On a Saturday morning last April, Joseph Nacchio was addressing a rather sleepy crowd of advertising executives at the Ritz-Carlton Hotel in Laguna Niguel, California. This was the last day of the annual meeting of the American Association of Advertising Agencies, and those attendees who weren't already packing their bags or hitting the dew-covered links that morning were groggily filing into the main ballroom to hear a panel discuss the emerging shape of the industry. Nacchio, then head of AT&T's business services unit, woke them right up. He described AT&T's vision of the future, along with a warning about the dangers of discussing visions. 'There is a very thin line between a vision and a hallucination,' he noted.
That somewhat cryptic remark became all too clear a few months later. When Nacchio was promoted to president of AT&T's bread-and-butter consumer business in August, the communications giant signaled it was ready for a pronounced change of image. In his previous AT&T slot, Nacchio showed an instinct to go for the jugular in dealing with competitors. Nacchio himself starred in one AT&T commercial that ran on the Super Bowl a few years ago: In it, he plugged AT&T's claims of superior service, delivered along these lines: 'We're so sure you'll be satisfied with our quality, service and price, we'll pay to switch you over, and if you're not satisfied, we'll pay to switch you back.'
As an executive, Nacchio is as aggressive and demanding as his advertising. 'He was a tough guy,' says one executive close to AT&T. 'He would call Hank O'Brien (who headed the business services account at McCann) and tell him he wanted new spots on the air in two weeks. Nacchio is not a student of advertising. He is a cutthroat marketing guy, but not in a nasty way.'
As such, Nacchio barely fits into the AT&T mold - a mold born of a culture that grew within the moist, protected environment of a monopoly. Where AT&T once produced marketing executives who by nature took a gentlemanly approach to competition, rather than adopt the posture of the big, powerful bully, Nacchio won't hesitate to strike directly and forcefully at rivals.
Sure enough, on Sept. 30, only a month after assuming the reins at the consumer division, Nacchio initiated a review of AT&T's agency roster. His review letter went out to its five so-called club agencies: Ayer Inc., which had the single biggest piece of AT&T consumer business, the $150-million-plus long-distance account; Young & Rubicam, also a heavyweight on the account; and Ogilvy & Mather, McCann-Erickson, and Foote, Cone & Belding, all with smaller pieces of the action. What Nacchio wanted was to stanch the flow of long-distance dollars that have been going to MCI and Sprint. In the past decade, AT&T's dominant hold on the long-distance market has been whittled down to 60%, while upstart MCI has grown into a serious challenger with a 19% share, and Spring is not far behind.
A fresh look at the account was not unusual. Over the years, AT&T has parceled out any number of assignments to its agencies, from decision on matters as seemingly minor as the selection of a typeface for all corporate advertising to the face-off that produced Ogilvy & Mather's memorable slogan, 'The Right Choice.' Even though tens of millions of dollars could flow from one agency to another as projects arose and fell, the AT&T agency roster was meant to be a fraternal club. Indeed, Kim Armstrong, who retired as director of advertising in Dec. 1989, made it clear to AT&T's agencies during her tenure that any shop which used an internal competitive pitch to poach on another shop's turf would, in the words of one veteran from her era, 'be history.'
That collegial environment was served notice by Nacchio's letter. In a break with tradition, not only did he put the lion's share of the consumer long -distance up for grabs - at great peril to the incumbents, Ayer and Young & Rubicam - but he was also uncharacteristically blunt about what he thought of AT&T's main ad campaign of 1993, the Ayer spots touting the 'i Plan.' In an interview with The Wall Street Journal a month ago, Nacchio said he would jettison the 'i Plan' and admitted the campaign was not connecting with the consumer. The stinging rebuke, in a newspaper that carries enormous influence in corporate America, made his humiliation of Ayer all the more painful.
