerChrysler plainly needs help. Troubles in its U.S. auto business are undermining worldwide DaimlerChrysler financial results. Chrysler Group, representing the Chrysler, Dodge and Jeep business, last quarter lost $512 million; Omnicom made $85.7 million, a 22% increase from the year ago quarter.
With other big public agencies also boasting robust profits, the deal will leave some agency managers anxious about what comes next. Will a slowing economy, and pressure to deliver promised earnings to Wall Street, lead to more account consolidations and bidding wars?
Far from complaining about lower margins, Omnicom is embracing the strategy that efficiencies in running the bigger account will allow it to deliver top-notch service without missing a beat or an earning per share forecast. Controlling costs is good -- for DaimlerChrysler, for competition and ultimately for consumers. We hope DaimlerChrysler and Omnicom succeed -- and have the smarts to adjust accordingly if they don't.
Lower cost for less effective advertising is not what most marketers would call a good bargain.