Most agencies - having suffered steep declines in revenue and severe job cuts - are aggressively hunting down new business before the year-end.
Which makes JWT’s withdrawal from the UPS pitch so startling. Given the pressures agencies are facing to keep revenue coming in the door, why didn’t it just try to find ways to offset the cuts in fees by servicing the business more efficiently? After all, this is a major global brand with US$200 million in its pocket.
Which makes JWT’s withdrawal from the UPS pitch so startling. Given the pressures agencies are facing to keep revenue coming in the door, why didn’t it just try to find ways to offset the cuts in fees by servicing the business more efficiently? After all, this is a major global brand with US$200 million in its pocket.
In an internal note, JWT’s global boss, Bob Jeffrey, says the review “centred on protracted legal/contractual financial discussions that are not in the best interest of JWT. In fact, the contract discussions, and terms which they are mandating, are the worst we have seen in years.” Clearly, the relationship with this client was never going to be sustainable and it’s a noble defence on JWT’s right to be paid. Interestingly, the pitch appears to have started off well enough; managed by AAR Partners, there were clear timelines and precise definitions. But then, at a time when discussions should have focused on the content, price appeared to trump the quality and innovation of the work. Among other things, the offer to JWT included the right to move the business around and alter contract terms. On the back of its recent $200 million Microsoft haul, JWT could afford to stand its ground. But UPS was always going to find an agency willing to take on its business. And WPP, not one to miss an opportunity, saw Ogilvy’s global chief Miles Young clinch the brief with the support of his Asia team. The terms of the contract aren’t clear. But it’s a big win for an agency well versed in dealing with B2B clients.
The question many are asking now is whether JWT has set a precedent. Will others push back, refuse to work for fees that are lower than the cost of what it takes to produce services?
Idealistic? Perhaps. But it’s a point worth exploring.
Firstly, this is not an isolated incident. Remember MediaCom and Nokia? The GroupM agency refused to contest the $415 million global review for its biggest client, because the client was simply offering too little to make holding the account worthwhile. Most of the big pitches this year have been little more than cost-saving exercises. In a few, the incumbent has given its bottom price. The pitch goes on; for every shop that stands up for its rights, there are still agencies out there competing very aggressively for share on cost.
There’s no question that agencies have to accept that some reviews are about little more than driving down prices at the behest of procurement executives. But seeking the cheapest provider isn’t always the right answer for clients either. After all, even the best-intended agency that pitches low will have to make the cost difference up somewhere.
Got a view?
Email atifa.silk@media.asia
This article was originally published in 5 November 2009 issue of Media.
