Recession is a viable reason to re-examine how clients pay their agency partners, the solution is not to stop paying them!
Agency Debt & Death
Article, June 26th 2009, Agency Spy
By Dean Crutchfield
I was brought up on the notion that there were two things we could guarantee in our lives: Debt and Death. Today we’ve got agencies in debt and death of advertising smears.
In the face of this adversity the often approached and avoided “value-based” compensation system is making a successful come back via marketing heavy weights, Coca Cola and P&G; with P&G going to the extreme edge of the curve with one agency made responsible for all the other partners, including payments, budgets and hires! It’s tragically ironic that whilst recession is a viable reason to re-examine how clients pay their agency partners, the solution is not to stop paying them!
My favorite face on a currency, Mr. Benjamin Franklin, advised that a penny saved is a penny earned. And that’s exactly the advice corporate clients have adapted to assuage their cash flow by holding onto what’s rightfully yours. That, in a nutshell, is it, cash flow; theirs first, yours whenever… Facts are stubborn things so what’s the ethical thing to do? That mostly depends on who is asking, in this case the agency, who is going to be affected, the agency, and the likely outcome, a defunct agency (maybe). Payment default will always raise the question about the success of the relationship:
Armed robbers burst into Cannes, line up agency execs and clients against the wall, and begin to take their wallets, watches and invoices. An agency executive and his client are among those waiting to be robbed. The client suddenly thrusts something into the hand of the ad executive who whispers, “what’s this?” The client whispers back, “it’s the money I owe you.”
Fear of separation is often what unites us so let’s face it, we’ve been drafted into a war we didn’t create and the costs of winning a new client are 5X more than retaining an existing one. Getting, asking, begging for your money is a scary, inherently unstable, essential activity we need to undertake to survive. But how heavy do you go and is there any upside?
For the CMO, what matters is optimizing marketing’s value by leading the charge for change with new approaches, cost cuts, structure changes and added value of their agency relationships. For the CFOs cogitation, marketing’s value is that he can cut it, or simply just stop paying it. Clearly they’re utilizing both effectively.
John Maynard Keynes said, “If I owe you a pound, I have a problem; but if I owe you a million, the problem is yours.”
Perhaps debt is good for retaining clients? Just because someone stole your shoes, it doesn’t mean you have to cut off your legs. The key is to keep that relationship because debt makes for a monster switch out cost for the client if they wish to leave. As Ivan Lendl said about playing the mighty McEnroe, “I keep my emotions in my wallet.”