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Industry strongly opposes the idea of clients demanding pitch fees

05-December-2013
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Industry strongly opposes the idea of clients demanding pitch fees

Have marketers discovered a new revenue stream in times of economic downturn? In mid-2010, Reckitt Benckiser made waves when it asked media agencies a payout to get on the pitch list for its media account review. The FMCG major demanded that media agencies pay up about Rs 4 lakh to pitch for the account. In addition to this, the winner would also have to rebate to Reckitt volume discounts paid by media owners. Quite interestingly, the brand is undergoing its global media review currently and there has been no talk of pitch fees so far.

More recently, GlaxoSmithKline, a UK-based pharma giant’s demand for a sign-on bonus from agencies to do business with it, has evoked reactions akin to fireworks from the industry at large.
 
“Who will want to pay part of their revenue to work with someone? I completely disagree. We don’t subscribe to this thought-process,” said Harish Shriyan, COO, OMG India, making his stand on the subject crystal clear.

Most industry leaders maintain this is not an Indian concept and a practise like this is quite unthinkable, especially in times like these when the industry is under immense economic pressure.

“The idea is abominable. It's akin to asking prospective brides to pay for the chance to be given the once-over by the candidate groom. Imagine any client doing this with the big five consulting firms and getting away with it. Not gonna happen, right? That is where the problem lies. Agencies have run their industry into commodity hell. That is why clients are bold to treat them like vendors bidding for a tender, asking them to pay earnest money,” said Karthi Marshan, Executive VP and Head – Group Marketing, Kotak Mahindra Group.

Quite interestingly, Starcom MediaVest ended its relationship with Premier Foods earlier this year when the client asked for an ‘investment payment’ from the agency in order to continue its role. Post this, Premier Foods is said to have subsequently said it would remove the investment payment from its media brief. Dentsu Aegis Network agency Carat now handles the media duties for the brand.

GSK’s this action after the Premier Foods episode has taken the global industry by surprise, wherein it is blatantly demanding fees similar to a ‘roster payment’ for agencies to continue working on the account.

“Broadly speaking, agencies are partners and hence on the face of it this does not appear to be a win-win situation for both. I also believe that the value-add by agencies for the client can be many times the cost of fees and a multiplier works if the agency is motivated,” stated Anil Jayaraj, Chief Marketing Officer, Pidilite Industries.

The creative twist
On the other hand, Arun Iyer, National Creative Director, Lowe Lintas & Partners feels that it is high time that agencies should charge a pitch fee. “I don’t think it is fair to make the agency pay to participate,” he added.

Santosh Padhi, Co-Founder and Chief Creative Officer, Taproot India – one of the few agencies that charge a pitch fee from clients, makes his thought on this role reversal quite clear by stating, “If the clients are asking the agency to pay a pitch fee to participate, then the agency should get to take the final call and decision on all the work and this should be a part of the written agreement. Moreover, if the brand does well, then the agency should be entitled to 50 per cent market share.”

“Not only me, but others too will pay and pitch if the media commission is double than the current 15 per cent,” he added.

Agencies must unite
In case of Reckitt Beckinser in the past, the Advertising Agencies Association advised its member agencies not to participate in the pitch in response to the FMCG major’s demand for participation fees. Most of the leading media agencies boycotted the pitch, including the incumbent agency MPG.  The Rs 200 crore account was awarded to ZenithOptimedia, which was RB’s global partner in numerous markets and was not part of the boycott.

Agencies need not complain if they unanimously come together and boycott the move. This will ensure it does not take place. But if any one of them decides to go ahead and pay, we will see a re-run of the Reckitt episode.
 
“If a lot of agencies turn up for the pitch, then the client will be proven right. I think it is too early to say if it will work in the Indian market. My gut feeling is that it will not be sustainable for both, the agency and the client,” opined Jayaraj of Pidilite Industries.

However, Marshan maintained, “While the idea is deplorable, agencies have themselves to blame for reaching this nadir. Will it work? Of course it will. In a country where supply exceeds demand for most things except onions and seats on buses, it will unfortunately rock!”

Will agencies unite and put an end to this practice or we will see more of this, remains to be seen.
 

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