MIA on Madison Ave.: Agency, client loyalty

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In a business known for surprises, something unusual happened last week: Self-styled "creative hot shops" cheered Grey Advertising, an agency with a reputation for producing perhaps uninspired ads.

What led to this startling chorus? Loyalty, or rather the lack of it.

Domino's Pizza, a Grey client for six years, decided to put its creative account in review despite industry-leading sales gains in 1996. The agency took a stand, declining to join a review it said was so obviously about change for the sake of change and not about brand-building.

"Performance should be what matters, and Grey performed," said former Grey executive Ellis Verdi, now president of DeVito/Verdi, New York.


By itself, the Domino's review was nothing out of the ordinary. But coming in the wake of a number of sudden reviews on successful brands and a growing debate among agencies on the merits of loyalty, it added to Madison Avenue's sense that the ad business is changing -- and not necessarily for the better.

"Agencies used to be brand custodians. I think it would be hard to argue that they are anything but creators of commercials today," said Peter Kim, who resigned last week as vice chairman-chief strategy officer of McCann-Erickson Worldwide to start a brand consulting business. "And so clients increasingly view them as vendors."

Examples abound. Last year, while setting financial performance records, United Airlines dumped Leo Burnett Co., Chicago, after 31 years. Delta Air Lines started a review after 50 years with BBDO Worldwide. Colgate-Palmolive Co. moved $200 million in billings from Foote, Cone & Belding to Y&R Advertising despite positive results.

The average tenure of client-agency relationships has declined from 7.2 years to 5.3 years since 1984, according to a survey by the American Association of Advertising Agencies. The poll covered 175 agencies with 3,700 accounts.


In part, the shorter tenure can be attributed to the huge number of product launches in recent years, said O. Burtch Drake, president-CEO of the Four A's. But there has been more account turnover, too. Nearly 20% of the accounts measured in the survey changed hands in 1995.

"This business has gotten tougher," said Brendan Ryan, chairman-CEO of FCB. "Clients want more than ever before. For agencies, the margin for error, the level of tolerance, has dramatically shrunk."


Agency and client executives agree on a few reasons for the churn. Growing pressure for immediate results generally comes to mind first.

"There's a tighter timetable on executives to turn things around," said Keith Reinhard, chairman-CEO of DDB Needham Worldwide.

"There's been tremendous compression in American business," FCB's Mr. Ryan added. "The pressure keeps building on every client to deliver volume and profit, not every year, but every quarter, every week, even daily."

While short-term results often serve as handy excuses for account switches, agency executives know the real trigger is often turnover on the client side. As marketers and their employees grow less loyal to one another, agencies are bound to suffer the consequences.

"Most reviews are not about the bottom line but about personalities," Mr. Verdi said. In the cases of Domino's, United and Delta, new marketing directors arrived shortly before the reviews were launched.

An agency's loyalty "is a negative to new people coming in" who want to make their mark on a company, said Jonathan Bond, co-chairman, Kirshenbaum Bond & Partners, New York.


Sometimes, whole industries get swept up in a desire for change. In the past two years, nearly every major U.S. hotel chain has switched agencies. In most of the cases, client turnover was a factor, but so was the industry's current love affair with branding.

Other industries, particularly package goods and automobiles, have reputations for loyalty.

Agencies increasingly are becoming less averse to pursuing bigger or more promising clients at the expense of loyalty. Domino's said three of six agencies in its review requested confidentiality because of conflicts with existing clients. And for its $80 million review, GTE Corp. is said to have pursued rivals' agencies, including Nynex Corp. shop Ogilvy & Mather, New York.

The strategy can backfire. A year ago, BBDO pitched an Eastman Kodak Co. assignment even though it had Polaroid Corp. on its roster. It lost both the Kodak pitch and the Polaroid business.

Marketers insist agencies share the blame in eroding loyalty.

"How loyal is the agency to the client?" asked Andy Bielanski, managing director of marketing at Countrywide Home Loans, which recently switched to Dailey & Associates, Los Angeles, from struggling Rogge Effler & Partners, Santa Monica, Calif. "Do they have good people on the job? Are they paying them what they should be paid? It's a double-edged sword."

It's also a sword capable of doing serious damage.

"In terms of the health of a brand, this is dangerous," Mr. Reinhard said. "If a brand is zigging and zagging, flipping and flopping, it loses its integrity. Bright young executives come in and throw out everything."

Consider that most of the world's leading brands have used the same agency for decades. The average agency tenure on the world's top 20 brands--as ranked by Financial World--is 26 years.

"I'm very much biased toward a long-term relationship," said Steve Goldstein, VP-marketing and research at Levi Strauss & Co., which has used FCB's San Francisco office for 67 years.

Long-term marriages give an agency "deep knowledge of the client and product, a deep knowledge of the essence of the brand, a deep knowledge of retail relationships and a deep knowledge of the consumer," he said. "It's very difficult to replicate that on a short-term basis."


"Loyalty to agencies is good," said Jack Rooney, new VP-marketing at Miller Brewing Co., who formerly headed the Levi's business at FCB. "I'm a believer in the agency system."

Still, he said, trouble brews when agencies begin to look at their own bottom line or growth and put client interests second.

One way to enhance loyalty in an age of consolidation and converging technologies may be for clients to ease their rules on what constitutes an account conflict.

"I can see a time when [agencies], like accounting firms and law firms," will handle two or more clients in the same industry, Mr. Reinhard said.

Both clients and agencies have to try harder, Mr. Ryan said, but neither can wait for the other.

"At FCB, we tell clients upfront that we view our job as twofold. We've got to sell the products today--that's first--and we've got to build the brand value over time. If we don't do the first, forget about the second. The clients will be gone, and then the agency will be gone, too."

Contributing: Pat Sloan, Laura Petrecca, Judann Pollack, Rachel Federman, Bradley Johnson, Alice Z. Cuneo, Bill McDowell, Jack Neff.

Copyright January 1997, Crain Communications Inc.

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