Are Reverse Auctions Decreasing?

Agencies sometimes spend six months or more working on a pitch for a coveted potential client, only for that client to decide at the eleventh hour that the pitch will end in an auction over the phone—lowest fees win. New business execs at ad agencies characterized that process—which is commonly referred to as reverse auctions, procurement-led auctions and e-auctions—as demoralizing and destructive to the industry, calling it a "race to the bottom" where no one wins. Industry sources told Adweek they saw reverse auctions most commonly in the early to mid-2010s. Now, nearly a dozen ad agencies Adweek spoke to said reverse auctions are becoming rarer. Several said they saw a decline after it was made public that Nike was considering a reverse auction to find a digital agency in 2018. "Auctions turn advertising into a commodity, and agencies and clients both have to ask themselves: Is this a commodity business?" said Bill Duggan, group evp at the ANA. The evolving agency-client relationship Agencies are leaning more heavily into specialized services, making the capabilities they offer potential clients no longer comparable to competitors in a way that results in an auction. As brands invest in digital transformation and recognize the need for different or better capabilities, they're willing to pay more for an agency's work, according to Ryan Kangisser, managing partner at MediaSense, the consultancy involved in Coca-Cola's review. "It's been such a challenging period for agencies because they aren't responding to an RFP in the way they always have," Kangisser said. Agencies are increasingly turning down opportunities to participate in RFPs constrained by unrealistic budgets, which often result in new RFPs from the client within six months because long-lasting relationships aren't built on pricing. "When considering an agency, a client should concentrate on the quality of the agency’s people, the agency’s strategic capabilities and excellence of the work product, all of which build to the long-term value the right agency partner can bring to a client’s business," said Matthew Kasindorf, svp, business intelligence and insight group, 4A's. Talent factors in When brands deliver smaller-than-expected budgets or choose partners through auctions, it typically comes at the cost of the talent working on the account, which impacts the relationship in a number of different ways. Lower margins often mean more junior talent on the account. "If I'm the client, I'm checking to be sure the staff that I saw in the pitch is the staff that is now working on my business," Duggan said. When expectations differ from reality, it quickly devolves into a toxic situation that typically results in a short-term partnership. Agencies won't be able to supply the numbers needed to service the account nor will they be able to add staff during key periods, one head of new business at a New York-based independent full-service agency told Adweek. "What ends up happening is you suffocate the work and you suffocate the talent," the source, who asked to remain anonymous to avoid hurting client relationships, said. When auctions do make sense According to agencies, e-auctions typically only occur in two areas now: media buying and production or other similar services that can be compared in a like-for-like basis. But they serve different roles in the procurement process. On the the media buying side, multiple agency sources said e-auctions often happen early in the process to narrow the field down. They act as a pricing exercise before moving on to a tissue session, but that can come with a downside—especially in the U.S., where the market is more dynamic than in Europe, where e-auctions originated. A managing director at a U.S.-based, holding company-owned media agency said the platforms these auctions are held on typically only address specific scenarios and cannot account for how brands and agencies actually go to market. As a result, clients need to avoid setting unrealistic expectations. In production, clients have to lay out clear terms and standard definitions to ensure agencies can accurately develop their rates. In addition to saving money, auctions allow clients to save time when finding their production partner. But ultimately, if brands do want to save money, Maryl Adler, vp business strategy at digital agency Media.Monks said, there are better ways to do it. "Often, brands will save money by cutting waste in the production process by repurposing the assets for fit-for-format uses across a wide variety of channels [rather] than by lowering the price-per-asset, which could jeopardize the quality of the work," she said.

The Future of Agencies

The Evolving Agency-Client Relationship Is Leading to a Decrease in Reverse Auctions

Brands are looking for deeper integrations into the business

Jameson Fleming

About

Subscriptions

Events

Publications

WORK SMARTER - LEARN, GROW AND BE INSPIRED.

Subscribe today!

Jameson Fleming