Marketers Should Take Heed as Agencies Shun Low-Margin, High-Headache Biz

Why Shops Are Learning How to Just Say No

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Fourth quarter is typically when agencies go into a new-business frenzy, licking their chops for a chance to bring in fresh accounts. But a funny thing is happening this year: Many requests for proposals are leaving a bad taste in agencies' mouths. Shops are taking a look and tossing them out.

What gives? Fees offered by potential clients are too low; timelines for pitches too short; briefing documents are too vague, and many marketers overstep bounds by demanding that agencies relinquish ownership of their ideas to them.

Credit: Taylor Callery

Make no mistake, agencies are still pressured to bring in a steady stream of new business, particularly if the shop is owned by a publicly traded company. But industry execs are also reporting that RFPs are being vetted far more carefully, even among agencies belonging to big networks.

It's a switch from the lean years of the recession when shops, under immense pressure as clients pulled back spending, chased all sorts of accounts -- even ones with less prestigious brands or piddly revenue.

Agencies learned the perils of that tactic the hard way, by breaking even or losing money on low-paying accounts. They paid the price in other ways, too, as the accounts sapped morale. Now many are trying to unlearn some of those bad habits by taking a page out of Nancy's Reagan's "80s anti-drug PSA playbook and just saying no. And that doesn't just impact agencies, but marketers, too: If they don't adjust their RFP process, high-quality shops might just ditch their pitch.

'We're a business, too'
"We've had to pass a lot this year because timelines are insane and creative asks are unreasonable," said Tom Sullivan, CEO of San Diego-based Vitro, which is owned by MDC Partners. "It's a lifestyle choice in this industry as much as it is a career; if you work a lot of nights and weekends just to fulfill the work you need to do on current clients, then where is the time to do the [speculative] work?" Mr. Sullivan said he was stunned when two separate RFPs came in recently that asked for an unspecified "plan" to fix the marketers' business to be completed within 10 to 14 days. Increasingly, he said, there's "a lack of transparency" around the fees. "If we're going to put a tremendous amount of energy into a pitch, we can't be in the dark. We have to know the fee potential. Some clients and consultants forget that we're a business, too."

He added: "If you are going to work with someone who's asking you to move heaven and earth in two weeks, it's a signal of what the relationship will be like. Even if the fees are attractive, that's not good for morale."

All told, Vitro in 2013 has turned down an unprecedented number of pitches. This year, the shop won four pitches and turned down eight reviews.

Learning from the aftermath
"Agencies are finding that jumping after everything can have a negative impact," said Kristin Bloomquist, exec VP-general manager at the Phoenix office of indie shop Cramer-Krasselt. "You have cost issues, morale issues, and then you wind up parting ways. This is the learning from the aftermath."

Like many shops, C-K is once bitten, twice shy. She recalls an example where the agency pitched an account, but after winning it found the fee didn't fit the scope of the work. Going after it was a mistake. "In retrospect, had we been more diligent during the recession, we wouldn't have, and it didn't last," she said. Ms. Bloomquist has also noticed a continued lack of differentiation by clients' procurement departments about the strategic value an agency can bring vs. a vendor for office supplies.

"There are pitches that come through where you're treated like a vendor, and there's no time, no respect, no information," she said. "I'm applauding that we are starting to be a little more discriminatory in looking at opportunities."

Agencies' increased savvy about what's financially worth their time is driving the new dynamic, but the quality of RFPs is waning as well, industry execs say.

One reason for that: more clients are eschewing agency-of-record assignments for project work, buying campaigns or tactics instead of a long-term relationship with an agency. Another reason may be the rise of the procurement-led pitch, which is often more focused on finding efficiencies and lowering fees rather than on finding the best marketing partner.

CMOs under pressure
Then there's the matter of pressure on chief marketing officers to deliver numbers that satisfy shareholders and Wall Street. While that pressure is hardly new, it's unrelenting. A CMO survey published by Duke University's Fuqua School of Business in August found that the majority of marketers surveyed -- more than 66% -- reported feeling increased pressure from the CEO or board to prove the value of marketing. The survey also found that marketing employees as a percentage of overall employees fell to 1.2%, down from 4.2% in 2011.

Tom Sullivan, CEO of San Diego-based Vitro
Tom Sullivan, CEO of San Diego-based Vitro

"They are playing a short game, thinking "How do I win this quarter?' and that mentality is cascading down to how pitches are done," said Mr. Sullivan. "It's about who's the best for an immediate problem they have right now. ... They are looking for a Band-Aid."

The new mix of channels hasn't helped either, as many clients are in the dark when it comes to what's fair agency payment in technologically complicated spaces like digital and mobile. As more marketers call digital reviews, there's often a gulf between what clients expect to pay and what agencies expect to earn for their work.

"RFPs are sometimes driven by clients with eyes much bigger than their stomachs regarding what it takes to do great digital work," said Brian Wiener, CEO at Dentsu-owned digital shop 360i. "They don't really have the budgets to support their expectation levels."

He said, for example, that if an agency knows it needs to reserve 10 people to do the job and the client will only pay for eight, the arrangement won't work. "The agency then has the choice of servicing the business well and it being unprofitable or cutting corners and not doing great work. And the best agencies won't risk their reputation on the latter approach."

Mr. Wiener said 360i has been especially cautious when it comes to so-called consolidation pitches, when a multibrand company tries to park the whole portfolio with one agency. "Usually each brand wants to have its own strategy and its own regular phone calls and meetings," he said. "If we get an RFP and there's a $10 million media budget and it's one brand, that's very different than an RFP for $12 million and eight brands ... we wouldn't participate in that sort of pitch."

Several digital multibrand pitches have taken place this year, including Chase and Estée Lauder, and more reviews of this sort are expected to crop up.

Marisa Thalberg, VP-corporate digital marketing worldwide of Estée Lauder, wouldn't confirm or deny any review process, but said: "We have the utmost respect for our existing partners and any process we undertake with them would be with the utmost respect for the work that would be involved both in a review process and going forward."

Mr. Wiener said getting to a place where client and agency fee expectations are aligned will take time. "It would be helpful to the industry to get together to raise the education level so that clients and agencies were speaking the same language for what are reasonable scopes for great digital work."

'Two-way street'
Ensuring that agency searches are conducted in a fair manner is of interest to both the 4A's and Association of National Advertisers, which have been pushing awareness of the subject. "It's important to recognize that agencies today are becoming increasingly more selective about how they manage their resources and invest their time and talent to pursue new opportunities," said the most recent 4A's/ANA joint guidance. "Providing agencies with some basic information about the opportunity helps them make the right decision about whether to participate, positions them to respond most effectively to the questions in [review documents] to position you as a client that understands and respects the agency/client relationship as a "two-way street.'"

"When there are big budgets involved, especially, some marketers think they can make all sorts of demands," said Bill Duggan, group exec VP at the Association of National Advertisers. "More agencies saying no is a good thing, and if that tide is turning, it's awesome."

He added that one of the biggest problems is wasted energy and resources as a result of poor pitch processes. "What a lot of marketers don't realize is that bad search processes can cost them, and what many clients don't consider is that bad searches cost the industry overall."

For example, a pitch that doesn't follow best practices might mean a marketer has to review the business again a year or two later -- or that top agencies choose not to respond in the first place.

"If you're not running a review that feels transparent, that there's an opportunity to do good work for a fair fee, a client could lose good potential partners," said Ms. Bloomquist."It's not a nice-to-have to run a pitch well, it's an outcome that's beneficial for everyone."

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