Tom Lewis - IPA Finance Director
Management Consultant Michael Farmer challenged agency CEOs to put a floor under declining prices - a simple result of declining fees and increasing workloads - and to hold account handlers responsible for client financial performance. Noting that industry initiatives over the last few decades have singularly failed to reverse the decline in prices, he called for a focus on achieving business results for clients and the need to manage agencies as ideas factories.
Tim Williams showed that agencies need to make pricing, rather than costing, a core discipline using examples from airlines, engineering, hotels and other professional services. Picking up on Michael Farmer's analogy, he encouraged agencies to decouple pricing into executional “factory” output and higher-value “garden” output, with different approaches to pricing for each. In order to develop the discipline of pricing, Tim recommended all agencies set up a Pricing Council.
Blair Enns encouraged agencies to see winning newbiz as a polite battle for control of the buying process; Challenger sales types who significantly disrupt the buying process are significantly more successful in winning newbiz. If you have to pitch and don't have an inside track, you will be up against someone who does, so Blair’s four rules of newbiz say that you should walk away and move on to a different game where the odds of winning are better.
Ogilvy Change's Choice Architect Dan Bennett brought some behavioural science insights to the challenge of agency pricing, observing that a Pricing Council of between two and eight people is more predisposed to taking the higher risk decision needed for value pricing. He advised agencies to make clients advocates of value pricing, to position value pricing as the new norm and make it more desirable by limiting its availability.
WPP Procurement Director Tom Kinnaird pulled back the curtain on the games procurement play with agencies - and demonstrated how well they are working, using the concepts of ethical drift and procurement conditioning. Outlining the shift in buyer vs seller power during the buying process, he argued for negotiation skills as a leadership issue.
Presenting highlights from the IPA's survey on Pricing, Selling and Negotiation, Field Day agency head Liz Barnsdale, talked about how pressures to meet internal targets can influence even the most well-intentioned pricing decisions.
Wrapping up, keynote speaker Fred Bolza from Sony Music talked about the disruption the music business has been through when its business model collapsed on all fronts almost simultaneously and how it has responded to the challenges.
Rick Hirst - CEO at Carat
How do we get paid fairly for what we do for our clients?
It was clear that this issue is certainly weighing heavily on the minds of the majority of agencies in our business. Combine this with the uncertainty of post-Brexit Britain, an oversupplied agency marketplace, increasing budget pressures from clients and you've got a soup that no one really wants to taste.
The theme of the conference was 'Our Shop, Our Rules' and rightly so. In many respects a call to arms for the attendees and industry at large. It felt like time to stop complaining, stop feeling like the victim and have permission to genuinely front up to the commercial challenges we're facing.
First up was Michael Farmer, a Madison Avenue veteran who's watched the demise of our commercial model over the last 25 years. He distilled the issue into one around pricing and workload. Put simply, we're being paid less and doing more work than ever before and the trend is shocking. Since 1992, there's been a 62% decline in fees for the same amount of work. Not only that, according to his research, a creative team today is likely to ask for nearly 130% more output for that diminished fee. His criticisms of our business were stark; CEOs need to put a floor under our pricing and take responsibility for these challenges, not delegate them deep into their organisations. Agencies must also manage scopes of work; the old excuse of 'We're creative' doesn't wash when you look at our business as an advertising factory - we have raw materials and end product - it's no different from manufacturing cars. Michael noted that consulting firms get paid a 5x multiple on staff costs. Why? He believes they are more focused on creating a culture of accountability, they have uniform documentation and senior management are intrinsically involved in this aspect of their businesses. Lessons indeed.
Tim Williams from Ignition Consulting took up the mantle of value. His challenge was that we're fundamentally undervaluing what we actually deliver to our client partners. He believes that we're in a pricing revolution that almost all sectors and businesses are having to deal with. No longer seeing the world through the eyes of cost, businesses are becoming much more dynamic in how they create models for their customers. From Uber's low-battery price surge to Tesla's functionality unlocking, there's a huge shift towards understanding how to create new value for customers and clients. Unsurprisingly Tim called out "cost-plus" as a relic of our business that needs to be buried and also that agencies are woeful at pricing; we use all the wrong language, we don't make pricing a core competency and we put our people in front of skilled buyers - it's no wonder that we're losing the battles today.
Next up was Blair Enns with a slightly different angle. His talk focused on the commercial lifeblood of all our agencies - new business. Blair is the creator of the 'Win without pitching' philosophy that challenges many of the long-held beliefs on successful business growth strategies. It's a philosophy that centres on the axis of power and control which normally in a pitch, an agency will hand over to the prospective client. Whilst refreshing in his pitch, actually Blair talked nothing more than good old common sense:
- Don't pitch too much. Only play if you can win.
- Manipulate the rules in your favour to test your chances of winning.
- Make the prospective client see your agency differently to the others.
Simple, inspiring stuff but perhaps open to challenge when you introduce the role of an intermediary into a pitch process. Traditionally their role is to neutralise the environment for the agencies competing and limit direct access to clients. It certainly makes Blair's 'concession gaining' somewhat more difficult.
The prize for job title of the day went to Dan Bennett - a Choice Architect at Ogilvy Change. Dan's view centred on how we actually make pricing competency land. Understanding people, Dan argued, unlocks a number of levers for helping agencies and their clients make a shift to new commercial engagement models. From leveraging social norms to make the "new" feel "safe", to understanding who's the right person to lead the discussions, to creating scarcity in new models - there were many tips for the hungry crowd. His most pertinent however was about language. Do we need some new language to shake off the baggage of our old models and set us up for success? Good luck to the copywriting contingent who get this brief.
