The move was billed as a bid to increase efficiency and shift
into brand-building money allocated for things such as agency fees.
The company also said it will spend an extra $500 million to $600
million to advertise its brands this year, with a focus on North
But while PepsiCo knows the fate of its partners, it didn't plan
to begin notifying agencies of their status until this week. That
prompted widespread panic in adland as agencies scrambled to call
brand managers. Some were told not to worry, but several others
were in the dark.
Ms. Nooyi made her remarks last week to analysts gathered in New
York. She said that in the past five years, advertising and
marketing spending in North America has been supporting "too many
brands and was spread across too many agencies. ... So we went to
work and cleaned house. We reduced agency relationships in North
American beverages from 150 to about 50."
Agencies that work with PepsiCo include large networks such as
TBWA, BBDO and DDB; digital shops Huge , Resource
Interactive, Firstborn and VML; PR agencies Fleishman-Hillard, Weber
Shandwick, Edelman and Ruder Finn; Hispanic shops LatinWorks and
Alma; and independents such as Olson.
It's not the first time PepsiCo has tried to give some of these
shops a squeeze. Last May, the marketer fired off an email to
several agencies requesting an immediate reduction in total fees,
halts on work in the pipeline and clampdowns on travel.
Essentially, agency execs told Ad Age , the marketer engaged in a
"shakedown." Some execs say nothing ever came of the process;
others say they saw reductions in their fees.
"What we see from them are knee-jerk reactions, but not always
the follow-through," said one executive at an agency on PepsiCo's
roster who did not wish to be named. The person noted that working
with the company can be rewarding for staff from a creative
perspective, but also chaotic.
"They're under too much of a microscope from Wall Street ," said
an exec at a different PepsiCo agency, who also asked to remain
anonymous."I don't think these announcements are any more sinister
than the fact that it's earnings season and the company needs to
show Wall Street that it's cutting costs."
That person said marketing has become somewhat of a scapegoat.
"Marketing and advertising got used a bit," said the exec. "They
are using us as a lever to make some news and show that there are
sweeping changes happening at the company."
The marketer declined to comment on those statements.
PepsiCo's plans mirror recent moves at another consumer
packaged-goods giant, Unilever. During a recent Unilever
investor meeting, Chief Financial Officer Jean-Marc Huet said the
company has reduced "nonproductive" spending, which he classified
as "the money we spend on production costs and agency fees, money
that 's not directly driving the exposure of our brands to the
community and consumers."
Simon Lowden, chief marketing officer at PepsiCo Beverages, told
Ad Age that in the past two to three years, the number of agencies
the company works with has ballooned. "It's grown because the
agenda has gotten more complex and busier," Mr. Lowden said. But
"when we look back on things, the vast majority of the work is
still done by our core agencies."
The roster-consolidation process was "transparent," Mr. Lowden
said. "We have been open [with the agencies] that it's happening.
We've been through qualitative assessments."
PepsiCo didn't consider conducting a series of reviews as a way
to eliminate agencies, Mr. Lowden said. Instead, various brand
teams were told to focus on partnerships and programs aligned with
the company's business objectives. He called the approach
"need-based," adding that the roster isn't being pared based on a
goal to have a certain number of agencies on each brand.
"There's no question we have to make sure our marketing
organization is as efficient as possible," Mr. Lowden said. "We
need to make sure we have strong, productive, fewer partnerships
that allow us to drive successful, effective marketing