Editorial: Agencies play role in ad devaluation

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DuPont's online auction for its global account is the latest in a series of procurement-driven initiatives by major marketers that appear to place undue emphasis on the price of advertising services rather than recognizing the differences among competing shops' ideas. Before agencies start cursing "clients" for such behavior, however, they should consider the role some of their shops have played in this commoditization of advertising.

While public ownership has had benefits for many large agencies-providing finance for geographical and practice expansion-it has also put shareholder value and stock price front and center, with the attendant necessity to show constant revenue growth. One result of this single-minded focus on getting bigger is the need to win business at almost any cost.

No holding company has ever openly admitted that it effectively "bought" a piece of business by pricing its services below the realistic cost of handling the project or account. Yet it's widely acknowledged that some of the fiercer contests of recent years have seen agencies placing bids that factor in minimal profit margins or that throw in additional services at no extra cost.

This sometimes works as a one-off business decision. Omnicom Group's famously aggressive bid for the consolidated global Chrysler Group account enabled it to land True North Communications' biggest account without having to buy the holding company. What's more, Omnicom could justify the deal by suggesting that growing a relationship with the automaker would enable it to sell in more and higher-margin offerings later.

But viewed in the longer term, Omnicom's win (and similar bids by others) was a loss for agencies; by accepting Chrysler's logic that Chrysler could get the same for less, Omnicom effectively devalued the value of agencies. Ad agencies that agree to take part in DuPont's auction must know they run the same risk.

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