What you need to know:

• Agencies have been railing against “malicious” procurement and payment terms for years if not decades.
• Despite recent efforts by advertisers and media agencies (via the AANA and MFA) to bridge the gap with new guidance, Initiative Global Chair Mat Baxter says just 5% of pitches globally are meeting fair principles.
• He thinks guidance must be far more explicit to stop massive multinationals such as P&G treating smaller firms as banks; that all agencies should be compelled to submit commercial terms before pitching and that “fishing trip” specs are curbed, along with pitch fee contributions from agencies.
• Top marketers at Arnott’s and Westpac agree change and guidance is required.
• “You ask for all of the things you might possibly need in the next ten years and it creates a huge amount of work on both sides.” – Jenni Dill, CMO, Arnott’s.
• “The same approach is used for procuring toilet paper as it is for marketing services. That's a problem.” – MFA Non-Executive Director, Megan Brownlow.
• “Buy cheap, buy twice.” – Westpac Group Head of Brand, Media and Advertising, Jenny Melhuish.

*Editor’s note: This feature is an abridged version of a fast-moving, frank and nuanced podcast debate that delivers the depth and context for a troubled, decade-long issue.

Marketers unclear, unfair

Australian expat and global chair of media agency network Initiative Mat Baxter has stepped-up the heat on agency reviews around the world, citing P&G’s extended agency payment terms on its media liabilities as an example of how reviews and pitches are getting worse here and globally.

“Agencies shouldn’t be asked to be a bank,” Baxter told Mi3 on the advertiser trend during tenders to force media payment terms on agencies of 120 days or more while those advertiser liabilities with media might be 45 days to the agency.

“This is the new, very bad behaviour that has crept into agency reviews in Australia and around the world,” Baxter says. “Multibillion dollar companies like P&G are asking comparatively tiny businesses like agencies to bankroll them. Procurement is trying to get a cashflow advantage at the expense of agencies.”

Baxter says he’s yet to read the entire tender and pitching guidelines document launched three weeks ago by the AANA and MFA.

“I don’t want to devalue what’s being done in Australia. It’s one, if not the only market I’m aware of in the world that’s grabbed this issue proactively between client and agency. But if we’re going to have a meaningful impact, we have to tackle the root causes.”

Blue chip advertisers, he says, have made a “good job of holding agencies to account on transparency, and rightly so”. But he wants to throw fairness back on brand owners. “I notice the word fairness in four areas of the Australian guidelines,” he quips.

Baxter has four key call-outs for what he thinks should be explicit in the Australian initiative:

• Every agency should be asked to submit their commercial terms first, prior to any work starting in a tender review. “This is the problem. Every client will tell you with a smile on their face it's not about pricing and it's not about media rates - it's about great strategy and wanting the best agency,” Baxter says. “If the primary objective for a company is weighted to commercial cost imperatives, that's their prerogative. But be upfront about it. Agencies should submit commercial terms first.” Both parties can then decide upfront whether to proceed or not, he says.
• Agencies shouldn’t be asked to be a bank. Extending payment terms are often a key hidden agenda item in reviews, per Baxter’s earlier comments.
• Agencies shouldn’t be asked to pay for costs related to the advertiser-managed procurement process. Nor a success fee to pitch consultants.
• Limit the briefs agencies are required to respond to in a tender for brand or product plans. “A pitch should include the maximum amount of work required to determine if the agency is a good fit,” says Baxter. “It could require planning on two products or brands. A number of clients will try to jam 25 products and five brands in the tender just because they can get as much free stuff as they can - research, strategy and ideas. Some will try to have you plan an entire portfolio for a year. It's abusing the pitch process. It's opportunistic and very expensive. Clients are doing it all the time.”