Perhaps most galling to executives at Ayer, which has been on the phone company's agency roster since 1908, was Nacchio's subtle, if unstated, contention that the 'i Plan' was the creature of the agency, not AT&T. In fact, according to sources, AT&T executives actively pushed the idea - over Ayer's objections - to get the 'i Plan' (a customized program designed to address an individual caller's needs) onto the airwaves even though AT&T was not ready to implement it. The embarrassing upshot of the 'i Plan' campaign was that AT&T spent millions of dollars prematurely promoting a response to MCI's 'Friends & Family'; potential customers who called AT&T operators to sign up were left empty-handed. Although AT&T privately told Ayer that blame for the 'i Plan' would not be laid at Ayer's feet, AT&T never publicly took the fall. There was a feeling at Ayer that the agency had been hung out to dry.
Internally, AT&T made changes that reflected the scrapping of the 'i Plan.' Four senior executives had approved the 'i Plan' campaign and its rollout: Merrill Tutton, David Robertson, Harry Bennett and Stan Lacks. Only one, Bennett, ended up on last month's review committee. Tutton, whom Nacchio replaced as head of consumer communications services, was named president of AT&T in the U.K. this fall. Robertson, vp/consumer and advertising promotions, took Nacchio's old job as head of business services. Lacks was recently promoted to ceo of Unitel in Canada, an AT&T affiliate. (Nacchio replaced him on Nov. 1 with Dan Clark, a former Nabisco marketing executive who took the title of vp/general manager of domestic consumer communications.) AT&T executives are reluctant to comment on the shifts, but it's clear the consumer marketing team that had stayed the course while AT&T's share of market eroded has been redeployed. In its place, a new team, selected by Nacchio, has taken over.
Against this backdrop of client personnel moves, the review quickly unfolded. On Oct. 8, a week after AT&T sent letters of inquiry to its club shops, AT&T vp/corporate communications Dick Martin met with a top representative from each agency: Janet Keeler, executive vp/managing director of account services at Ayer; John Dooner, president of McCann-Erickson Worldwide; Margaret Mark, account managing director of Young & Rubicam; Shelly Lazarus, president of Ogilvy & Mather; and Brendan Ryan, president of FCB/East. Some ground rules were mutually agreed on. The agency execs decided that AT&T should brief the competing shops all at once. AT&T would let each agency decide how many people were needed to make the final pitch (the number of 10 was determined to be plenty); it would compensate agencies for out-of-pocket expenses. For the creative, McCann's Dooner suggested that agencies be allowed to do either storyboards or fully executed ads - a motion that won approval and tipped competitors that McCann, which already enjoyed a good relationship with Nacchio, would go all-out and present finished commercials.
The next step in the review was Nacchio's general briefing on Oct. 18 to teams from the club agencies at AT&T headquarters in Basking Ridge, N.J. Joining Nacchio were Martin and AT&T senior vp/public relations Marilyn Laurie, a savvy Brooklyn native who came to AT&T in 1970 from the environmental movement and now serves as AT&T chairman Robert Allen's adviser on marketing and advertising.
To prepare for his briefing, Nacchio had divided his marketing group into two units, a 'red' team and a 'blue' team. One was composed of phone company insiders; the other included executives from disciplines relatively free of AT&T's culturally inbred notions. Nacchio summarized the two views of AT&T's market perception - one from the inside and one from without - and told the agencies to use those ideas as a starting point.
Each agency got a binder full of proprietary client information and signed non-disclosure forms. They could interview a number of AT&T executives to help shape their strategic briefs. For the final pitch, due in just a month, the agencies were instructed to suggest an advertising strategy, along with a creative strategy and examples of what the proposed creative product would look like.
The order of presentation was drawn by lot. Y&R would go first, followed by McCann, O&M, Ayer and FCB. The committee of nine from AT&T that would hear all the presentations and score the results was headed by Nacchio and Martin. Also on the review committee were Laurie, Clark, Bennett, Shaun Gilmore (a recruit from Nacchio's business division), Dave Shaver (a vp/public relations), and Bob Watson, director of corporate advertising services. Joe Fuller, a regular AT&T consultant from the Monitor Group, also attended.
