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LET’S MAKE A DEAL: Agencies Find More Wins Tied to Compensation Compromises By Kathy Tyrer with Shelly Garci

The once polite process of negotiating between agency and a new client has taken a tricky turn – with so

‘Before, you got the business, opened up the champagne and everybody knew it was 15% commission and no more questions,’ said Alan Pando, DDB Needham/West president. ‘Today, negotiations ensue not only right after you’ve won the business but sometimes before.’
These days, agencies find themselves in this scenario: The client says they’d like to give the shop the business, but they want to refrain from announcing it until they’ve ironed out the details. Those details are the compensation agreement.
As a result, compensation levels have slid even lower. In the worst cases, agencies have become locked into compensation agreements they can’t live without significantly reducing the level of service they can provide.
‘(Clients) are negotiating after an account has been awarded with the implication that if they don’t come to terms with you, they’ll go to the No. 2 guy,’ said Jeff Goodby, co-principal Goodby, Berlin & Silverstein/S.F. ‘Or the No. 2 guy is saying, ‘We’ll work for less than those guys. It brings out the worst in everybody.’
While creative was key in the BMW Bay Area and Southern California Dealers and Luxor wins last week, cost played a prominent role. By awarding the two dealer accounts to one agency, Mendelsohn/Zien, BMW hopes it can consolidate production costs and creative regional campaigns that will hold the line on costs. Luxor execs said they were also pleased with Stranger & Associates’, the winning agency, cost-effective production measures.
Most agency executives were reluctant to talk specifically about the negotiations involved in recent reviews. But it’s believed that costs played a critical role in the decisions made by Infiniti, Stuart Anderson’s Black Angus Restaurants, Sizzler and Sega.
The winning agency in one of the most prominent reviews last year had to negotiate a compensation agreement after word of its selection leaked out. The shop later learned another contender contacted the client with an offer to better the deal, regardless of what that arrangement was.
Some executives call those kinds of ploys desperate moves. ‘The ad agency business has traditionally been a business of windfall income,’ said Cliff Scott, whose Scott Group, Studio City, Calif., works with agencies on new business. ‘Most agencies endure a lot of poor margin activity in hopes of getting that home run.’
Goodby, too, said agencies to some extent have ‘asked for it by having fee structures in place for years and not giving value commensurate with it. When you have an industry-wide fee structure, there had to be agencies that weren’t giving enough value for that cost.’
Copyright Adweek L.P. (1993)