11th April 2018
WPP may have spent recent months promising to transform the agency model but it is the world’s biggest advertiser – rather than the world’s biggest advertising supplier – that has launched the most significant new agency of 2018 so far.
Procter & Gamble revealed this week that it is setting up a dedicated agency to service its North American fabric care brands Ariel, Gain and Tide. What makes this move so ground-breaking is that the new shop will be made up of teams from rival holding groups Publicis, WPP and Omnicom working together under the same roof as one single creative agency.
The audacious plan raises several questions. Among them: will teams accustomed to competing gel as one? Can they produce great work together? And how will payment be calculated for their contributions? But the biggest headscratcher of all is how P&G has managed to convince three competitor businesses to pool their services and talent together in the first place. And the answer says everything about the influence it has over its agencies.
Pritchard’s powers of persuasion
P&G’s chief marketing officer, Marc Pritchard, has become the most dominant figure in the industry in the last year, with his widely cited sermons from conference stages demanding agencies go back to basics. Pritchard’s proclamations have in turn spurred the likes of WPP and Publicis to wax lyrical themselves about the way they are simplifying their unwieldy structures to give clients better service and value.
The reason agencies listen when Pritchard speaks is because he controls so much of their market. “Behemoths like P&G hold huge power,” says Tony Walford, a partner at corporate finance advisory Green Square. “While agencies have a choice over which clients they take on, rostered conglomerates like P&G make up a significant chunk of revenue even at the advertising holding company level – packaged goods companies constitute 25%-30% of the network groups’ revenues.”
With their share of more than $11bn of P&G marketing spend at stake, agencies have little choice but to say “how high?” when Pritchard asks them to jump. “It will be nigh on impossible for groups to simply walk away from the P&Gs of this world without having to take a massive, possibly fatal, revenue hit,” says Walford. “It looks as though they will have to accede and at least do some restructuring.”
Such restructuring moves have already begun in earnest at WPP – which has merged a number of its agencies together to remove silos, and promised to go even further this year – and Publicis, which has established the ‘Power of One’ model to simplify its labyrinth of agencies and services by bringing everything together under one roof, and one P&L, for clients requiring a full-service solution.
Notwithstanding these efforts, Pritchard feels P&G can improve both its bottom line, and its creative output, by reshaping its roster of agencies on his terms. “What we are now doing is reinventing the agency models, so we can get the absolute best creativity and do it in a way that will grow our brands and the business of our agencies as well,” he told The Drum. “We see this as a joint value creation opportunity.”
The unlikely team of Publicis’s Saatchi & Saatchi, WPP’s Grey and Omnicom’s Marina Maher Communications and Hearts & Science will be led by Saatchi chief executive Andrea Diquez, who will keep that role while serving in the equivalent post at the new entity. Diquez is a respected operator, but she has a unique challenge on her hands now.
Can three into one go?
Marshalling teams from Publicis, WPP and Omnicom in the same building will require delicate handling of both practical and cultural challenges. On the practical level, procurement consultant Tina Fegent says the issues will include: “How do they get paid? How do you work out the fee structure? Is there a performance-related fee? Each agency has its own P&L and will want to maximise that – creatives struggle to do timesheets and I really cannot think that they will be saying ‘we spent 15 hours on it so the cost is £x’.
“Who owns the intellectual property rights? Most contracts say it is subject to the client paying the agency, so how does that work if the co-creation is with x number of agencies?
“And who does the production? Again, each agency will want to use their production company. But maybe P&G produces it itself.”
And then there are the cultural obstacles, which Huge executive creative director Wayne Deakin expects to prove problematic. “I am sorry but I find our industry still full of too many egos and hidden self-interest types likely to spoil this happening, which is a shame,” he says.
“Creativity is all about identity and culture. A culture that goes beyond just the creatives and which everyone is aligned towards. They will need strong creative leadership to pull the folks together as one unified team and get them aligned to a vision and values.”
Asked if great work can come out of this setup, Deakin adds: “Yes and no. It comes down to their ability to pivot fast and work frictionless end-to-end if they want to be competitive. Those will be the pain points in this set up and that takes a very distinctive modern mindset that I am not sure is in place yet.”
Other creatives are more optimistic about the agency’s chances of success. “P&G already has dedicated creative departments in the UK, so it seems like a natural evolution for them to all converge in one place,” say the freelance creative duo Senan and Pansy, who have worked in AKQA, BBH and TBWA among others. “If this new setup enables P&G to reduce corporate red tape and give more trust to their creatives, then it has a real opportunity to create some memorable work.”
The future of the agency model?
Where P&G leads, agencies follow. But will other brands?
Last month, the Ogilvy & Mather Chicago managing director, James Hidden, wrote a blog for The Drum titled: “The agency model ain’t broke – but it certainly needs fixing”. Pritchard’s announcement wasn’t exactly what he had in mind, however.
“This is at the extreme end of what I’d expected to see, and I wouldn’t expect it to become standard practice across all clients,” he says. “Really Pritchard’s move is the very extreme expression of ‘survival of the fittest’ analogy I used, in that he appears to be employing almost a ‘Fantasy League’-style draft system to cherry-pick the best talent from across his agencies and force them into one blended team. Given its power and spend, P&G is able to take it to its most extreme application in a way that smaller clients may not be able to do.”
On how it feels as an agency boss to see a client set up on their own like this, Hidden adds: “For agencies, this is yet another structural challenge. The administrative and financial challenges of figuring out the billing/hours/P&L logistics are no small question, but clients proactively separating the wheat from the chaff means there’s no room for mediocrity.”
That certainly looks to be true at P&G, which has cut the number of agencies it works with from 6,000 to 2,500 in the last four years. Even at that, Pritchard thinks there is still room to halve its roster. Its cull has reduced the company’s expenses by $750m and Pritchard is aiming for another $400m of savings to come.
Whether other clients set up similar agencies, Pritchard has already set the tone for an industry that is much more closely scrutinising where money is flowing, and the value coming back in return. As Brian Weiser, the influential advertising analyst from PVTL, puts it: “I don’t think there are necessarily new implications for holding companies, except to reinforce the idea that everyone has to continuously find ways to drive like-for-like costs down.”
But it’s not all doom and gloom for creative agencies. In his interview with The Drum, Pritchard restated his desire to bring more of the company’s media buying in-house, to combat what he has famously described as a “murky at best, fraudulent at worst” media supply chain. Yet the new creative agency, however unorthodox in structure, will still be powered by P&G’s existing roster.
It could be a precursor to in-housing creative services too, but Fegent believes P&G is instead testing what happens when you have an agency structure that puts more emphasis on creatives than suits. “My gut feeling is that no, it doesn’t support in-housing as it is still using the big agencies but has just stripped out account management and planning to buy just creative,” she says.
So the world’s biggest advertiser might be questioning the value of much of its marketing spend, but it hasn’t lost faith in its creative agencies yet. It just has more sway over them than most.