The stakes for each agency were dramatic. AT&T spent some $396 million in measured media advertising in 1992, and the intensity of the long-distance and 800-number wars had prompted it to spend a like amount through the first nine months alone in 1993. The lead on the consumer account was held by Ayer and the ill-fated 'i Plan' campaign. Ayer had to win the pitch just to retain its primary position. Since Y&R also had a large chunk of the business, it faced the possibility of a severe loss as well. The rest - O&M, McCann and FCB - saw nothing but upside to the review. (Because AT&T would not allow its agencies to comment on the review, sources on the agency pitches insisted on anonymity.)
On the morning of Nov. 15, the AT&T contingent visited Y&R, the only major Madison Avenue agency still located on Madison Avenue. In the wake of departures of several key mid-level executives over the past year, Y&R brought out some lesser-known names for the pitch, including Margaret Mark, executive vp Steve Heyer (a recent hire from Booz Allen) and account managing director Arlene Brickner. The creative effort, which reportedly featured a finished commercial shot by Steve Horn, was spearheaded by Jon Mandell, a new recruit from BBDO, under the direction of international creative director Ted Bell, himself a prize recruit from Leo Burnett Co.
Batting cleanup on the Y&R team was chairman and ceo Alex Kroll, whose ties to the client are long and deep. Kroll has been personally involved on the business for more than a decade, and his dedication to the account was such that he would often attend client meetings in New Jersey on Sundays. Although Ayer had surpassed Y&R in total billings in the current AT&T agency lineup, Y&R was still looked on favorably. It had shown its loyalty in 1984, when another Y&R client, Hallmark Cards, insisted the agency drop AT&T because of a perceived conflict (Hallmark felt the emotionally-tinged ads used to prompt long-distance calls were cutting into its card business). Although Hallmark billed more than AT&T at the time, Y&R stuck with the phone company. Hallmark dropped Y&R, which went on to enjoy increased billings from AT&T. Even in recent years, when Ayer or another shop beat out Y&R for a particular assignment, it was not uncommon for Kroll to go to a higher corporate level to plead for a second chance. Often, Kroll was able to get that second chance.
But on this morning, with few holdovers from the old days sitting in and the new team headed by Nacchio taking over, there would be no great victory for Y&R. The agency's devotion and knowledge of the business would be enough for it to keep most of its AT&T business intact, though not enough to win the pitch. The finished commercial didn't turn the trick.
Following the presentation, the AT&T review group had lunch in a conference room at the Met Life building, where they could discuss the presentation and hand in the first set of scores. That afternoon, it was off to McCann -Erickson's offices on Third Avenue. McCann, which should have had a competitive advantage because of its experience with Nacchio on the business services account, was actually hampered by the rules of the pitch. The agency had to promise that any executive assigned to AT&T's long-distance account would devote at least 50% of his or her time to it. In other words, key executives like Ira Madris and Hank O'Brien, who had done such a good job for Nacchio in the past, wouldn't be part of the pitch team, since they already devoted well over half their time to AT&T's business services account.
John Dooner led the McCann pitch team, seconded by Peter Kim, the 34-year-old research wunderkind the agency had recently lured away from J. Walter Thompson to become a vice chairman at the agency. Heading up creative was chief creative officer/worldwide Marcio Moreira, who enlisted the services of Marshall Karp and Ken Domanski for the effort. Rounding out the pitch team was the head of McCann/New York Jim Heekin, who, like Kim, had just come on board from JWT.
The McCann pitch went well, but it wasn't a blockbuster. Despite Dooner's motion a few weeks earlier to allow anything into the final presentation, including a finished commercial, the agency only presented storyboards - and probably not the best ones it could have produced. As an executive familiar with the pitch said afterwards, 'If McCann had done 10% better in its creative,' the agency stood a good chance to win the business. But this source was philosophical about the loss, saying, 'It's hard to blow people away these days.'
