Last week, OMD was awarded the Unilever media account in China. According to sources, the incumbent agency, Mindshare, was willing to reduce their fee by 25% compared to the previous year. OMD, it seems, has agreed to take on the account at a price that is a whopping 33% lower than Mindshare’s fee of last year.
That is the story of the next year in a nutshell.
As marketers find themselves under pressure, an obvious target for cost-cutting is in the area of fees to creative and media agencies.
Somehow, the differentiators between agencies that they saw during earlier pitches seem to be forgotten and a mental commoditization of the services seems to have taken place. All that is different between agencies is the price.
As long as agencies support marketers’ thinking by agreeing to fee cuts, the commoditization will only get worse.
By cutting fees, in some cases to unreal and unviable levels, what agencies are guaranteeing is that they will not have enough revenues to spend on their people.
As the quality of people deteriorates, so will the quality of the thinking and their output.
In the short term, the marketers will certainly win and agencies lose, but in the longer term it is the marketers and the brands that will turn out to be the losers.
The slowdown or the recession, whatever it might be depending on where in the world one lives, is a short term problem.
When brands do not get the quality of attention they deserve, they open up a flank which could be exploited by the competing brands who still see different agencies bringing different levels of competence to the table and making decisions based on such evaluation combined with an eye on the commercials.
Which is why the year will be dominated by negotiations.
Not just negotiations on pounds, shillings and pence, but negotiations which help the clients see the value that an agency provides.
It is for agencies – because they at the loser’s end – to look hard at themselves and arrive at credible differentiators. For those who cannot find them, they will find themselves viewed as commodities – with no one to blame but themselves.
In this business, the key assets will be the people in the company.
People who will, also, negotiate hard this year.
Good people will find this year one of plenty, with offers pouring in from all corners. To retain them with the knowledge that they are being wooed by the competition will be no easy task – and will result in intense negotiation.