Conflict issues grow murkier

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Although no one wants to talk about how many client conflicts are already lurking under agencies' roofs, several types are adding to existing headaches.

New challenges for shops include potential conflicts in branded entertainment, product placement and co-marketing ventures.

The growth of new international markets for automobiles and pharmaceuticals is also stretching conflict tolerance, as is the number of agencies that own minority stakes in shops that serve their accounts' rivals.

"Conflicts remain a big issue with clients, and it's spreading on several levels due to the complicated relationships among agencies and the growth of new types of marketing," says Judy Neer, exec VP-managing partner of agency consultancy Pile & Co., Boston. "It's less of an issue at the holding company level, but it can be a serious problem at the account planning level, where proprietary ideas might be shared."

entertainment issues

Hollywood's growing role in creating branded media is creating some new puzzles over compensation and conflicts among talent agencies and entertainment management companies unfamiliar with advertising agencies' rules when dealing with a marketer's rival, say insiders.

"If you look carefully at major talent agencies such as CAA and William Morris, you will begin to see some interesting conflicts of interest in programming projects that might make some of their major clients squirm," says an executive at a major agency holding company with several entertainment shops under its wing. He would not identify the shops and marketers involved.

The pace of agency consolidation may have slowed, but agency holding companies' reach continues to extend, leaving few independents. Even those are at risk of being snapped up this year, says Lisa Colantuono, marketing director for agency consultancy AAR Partners, New York. MDC Partners just bought a controlling interest in Kirshenbaum Bond & Partners.

Now it is almost impossible for a Fortune 500 marketer to avoid some crossover between their brands and the increasingly broad reach of ever-consolidating agency holding companies, especially in automobiles and pharmaceuticals.

Agency insiders are reluctant to identify simmering conflicts, while marketers claim to be content with current arrangements. But agency consultants predict this year will produce a few high-profile agency-marketer splits due to conflicts, and most of them will come without warning.

"Clients are getting increasingly sophisticated about analyzing conflict issues because they have to live with them, but they don't like them any more than they ever did," says Richard Roth, president of agency search consultancy Roth Associates, New York. "A situation that was never a conflict in the past suddenly becomes an issue because of different executives involved."

"We spend a great deal more time at the front end of an agency search, checking up and down the corporate ladder to see what conflicts exist in a potential relationship, and who perceives it as a conflict," says Mr. Roth.

Examples of arrangements now being tolerated include WPP Group's purchase last year of Cordiant Communications Group, including Bates Advertising. WPP is a worldwide supplier for Ford Motor Co., but its Bates division also handles advertising for General Motors Corp. in China.

"There's hardly any large agency or marketer that doesn't have some tie-in somewhere that puts them at risk for a conflict," says John Bulcroft, president of the Advisory Group, Cresskill, N.J. "What's difficult for many automotive clients is that many of these relationships are long term, and to completely avoid conflicts, many would have to break up valuable agency connections, which will ultimately hurt them."

mixing up accounts

Sorting through the car accounts shows rival brands frequently commingling under the same holding company (see chart above). For instance, Publicis Groupe agencies handle Toyota Motor Sales USA (Toyota for Saatchi & Saatchi), General Motors Corp. (Cadillac and Pontiac at Chemistri) and BMW of North America (BMW at Fallon Worldwide).

In many cases, imaginary walls within the agency are all that's keeping marketers' sensitive information secret.

LB Works, Chicago, was allowed to handle a Starbucks Coffee Co. account as long as the shop was considered a separate entity within the confines of its Leo Burnett USA parent. When LB Works was folded back into the parent agency last fall , it resigned the account to avoid conflict with Burnett client McDonald's Corp.

"Clients' trust is being put to the test as knowledge about two rivals' products and advertising may cross the same desks within an agency," says Ms. Colantuono. "In general, clients have to weigh the value of the relationship vs. the risk of information being shared somewhere along the line."

Other agencies will continue to handle business for rival conflicts under one roof, due to longstanding relationships. Publicis' Starcom MediaVest handles several marketers whose business could be considered in conflict, but the marketers have chosen to trust the agency to keep its business separate. For instance, Starcom handles both Procter & Gamble Co.'s Folger's and Kraft Foods' rival Maxwell House coffee brand, but the arrangement is acceptable-for now-to both marketers.

The crossover is not a problem to either client, says the agency. At SMG offices in New York, the two marketers' brands are housed on different floors and staff members do not share information.

"Conflicts have become almost a non-issue for many clients because of our internal firewalls, and the fact that our information technology people make sure client information is secure," says a Starcom spokeswoman.

P&G has explored consolidating its roster of shops, which number about 60 globally, but one factor that has prevented the company from doing so yet is a new kind of conflict that emerges in manufacturer-retailer co-marketing programs, says Qaisar Shareef, director of global shopper marketing at P&G."When you work with these programs with individual retailers, there's a measure of confidentiality in the program until it becomes public," he says. "There's a tension between wanting to consolidate things to become more efficient and recognizing there's a need for different kinds of agency structures to keep things apart. We haven't cracked the code on this."

Of greater concern to agency advisers is the fact that the search to avoid conflicts may be costing agencies access to the best possible advertising resources, says Mr. Roth.

"The right match might involve a conflict, and in their eagerness to avoid conflicts, clients may be limited to choosing only among certain agencies and they may not get the best one for the job," he says.

contributing: jack neff, jean halliday

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