You can't have a debate around agency remuneration without involving the P word, and that's where Tom Kinnaird stepped up. After many years as a client procurement specialist, Tom took the unique step into the agency world to lead WPP's procurement and it wasn't long before he realised something - agencies are woeful at negotiation and don't understand how to deal with professional procurement specialists. Until we do, Tom argued, we'll continue to suffer at the hands of these skilled assassins. Tom's piece was littered with great insights into how to better handle negotiations with procurement. A healthy dose of scepticism, an understanding this is a game, the deployment of "ethical drift", and seeing where the role of procurement fits into the decision making process. However, if one message rang loud and true from Tom, it was about the power and the use of the word NO. Not something heard much in agencies these days but Tom's argument was simple; if you don't say no, then your client will just keep asking. But when do you say no? Tom's simple guide was if you say no and the client then has the problem, then it was the right time because it places the power in your hands. And how? Tom's view is that you say no often by saying yes and navigating a negotiation to other options and possibilities. Simple stuff but as Tom was at great pains to land - it's not currently being taught enough in agencies. We must get negotiation training included in our core development plans across our businesses, not just in management teams.
After an interesting and insightful panel talk, the final stage was given to Frederico Bolza from Sony Music. A self proclaimed muso who got into the business because he simply 'loved bands', you'd be a fool to underestimate the value of Frederico's experiences. The music business is also facing a fundamental challenge to the very core of its commercial model and Frederico was there to explain how the industry is innovating to stay relevant and alive. No longer able to rely on physical sales and distribution, they are reinventing the value chain for their businesses and artists, deploying innovative new tools to develop strategies and an ecosystem around their assets that drives new opportunities for revenue and value capture. It was a stark lesson for agencies to think differently about what they do or could do for their clients. If the music business can do it, why can't we?
In summary, a hugely insightful and diverse perspective on the current challenges that we're facing as an industry. Amongst the practical advice though there were some significant themes I took from a very well spent morning:
- We're a creative business but hugely uncreative in our thinking and approach to how we're paid by our clients.
- We can't expect things to change for us. We have to innovate, try things, invest and learn from making mistakes. Change has to come from the ground up, not the top down.
- We must have a hard look in the mirror to see if we're equipping our people and teams with the right skills to significantly up our capabilities around pricing, negotiation and commercial acumen.
- We have to take responsibility for this in all aspects of the agency, not just the finance team. Lead from the front by CEOs but also create a culture of accountability across our businesses from the top to the bottom.
- We can learn more from other industries as to how they've overcome similar seismic issues as globalisation, digitisation and convergence continue to dominate modern business.
Well done and thanks to the IPA Commercial Leadership Group for a great session that I left feeling upbeat and energised. So much that I signed up for a negotiation skills course that very morning - I'm almost looking forward to my next procurement conversation.
Yousaf Khalid - Group Managing Director at e>erythingd.fferent
From Jay Z to Sorrell: A Journey of bands to brands
Hands up who has recently bought a CD? Hands up who’s downloaded from iTunes? Hands up who’s streamed on Spotify, YouTube, Deezer or Tidal? In 10 years, we’ve gone from buying physical and digital products to licencing products.
The other week I attended the IPA’s Commercial Conference on how the ad industry can stop giving its best ideas away for free. There were some great speakers who talked about the value of our product versus the cost but the best was most definitely left to last with the keynote talk by Federico Bolza, VP Strategy Sony Music, who spoke about his experiences in the music industry over the last decade.
The music industry has transformed from a production led distribution business to market driven artist marketing agencies. The world before music downloading was a simple one. A&R people would try and hunt out the next big thing and musicians would try and get ‘signed up’. A contract would be signed with an advance and off they went on a cycle of recording, releasing output, promoting via radio airplay and then TV, and touring before recording the follow up. Artists earned a percentage and the record companies grew into huge global businesses in the post war era. Then came Napster. The record industry’s reaction to this was like the five stages to grief:
- Denial – that the digital world would affect them
- Anger – that this was stealing
- Bargaining - by going to court and seeking injunctions to close them down
- Depression – because Napster wasn’t the only people doing this
- Acceptance - that the artist now had the power and a new relationship would need to be forged in order to still be relevant
Federico showed us how Sony UK have developed their own consumer insight tool that shows different personas and how they buy and listen to music, where they shop and their attitudes. They use this insight to determine where to tour and how to launch artists like One Direction, the first global social media band. The role of the record company has turned from production and distribution to artist marketing agencies. Sony now manages artist as brands via brand hook ups, endorsements, touring and merchandising.
This business model was pioneered by the hip hop scene 10 years ago and that made me think, where’s our hip hop scene? Is it the tech industry, the management consultants or in fact us? We’ve gone through the five stages of grief and come to terms with the fact that we are no longer in the narrow confines of being ad factories but business transformation agents delivering products and experiences that connect brands with people and adding value in a far more holistic way for our clients. Sounds a bit hip hop? To me it sounds a bit Sorrell, who’s been making the case for a new relationship with our clients over the last couple of years and it’s encouraging to see the industry finally getting to grips with the issue hip hop style.
In our latest AdTalk podcast, Tim Williams, founder of Ignition Consultancy Group shares his thoughts on pricing councils, the art of pricing and the organisations that are disrupting the conventional pricing process.
View photos from the Commercial Conference 2016 here
View the full presentations
Last updated 19/07/2016