There is a race to the bottom of the media industry that has been going on for years, and there are no winners!
We have been involved in a number of new business pitches over the last year. There is one thing all of them have in common: the involvement of procurement, and a mandate on pricing. In the majority of pitches, the winning agency is the one that comes in at the lowest price.
There are generally two pricing exercises agencies have to complete.
The first is the media pricing. This is where the agency demonstrates to the client how big their buying muscle is. This is a good exercise because it’s one of the areas in which an agency can set themselves apart from their competition. Agencies that know what they are doing, and have good relationships with their media owner partners, can excel. Through clever selection of media channels, strategic platform optimisation and great partnerships, agencies can offer great value to clients.
Then there is the second pricing exercise, and this is where things start to fall apart and cause most agencies and clients very large headaches once the business has been won. This exercise is where an agency gives a quote to the procurement team for the ‘fee’ to handle the business, based on the scope set out in the pitch; this is the price that wins or loses the business.
Let’s break it down and explore the pitfalls.
There are essentially two things an agency is selling to future clients. Time and intellect! The reality is that both cost money, and both are something that clients should want to pay for.
Let’s talk about intellect first
Every agency has tools, systems, processes, and ways of working that should – hopefully – make their offering unique to clients. This intellect goes hand in hand with experience. Generally speaking, a strategist with 15 or 20 years of experience is going to be able to give a client a far better intellectual product than someone who has only been in the industry for a few years.
Experience is everything in this business. It teaches us what works and what doesn’t. It teaches us where we can get the best value for our clients and where we can push the envelope. Experience however costs money. A senior media strategist with many years under their belt and the experience of having worked on many different clients and categories is going to cost a lot more than someone fresh out of marketing school.
What about time?
Media planning and buying is a time-consuming job. For an agency to give their clients real due diligence when it comes to providing strategic solutions to help the client grow their business takes time. It takes time to understand the market. Time to understand the clients’ business. Time to understand the consumer, what drives them, what makes them tick, what media platforms they use and how they use them. It takes time to study the research and unearth those insights that will turn a media strategy into a genuine piece of gold or simply just another TV or digital campaign.
The more time, and the more experience we can sell to a client, the better our product is going to be. The better the product, the better the results; and if a client sees great results that actually move the needle for their business, they are going to be happy and will continue to spend money.
This is where it has all fallen apart for many agencies and clients over the years. I said that in the vast majority of pitches, business is won or lost based on price. Procurement departments are under so much pressure to save money that price becomes the determining factor.
For agencies, it is a volume game. We have all been squeezed to such an extent over the years that the more clients we have, the more money we make. So, what do we do in order to win a pitch? We all race to the bottom, promising to take on business for ever declining margins. We undercut each other. If another agency says they will take on a piece of business for 3%, we offer to do it for 2% and round and round it goes.
The reality is, and I don’t believe that many procurement teams know this, is that there are really only three ways for agencies to cut their costs, and all of them have consequences:
1. Put a less experienced team on the account
2. Put experienced people the account, but less than is actually needed based on the scope
3. Sell fewer hours
Sadly, none of these are sustainable solutions. In all three scenarios, not only am I giving the client a sub-standard product, but I am also putting my own internal teams under such pressure to deliver and keep the client happy that they end up working themselves to death and still not delivering, because either there aren’t enough people to handle the volume of work, or there aren’t enough hours to get through it all.
As a result, I have an unhappy client and I have unhappy staff, because we are not being paid enough to resource the account properly, we can’t afford to hire the right type of resource that the client needs and we can’t afford to pay our staff increases. So our staff end up being so unhappy and so overworked that they don’t perform at their best, and they end up leaving. Which means that we constantly have new people having to learn the client’s business all over again, and all of the intellectual capital that has been built up for the client, walks out the door.
Ultimately the client ends up being so unhappy with the agency that they put their business out to pitch again, and the whole sad process starts all over again.
So what is the solution? Well, clients need to start properly evaluating agencies on their intellectual ability and pay for the resource that is actually needed to service their accounts properly.
The sad irony is that very often the amount that the client refuses to pay the agency for the resource that they need, works out to be less than the cost of one good TV burst. And if the agency was able to put good, experienced people on to the account in the first place, they would probably be able to give that additional cost for the resource back to client anyway because they would have experienced people who could negotiate better discounts, provide the client with better value, make fewer mistakes, and provide media solutions that shoot the lights out.
Instead, we have junior people, taking longer to get work out and the work really isn’t up to the standard that it should be, which ends up costing the client more in the long run.
Ultimately it is a lose-lose situation for everyone – the client, the agency, and the people who just aren’t able to cope with the pressure and end up leaving the industry!
Stay Curious!
Richard Lord is media and operations director at Meta Media, South Africa’s newest media agency, and part of the IPG global network. At Meta Media we don’t just look at the numbers, we dig deeper, we look for the story behind the story. We find the “so what” to give our clients the edge, to provide real solutions based on real insights. We are real, we are authentic. We are curious.
