WPP warns against up-front discounts used by agencies to secure ad spend
WPP has unveiled its preliminary results, posting a 26% rise in pre-tax profits and has slammed those agencies pursuing account wins "at any cost".
WPP slams short-termnists up-front discounts used by agencies to secure ad spend
Commenting on wider trends in the industry, the holding group said in a statement to investors: "Competition is fierce and as image in trade magazines, in particular, is crucial to many, account wins at any cost are paramount."
The advertising giant said there has been several examples of major groups being prepared to offer clients up-front discounts "as an inducement to renew contracts," as well as "heavily reduced creative and media fees, extended payment terms, unlimited indirect liability for intellectual property liability and cash or pricing guarantees for media purchasing commitments".
The company pointed out to investors that the latter business practices were difficult for procurement departments to measure and monitor. "As some say, you are only as strong as your weakest competitor. These practices cannot last and will only result eventually in poor financial performance and further consolidation, the premium being on long-term profitable growth," added the network.
The comments from the Sorrell-fronted firm come on the back of increased scrutiny over the financial relationships between brands and agencies.
Last June, US trade body the Association of National Advertisers (ANA) published a damming 28-page report into the long-running issue of agency rebates, saying it had found evidence of "non-transparent business practices," including cash rebates in the US landscape.
At the time, the ANA encouraged clients to re-examine their existing media agency contracts, but advertising giants were quick to swipe back and deny any wrongdoing - WPP cautioned that the objectivity of the report's authors had to be "examined carefully", while Publicis Groupe called the allegations "short-sighted".
In January, an investigation from Business Insider claimed that some US media buying agencies were making settlements to clients to avoid being fully audited. The report cited "multiple sources with knowledge of the matter." The publisher explained that this wasn't to say the practice was pervasive across the industry but that "multiple, competitive agency groups had been drawing up settlement agreements".
Following the claims, WPP's media agency Group M said it hadn't been involved in the practices described, as did Publicis Groupe and IPG. Dentsu Aegis, Omnicom and Havas declined to comment on the allegations at the time.
According to its preliminary results, WPP noted a slowdown in revenues over the second half of the year in both the UK and the US. It still, however, experienced a rise in pre-tax profits to £1.8bn which it says was boosted by the post-Brexit devaluation of the pound on international currency markets and an acquisitions spree.