P&G and the agency of the future

Partners at Green Square, Corporate Finance Advisors to the media and marketing sector, cast their eyes over the latest industry deals and look ahead to the next tranche of acquisitions.

When the world’s biggest advertiser speaks, the marcomms industry listens. And when it acts, or makes a proposal, then the industry either rubs its hands in glee, or more likely, goes into a panic.

Procter & Gamble has long been the world’s biggest marketer, spending upwards of $11bn a year. But the personal care colossus seems to have grown disenchanted in recent years, both at how much it has been spending, and how effective all that advertising has been.

My Green Square colleague Barry Dudley and I have written about this in The Drum before, particularly since The Times newspaper’s exposé on programmatic advertising a year or so ago. P&G’s chief brand officer Marc Pritchard has, over the past few months, spoken about his desire to spend less on advertising, and to spend it more effectively, by using in-house teams for example. And he recently announced that P&G had reduced the number of agencies it works with globally from a staggering 6,000 globally to a still eye-watering 2,500.

And now, it seems, he is about to act. This week he revealed his intention to build one dedicated creative agency made up of teams from its different ad holding company partners.

To begin with, P&G’s fabric care business in North America is creating a standalone agency consisting of talent from Publicis Groupe’s Saatchi & Saatchi; WPP’s Grey; and Omnicom’s Marina Maher Communications and Hearts & Science. The employees are expected work together under the same roof, in dedicated offices in New York and Cincinnati, where P&G is headquartered.

An intriguing proposition, but will it work?

Well, yes, and no.

Getting creatives from different agencies to work together could improve creative quality as interaction between these new people could be a big stimulus for ideas. When creatives are continually working in the same teams you can sometimes end up with a ‘house style’. Working with new teams would stretch creative (something that most of them enjoy).

The corollary of this is that there will be a need to regularly refresh the team with new talent. If creatives simply work on P&G brands they could get stale. Like racehorses, they need to race on different pastures to develop themselves. That said, P&G may want and need some consistency in its output, regional requirements permitting.

But equally, it’ll be interesting to see if these people can all work together. Advertising, they say, is a people business and culture is important. The dynamics of this team will be interesting – the groups they will be coming from are all very different, and will the styles and cultures mix?

Back in 2008, WPP made an ill-fated attempt to create one agency – Enfatico – in an attempt to serve its client Dell. While the attempt to streamline a sprawling business was sensible, it ended in failure – Enfatico was folded into Y&R after just 16 months, after producing very little work of note. There were various reasons for Enfatico’s demise (the 2008 crash for one, and turmoil within the client), but key was the failure of 1,000 staff from very different agencies to work together.

Holding company groups are notoriously competitive. How they will get together to agree which creatives work on what and divide up the revenue streams will be interesting. If WPP couldn’t make this model work with its own agencies, can WPP, Publicis and Omnicom? P&G will need to set the ground rules down beforehand very clearly, and act with impartiality and transparency. Not an easy thing to do, as global corporations have their own silos and fiefdoms too. This will require the skills of a CMO, acting like a kind of supreme court judge.

P&G’s move is different, of course. This isn’t a ‘one stop shop’ as Enfatico was, but a move to increase efficiency and effectiveness, and to cut costs.

One of the things Pritchard has spoken of is his desire to increase the creative to suit ratio. This makes sense – after all, the creative are the ones who do stuff.

But the suits are also important. They don’t just entertain clients on the golf course, they ensure that things happen on time, to budget (creatives’ ability to stretch budgets and deadlines is well known), projects are properly managed and the client is kept informed. However delighted creatives might be at a cull of suits, and increased resources for their departments, Pritchard must be careful not throw the baby out with the bathwater.

There’s something else that slightly worries me. P&G has said it needs to save $400m on marketing costs by 2021. Cost savings don’t equate to increased creative output. The creative process doesn’t work to a scheduled timeline as we all know. Sometimes the answer can come immediately, sometimes it takes a lot longer to get there and it’s subjective as to whether the results are any good. Agency groups have had big pressure on margins, particularly in the last year, and it’s ongoing. Creativity and cost reduction are not good bedfellows.

Then there is the issue of attracting top talent. Creatives may not want to work for what is effectively a super in-house agency for the long haul. It’s important that their CVs have a mix of strong agency names and they could perceive this sort of thing as dull and damaging to future prospects.

However, if – as everyone seems to agree – the global agency model is changing, and talent is being merged by the P&Gs of this world, ultimately the in-house teams may become the new hotshops.

And this is perhaps the most important question that needs to be answered – what is the future of the agency model?

This couldn’t have come at a worse time for agency groups who are all facing a multitude of different issues at present – media transparency, slowing growth, digital and data validation and having to restructure to simplify their models to face these changing client demands (our previous article looking at Publicis’s Power of One covered this).

The agency of the future will be very different and WPP boss Sir Martin Sorrell has talked of global clients all asking the same question of what the agency of the future will look like at the same time “as if they all met in an enclave in the Vatican or somewhere”.

The problem is, nobody – clients, agencies, analysts and observers – seems quite sure what the model will look like, or what it should be, either in the short to medium, or long term. One thing is certain, though – the future will be client-driven.

The customer may not always be right, but they are paying the bills, and want more for less. The holding groups may not like this, but pushing against this client-led tide will be a very hard stance for a network to take.

Behemoths like P&G hold huge power. And where P&G leads, Unilever, L’Oreal, Volkswagen, Nike, Nestlé, J&J and others are likely to follow. While agencies have a choice over which clients they take on, rostered conglomerates like P&G make up a significant chunk of revenue even at the advertising holding company level – packaged goods companies constitute 25%-30% of the network groups’ revenues.

It will be nigh on impossible for groups to simply walk away from the P&Gs of this world without having either to take a massive, possibly fatal, revenue hit. It looks as though they will have to accede and at least do some restructuring. Publicis is making moves to do so, as is WPP (see our next blog for more on this), but will it be enough? Interesting, and very tough, times ahead for the holding groups.

Finally, as M&A advisers to the marcomms sector, we’re always being asked who the new types of acquirer will be. We’ve seen tech businesses such as IBM acquiring digital agencies, outsourcers including Capita and Serco getting involved and the management consultancies (particularly Accenture) piling in on the action.

However, as these big FMCG clients start taking it upon themselves to not only dictate how their agencies are run but, more importantly, start managing the talent in-house, could the next acquirer type to enter the fray be the P&Gs of this world?

Tony Walford is a partner at Green Square, corporate finance advisors to the media and marketing sector

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