The following morning, the AT&T group assembled at Ogilvy & Mather's Worldwide Plaza offices at 9 a.m. for the next pitch. Although O&M chairwoman/ceo Charlotte Beers was there for the agency's presentation, the pitch team was headed by agency president Shelly Lazarus and executive vp/creative head Bill Hamilton. Also playing key roles were executive cds Rich Russo and Ross Sutherland, media director Wilma Epstein, Cathy Tweedy from direct, and Kelly O'Dea, president/worldwide account services.
The O&M pitch reportedly focused on AT&T's natural strengths in the marketplace, buttressed by some impressive creative ideas. One competitor describes O&M's creative pitch as being similar to McCann's, centered on a phrase like 'It's Your Call.' But the verbal presentation did not match the quality of the ideas, and the agency suffered for it. The AT&T group retired to a Lifetime TV conference room in the same building for lunch and more scoring and discussion before getting back on the elevator for the 2 p.m. meeting with Ayer.
CEO Jerry Siano led the Ayer group, along with chief creative officer Pat Cunningham and executive vp/director of creative services Keith Gould. Executive vps Jan Kraus and Steve Feinberg (creative), Janet Keeler and David Gantman (account services) rounded out the team. With its collective back against the wall, the Ayer squad delivered a strong pitch, reportedly featuring a slogan along the lines of 'The Best Call You Could Ever Make.' The agency that had worked for AT&T for almost a century proved how well it understood the client and its needs with a sound strategic presentation. Like the other main incumbent, Y&R, Ayer also presented a commercial, although it shot the spot internally and at relatively low cost. According to a source at AT&T, 'the fact that Ayer did the 'i Plan' was a zero factor in the choosing of an agency.' That lack of prejudice seemed to be borne out by the chemistry following the meeting. There was a good feeling in the air and a sense, after the pitch broke up around 5 p.m., that Ayer had taken control of a review no one had run away with yet. Some members of the Ayer team were actually in a celebratory mood.
On Wednesday morning, Nov. 17, the AT&T committee made its final trip into Manhattan, to FCB/Leber Katz's offices on Fifth Avenue. It would be hearing its fifth new business presentation in 50 hours, not usually a good omen for the final presenter. Agency president Charlie Taney led the pitch, backed up by Brendan Ryan. Creative director Ted Littleford and group cds David Curtis and Joel Sobelson handled the creative pitch. Senior vp/group cd Nanette Koryn and her creative partner, Mark Wolf, also presented to AT&T.
FCB was considered the dark horse in the review from the start. It had junior status on the AT&T roster and a reputation for being a slice-and-dice packaged-goods shop. So FCB's team chose to exploit its outsider status. Sensing a shift in the wind in Nacchio's ascendancy at AT&T and a willingness to discard all business-as-usual approaches under the new regime, the FCB pitch made the most of its not having been AT&T's agency for the past century. The agency also capitalized on a coincidence: Dan Clark, who had been a key FCB contact and agency supporter at Nabisco, was now stepping into the job of Nacchio's lieutenant, with day-to-day responsibility for the consumer long-distance account.
The agency did have some experienced cards to play. Taney, who had first worked for AT&T while at North Castle Partners a decade ago (FCB acquired part of the agency, including Taney, in the mid-'80s), was familiar with the client. He had run the Colgate-Palmolive business worldwide for FCB, so he could handle a big account. Ryan, a seasoned Ogilvy veteran who had overseen American Express before joining FCB, would assure the agency was in capable hands while Taney devoted himself largely to AT&T. The creative team of Littleford, Curtis, Sobelson, Koryn and Wolf all acquitted themselves well. (The latter two had worked for Clark on the award-winning Grey Poupon account before following Scott Smith from Lowe & Partners to FCB two years ago.) One competitor suggests that the FCB creative theme stressed the concept of 'Your True Voice.' Overall, FCB's creative presentation was considered quite good, if not great.
