Pitch fever is in the air in the ad industry. On top of all its shenanigans with the competition authorities over the Fox deal, Sky has just kicked off a review of its £400 million media-buying account for the first time in 13 years.
The UK Government, another major advertiser, is reviewing its £140 million media account. Other leading brands including McDonald’s, Mars and Adidas — advertised by Paul Pogba (pictured) — are in the process of reviewing their media planning and buying globally.
A big company putting its account up for review always gets pulses racing in ad land and pitching is the lifeblood of agencies because it sustains them and helps them grow.
However, the stakes have suddenly got a lot higher because the future of agencies has not looked so uncertain globally for years, even decades.
It’s not that the advertising market is in decline.
Ad revenues have powered Google and Facebook’s phenomenal growth in the past decade. But marketers are worried because of the rapid pace of change and whether online advertising, in particular, is overloading us with unwanted messages.
As Alex Aiken, the executive director of Government Communications, who is in charge of its review, put it recently, the media landscape has become “complex”, consumers are “becoming disengaged”, and trust has been falling. So advertising and marketing need to change to suit this data-driven, always-connected world but investors fear that the big ad agency groups are being slow to adapt.
WPP’s share price fell by a quarter last year. Other big groups such as Omnicom, Interpublic and Publicis Groupe saw double-digit percentage declines. A series of powerful forces have come together to threaten agencies:
First, some of their clients are going through major disruption. Virtually every sector from consumer goods to automotive is struggling to cope with new technology and automation. These companies need capabilities in new areas such as e-commerce, content creation, digital design, customer relationship management, data and analytics — not just making 30-second TV ads.
Second, the big ad agency groups themselves look complex and unwieldy in a new world where digital know-how and agility matter more than trading muscle when dealing with Google, Facebook and Amazon. Indeed, it’s easy to buy ads directly from these tech giants without using an agency.
Third, the growing importance of digital communications and data to drive e-commerce means that, paradoxically, some companies want more control and are bringing these marketing services in-house because they are too important to out-source to agencies.
Fourth, some of the agency groups have taken a hit on revenues and profits after clients investigated the lack of transparency and fraud in the advertising supply chain and tightened up their contracts in the last 18 months.
Fifth, consulting giants such as Accenture and Deloitte have entered the marketing services arena and are promising a joined-up, strategic approach that can transform a client’s whole business, not just its advertising and communications.
Agencies know they must transform themselves and, given that advertising attracts more than its fair share of entrepreneurs, the industry’s ability for reinvention should not be underestimated.
The agency groups have been rushing to change, simplify themselves and appoint new, younger, tech-savvy leaders in their operating companies in response to clients who want a more agile, joined-up approach.
One trend is for an ad group to “co-locate” staff from different agencies who work for the same client by putting them all in the same office, rather than in multiple locations. Publicis Groupe has done that for Procter & Gamble and Visa in the UK.
Another trend is embedding agency staff inside the client’s own offices to improve collaboration as The & Partnership has done for Toyota.
The wonder is that more agencies haven’t made these changes sooner.
The glut of pitches this year is likely to see smart advertisers redefine their working relationship with their agencies. The old ways are no longer working.
Gideon Spanier is head of media at Campaign @gideonspanier
Thousands of jobs are under the microscope at supermarket chain Sainsbury’s after it said on Tuesday it was shaking up the way its stores are run.
The grocer is axing management roles across its 1,400 shops, including deputy managers, department managers and store supervisors, to keep a lid on costs.
However, affected employees will be able to move into newly created roles. The alternative is to take a pay cut or potentially be made redundant.
The company insisted that the “intention is not to reduce overall headcount”.
“I appreciate this will be a difficult time for those affected and we will fully support our people through these changes,” said Simon Roberts, retail and operations director.
“The proposals will introduce a more efficient and effective structure, designed to meet the challenges of today’s retail environment.
“They will deliver cost savings to be invested in our customer offer and in our colleagues as they continue to provide the very best service for our customers.
The news comes a day after rival Tesco said it would axe up to 800 jobs.
Last year Sainsbury’s said that it was culling 2,000 jobs, mainly from human resources and payroll staff, in a bid to cut another £500 million of costs.
National Grid today launched a withering attack on Ofgem, the energy regulator, over its plans for financing transmission lines from the new Hinkley nuclear power station to the grid.
The energy regulator believes that by lowering the cost of capital that National Grid is allowed on the project, it can save consumers £100 million off the £800 million cost of the new connector. However, this would result in lower returns for the UK’s biggest energy infrastructure company. But National Grid has said that Ofgem’s financing plans do not offer high enough returns to “allow sustainable investment in the UK energy sector”.
National Grid said that Ofgem had “significantly overestimated the potential consumer savings in its consultation”.
The infrastructure company also said it was wrong to base its decisions on the costs required to connect offshore wind turbines, as the Hinkley Seabed project, which will be passed on through energy bills over 25 years, was very different.
The row over how to finance the connector could take months to resolve. National Grid said it would work with Ofgem to find a solution, but warned that it “will also consider all other options available to us if we are not able to progress this satisfactorily”.
Shares in National Grid slipped almost 2% to 811p.