Bad value pots

By The Drum, Administrator

October 25, 2007 | 6 min read

Agencies will always pitch on the basis of being able to buy media at a cheaper rate, but the reality is that nowadays the buying is concentrated into so few buying points that it is more difficult to genuinely buy at a much better price than anyone else.

In the 1990s, before these group trading arrangements existed, the available rates for the cost of a page of advertising would be larger than today. Media owners’ inventory control is far tighter, resulting in a small number of big buying groups trying to secure deals at very similar rates, and the price differential is far smaller than before. It is not quite price fixing, but real competition hardly exists.

Agency rates rarely remain secret in a people-mobile industry, and agencies pitch on the basis of being able to buy at a marked percentage less than their competitors, over-promising – or at least making a calculated gamble – that if they win the business, they will have sufficient time to prove how good they are, and persuade the clients they are doing a good job, even if they can’t deliver on the price. One high profile industry insider told us the practice was so commonplace as to be near universal. “They’ll guarantee to buy it cheaper, knowing they can’t,” he said.

“But it is worth the risk to win the business on that promise, so they can cement a relationship, pick up other business, or have the year’s business on a false promise, and if they lose it, they lose it. But, they might keep it.

“Others will take the business as a loss leader. They don’t fund the difference from their own earnings. No one does that. They do it through value pots.” In effect, the agencies will use their buying group discount to benefit one specific party, and the work for that party is, more and more frequently, drifting out of the regions and being undertaken in London.

“A concentration of buying groups should be good for the regions,” our source told us.

“All the buying points in the region are part of these groups, and could have access to these rates, if they were included in the deals. But in reality the juicy chunks of national business are moving south. The big national business has been drifting down south for years, and continues to do so.”

Sandra Tinker, regional sales director, News International is also aware of the difficulties with value pots, and told The Drum that the loss of key accounts to the south for purely short term financial reasons can damage both the business and the outcome for the client.

“Agencies have to offer more than just their buying power. They have to secure client relationships in the long term,” she said.

“Those agencies in the south are giving a different perspective to accounts than the north. The directors, the owners, the founders of the business are still involved in those client relationships on a day-to-day basis, not just to win the business for the agency before disappearing.

“You do hear of pieces of business moving to London because the marketing director has always worked with a London agency.

“The Morrisons supermarket account was being serviced happily out of the north of England [by Mediaedge:CIA]. Just because it has changed its marketing director does not mean it couldn’t have been serviced from the north. It is just that that marketing director had always worked with London agencies.”

The osmotic drain of work and income to London agencies within agency networked buying groups is a trend that could – and should – be easily arrested in the interests of the evident talent pool that flourishes in the the regions across the UK, according to the insider.

“In theory, because all the major buying groups in the regions are part of these groups they should be in a stronger position than they ever have been, because they have access to these cheaper rates. You would think that would be good.

“Feather Brooksbank, as part of Aegis, has access to these rates. If they can shout loud enough within their group for access to this value pot there is no reason why business should go to London on that basis,” said the insider.

Value pots have been around in other forms for many years, such as ITV’s volume discounts in the 1980s which directly benefited the advertisers.

But current value pots, in contrast, can result in a diminished service to the client, whilst securing better rates for other brands looked after within the same buying group.

In practice, savings are made by achieving a drop in service, as work is often farmed out to a branch in London, with less personalised service than that which actually won the business.

Then, the buying clout garnered by the client’s name is used to obtain better rates for the other brands in the group, all without the original clients’ knowledge.

Another media insider who spoke to The Drum on condition of anonymity says there is an inherent dishonesty in what has become a common practice.

“Clients have to know that the size of the account will help that agency lever advantage for other clients at the agency,” The Drum was told.

“When they go into those big pools, they must know that their account is going to add to the weight the agency can buy at. They are getting advantage, but giving other clients advantage as well. Sometimes the London buying groups are not honest with the regional agencies with what the deal is, and keep the best bits for themselves. Regional agencies need to fight for their share of the value pot.

“There has been a huge drift of national business down south in the last five years. The danger is that regional agencies will be seen as somewhere for regional clients. That is death for the industry. If they are not doing national business, they become a side show – a second rate shop,” the insider said.

“With the London groups, because they are bigger pools, they are able to leverage their pool better, and are showing an advantage. Or they are stacking it high, selling it cheap. They won’t necessarily follow through on the service levels you can get in the North. In London, the pitch team won’t be the team you see when you get into that account day to day,” The Drum was told.

“It makes you wonder if the big groups in London are just making money on the overnight market, getting clients to pay early and delaying payment to media owners.

“However you only need a few big pieces of business to come back north and the fortunes change.”


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