Should the winning media agency in a new business pitch be required to pay the client a $1 million-plus “signing-on” fee for the privilege of handling the account? Or should all agencies be required to pay a pitch fee to demonstrate a good-faith commitment to winning an account they’re contending for?
Two recent overseas media pitches have had the industry buzzing over such questions for the last two weeks. Agency executives and search consultants were critical of the tactics imposed by the clients: travel company Thomas Cook for a U.K. review and Reckitt Benckiser for a pitch in India — and said such provisions haven’t been tried in the U.S. and wouldn’t fly here if attempted.
According to a report in Campaign, which broke the story, Thomas Cook was demanding a so-called “signing-on fee” of nearly $1.5 million from the winner of its ongoing media agency review in the U.K. The company spends an estimated $45 million in the market. Separately, Campaign’s India edition reported that Reckitt was demanding $10,000 pitch fees from all contenders.
“I’ve never heard of it being done here,” said Russel Wohlwerth (shown), principal at search consultant Ark Advisors, referring to both situations. “And I don’t think it would go over very big here, either,” he said, noting, “We have an issue when marketers want to own the creative concepts coming out of a pitch.”
Wohlwerth also questioned the motivation behind the Thomas Cook move. “Why not just pay a lower fee?” he said. “I’d avoid this one like the plague.”
Rob Norman, CEO, GroupM North America, described both tactics as “inappropriate,” and said none of the GroupM shops in the U.S. (MindShare, Mediaedge:cia, MediaCom and Maxus) had encountered such demands and wouldn’t participate if they did.
Norman said it was possible that the agencies participating in the Thomas Cook review are simply calculating the required payment into their estimate of the worth of the overall contract. “But it’s a peculiar way to run a railroad,” he said.
What’s more acceptable, he said, is to have a completely transparent process where performance incentives are created that require the agency to “take a risk in order to benefit from a substantial upside that reflects or exceeds that risk. That is a legitimate conversation to have. But transparency is the key.”
The Thomas Cook demand for a sign-on payment was widely rebuked in Europe and the U.K. as well. Search consultants there said that they could not think of another example of a client demanding such a fee in a new business pitch.
And the Institute of Practitioners in Advertising, the U.K.’s agency trade group, was sharply critical of the ploy and urged contenders not to participate. Hamish Pringle, the IPA director general, said in a statement: “This is absolutely outrageous. It adds insult to the injuries that unprofessional procurement people have inflicted on our industry. Agencies should pull out of this pitch.”
But a number of well-known agencies remained in the pitch as of last week, including Aegis Media and Starcom MediaVest Group, among others. The agencies either declined comment or didn’t return queries.
Thomas Cook also declined to comment, citing the confidential nature of the ongoing review. Reckitt could not be reached.
While some portrayed the Thomas Cook payment demand as a rebate on its service fee, one source, who spoke with contenders, described the demand as a “crudely worded reference to media discount guarantees.”
“They want to achieve at least 10 percent savings on the buying rate over the life of the agreement,” the source said of Thomas Cook.
The source added that Thomas Cook appears “open to negotiation” about when the sign-on fee would be paid, “but you do have to put your money where your mouth is.”
Even if that’s the case, added a U.K. search consultant, “this is not the way you should be doing business. On its face it looks like bribery in some respects, even though it may not be as underhanded as that.”
A Europe-based consultant said the Thomas Cook approach was unprecedented as far he could tell. And dangerous too, because it is hard to know exactly how to interpret the payment “without understanding the entire package.” And that is hard to do because neither the agencies involved nor the client are speaking publicly about it. The danger is other clients will read about the payment and conclude they can turn their own pitches into revenue-generating
processes as well.
“That’s the last thing the industry needs,” he said.
One agency CEO in the U.S. described the Thomas Cook payment as a “guarantee on savings.” The demand for the payment upfront is “outrageous,” the executive said. But he noted that it’s easier for European shops to manipulate rates in ways that the U.S. market would not tolerate. “In European markets the rates don’t belong to the client; they belong to the agency generally,” he said. “So they can take volume from one place and apply discounts elsewhere,” in effect providing Thomas Cook with agreed upon savings and making it up on other accounts.
The fact that well-known, top-tier agencies ignored the IPA and remained in the pitch is surprising, some executives said. Although it’s not so surprising when you consider that a 30 million British pound account is akin to a $250 million assignment in the U.S. because clients get 10 times more bang for the buck in the U.K., said an agency executive with experience in both markets. That’s because the U.K. is one-fifth the size of the U.S. where media is twice as expensive, “so your dollars go 10 times further there,” the executive said.
“I’ve never seen anything like this,” the source said. “And I hope I don’t see it here. It’s not a good thing.”