FCB's trump card - the one that put the agency over the top in the minds of several AT&T executives - was an underpinning of strategic thinking. While some of AT&T's club agencies could become obsessed with the arcana of telecommunications technology, FCB stayed rooted in the common sense of the consumer, pointing out that most people don't expend much time or mental energy on the subject of telephones and communications technology. That thinking informed the agency's creative approach: Keep the message simple and memorable.
Using more street sense, FCB identified several common themes of MCI's corporate persona and overall business attitude to predict what kind of response that MCI - the $11-billion company that still positions itself as 'the little guy' - would have to a revitalized AT&T. FCB execs reportedly even had responses ready for MCI's responses. Such an aggressive, counterpunching approach must have appealed to Nacchio's combative sensibility.
After the final presentation, the AT&T group returned to Basking Ridge to soak it all in. Over the three days, the group had developed a common point of view on what they were looking for in an agency. They graded each shop in such categories as marketplace assessment, how the agency would deal with people who were loyal to a competitor, approaches to media and research, and creative thinking. Corporate ad director Bob Watson had been collecting the score sheets as the review proceeded, and only he kept track of the numbers as they came in. Unanimously, FCB had been awarded the highest scores.
Ayer and then Y&R followed FCB on the score sheets, but in the opinion of the group, those shops were well behind FCB. As a result, FCB would take over the lead role on AT&T's long-distance consumer budget, estimated to be worth at least $150 million in billings. Most of that would come out of Ayer's pockets, along with some spending diverted from Y&R. It was the largest billings shift in AT&T's history, and one of the largest single billings shifts in the history of advertising.
Among the participants, the review was considered swift and rigorous but professionally handled. Personalities were kept in the background; indeed, Nacchio was largely silent during the final discussions that led to the selection of FCB. But the absence of former AT&T executives didn't help the incumbents. Ayer's strongest allies had been promoted to positions outside the U.S. before the review board was assembled, and David Robertson, who was moved to the business services unit, had been a loyal Ayer supporter. Y&R, meanwhile, retained a key contact in Marilyn Laurie who, next to Nacchio, might have been the most powerful person on the review committee. Some ad executives familiar with AT&T credit Laurie for Y&R's slightly less painful escape from the review, compared to Ayer's public flogging.
One adman who was on the losing side when Y&R faced off against Ayer a year ago - a pitch that eventually gave birth to the 'i Plan' - couldn't help but be amused by Ayer's fate in the current review. The Ayer troops were gleeful about winning all those millions then. 'Now look what's happened to them,' the competitor says. Such open antagonism had never been allowed in the gentlemen's club at AT&T headquarters, especially before divestiture, when AT&T had been, simply, the biggest company in the world.
But the world has changed, especially for AT&T. The communications giant, in the person of Nacchio, will no longer allow itself to be the lumbering, immobile target it had become in recent years. 'Several billions of dollars of AT&T revenues are up for grabs,' Nacchio had told the 4A's. 'It's fair to say I'm concerned about that. But I'm not worried.'
Instead, the worriers will be the unlikely winners in the review. By taking on the high-profile, ultra-high-spending assignment, FCB/Leber Katz has been vaulted into the big leagues of New York shops. It also no longer will be considered the ugly duckling of FCB's network, which has top-flight offices in San Francisco and Chicago. At the same time, the pressures to deliver a results-producing campaign will be squarely on FCB's shoulders. Even in the giddiness of their sudden windfall, a top FCB executive acknowledges the reality the agency faces. If it doesn't deliver the goods for AT&T, he confides - goods widely believed to be slated for a Super Bowl debut - the agency could lose the lead position as quickly as it won it.
And finally, FCB's ability to create a vibrant new image for AT&T will go a long way to determining whether Nacchio is an executive with a real vision of the future - or just another marketer with a hallucination.
Copyright Adweek L.P. (1993)