Pitching matches speed date risks

Baxter says that just 5% of pitches he sees globally would align to these four points. And despite calling for explicit call-outs in the new AANA-MFA tender guidelines, the industry panel on today’s podcast argues Baxter’s concerns are implicitly covered in the guidelines. But there is solidarity on a several key points, including the need for marketers to call agency reviews less frequently, improve the quality and clarity of the tender brief and objectives upfront and forge much closer ties with procurement before a review is called. It’s essentially on marketers: agency pitch problems are linked to poor strategy, unclear briefs, loose process and low engagement with procurement.

“We absolutely need these guidelines,” says Arnott’s CMO Jenni Dill. “Will they help? They should. Most marketers will deal with pitches of size and scale maybe a handful of times in their entire career. It's not something they do every day. So having the step-by-step guide really helps you through what you should be thinking about, how you should be approaching it, before you get stuck into a six month process briefing a bunch of agencies. So it can be a very lengthy process. And just like getting married off a speed date, it can be high risk,” warns Dill.

“It's probably not, if we're completely honest, in the DNA of most marketers to go through a rigorous tendering pitch process. So I think it's a bit of how much appetite is there for it and how much time is there available to do it? And then what's the outcome of the other end?”

Westpac’s Group Head of Brand, Media and Advertising, Jenny Melhuish concurs and offers a tip for her marketing and procurement industry peers: “Buy cheap, buy twice,” she says.

“Fortunately, we have a great [procurement] team that we work with at Westpac – I really do think it's up to us as marketers to actually educate them as to why you’re going into a pitch. So, if you're really clear on what you want the outcome to be, then I think you’re on the journey. We can't shrink to greatness. At what point do you get the cost down to where no one's successful?”

Former PwC partner and MFA board member Megan Brownlow distils the pitch guidelines into four key themes with practical, actionable advice: respect; fairness; transparency; accountability.

Shocking demands

But even accountability can morph into “absolutely shocking”, says Brownlow.

When asked whether the tension and pressures on agencies are similar to consulting firms in tendering for contracts, she says: “It's quite different, because the level of granular financial data that is frequently sought in agency pitches is absolutely shocking. It’s really, apart from being onerous and intrusive, often unnecessary [to need that information] about the agency's own books. I'm really surprised that these practices continue, given they cannot be providing value and they clearly would result in an unhappy start to a relationship.”

But Brownlow thinks marketing has emerged as a “unique function” in its use of procurement services – it will often get bundled with lower value services. All the panellists agree it’s partly because marketing hasn’t properly engaged procurement.

Marketing services valued like toilet paper

“That's not healthy because the same approach is used for procuring toilet paper as it is for marketing services. That's a problem. That doesn't happen really to the same extent in higher margin consulting.”

It also stirs Mediabrands CEO Mark Coad. “You’d be amazed,” he says, at the level of unnecessary financial and market data agencies are required to submit. 

“We've lost our way in the nature of the relationship we have with one another,” suggests Coad. “We're not agents at all. We're principals. We take the responsibility to pay the media vendors, whether the clients pay us or not. But we still get forced down these sort of fixed price models. If I showed you some of the templates we've been asked to populate as part of this process, you'd be you'd be amazed. I mean 12, 15, 20 tab spreadsheets with costs for every possible daypart and channel mix – whatever you can possibly think of. Often it’s channels that some clients haven't bought for five years. But we’re still asked to populate a template and be held to the price under a fixed price model. And then there's a whole debate over how it's delivered and whether we're agents or not. And that's a whole different topic.”

Avoiding the agency whinge fest

Some argue unnecessary legwork is often driven by pitch consultants updating their media cost benchmark pool. But Coad is mindful to avoid the tender and pitching debate  reverting to an “agency whinge fest”.

“I’ve worked in media agencies my whole career and I've never lost sight that clients aren’t in the business of planning and buying media. They're in the business of selling their products and services and we're a means to that. The purpose of pitching is to get better outcomes, to have better partnerships where clients are able to sell more of their products and services and agencies are able to flourish by selling clients more of our products and services to help them achieve that.”

Listen to the podcast here.