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Tuesday, September 2, 2014

Ad Agency Holding Companies Should Follow The Example Set By P&G



Ad Agency Holding Companies Should Follow The Example Set By P&G

Several weeks ago Procter & Gamble announced that it would be divesting itself of its weaker brands.  That is a smart move.  The ad agency holding companies should do the same.

One of the reasons why some ad agencies are under-performing is because they have a millstone around their neck.  That weight is the holding company that owns them.  The holding company model has been moderately successful.  But their success has often been achieved through mergers or heavy handed management which has caused previously successful agency brands to languish and often disappear. I have written about the mergers and the fact that one plus one often equals far less than two.

Several agency CEO’s and Presidents have privately confessed to me that if they were able, they would buy themselves back.  There have been a few cases of that over the years.  And in most of those cases, the results of the buy-back has been successful for both companies.

The problem is that previously successful agencies have become homogenized by their owners, especially after being merged with unlike firms. Successful owners (creative directors and presidents often have left as soon as their contracts are over). Everyone knows that the Lowe merger with Deutsch was a disaster and unraveled in just a few short years.  Their cultures just didn't mesh (this is not a negative comment about either agency).  Lowe, now merged with and part of Campbell Ewald, makes more sense and my guess is that he new agency will be far more successful.

I wish I could name other names, but everyone knows who they are. One situation I can write about happened a while ago.  I remember a wonderful man by the name of David McCall.  David was a disciple of David Ogilvy. His agency, McCaffrey & McCall,  was highly successful and profitable.  M & M was purchased by the Saatchi’s during the early days of the agency purchase mania, perhaps as early as 1986 or 1987.  At the time, during a lunch, David confessed that he was dumbfounded by the rules.  His agency was always profitable and well run.  But he was demoralized because he couldn’t even hire an executive secretary to work for himself because she was too expensive and had to be approved by the Saatchi’s (In those days, Sir Martin Sorrell).  Worse, he couldn’t hire the president he needed for the same reason.  Ultimately, David just gave up and retired prematurely.  His wonderful agency was merged and simply disappeared shortly after that.

I know that there are many agencies who would love to become independent again. There is no sense in owning a reluctant asset. A little pruning by the holding companies would be healthy and profitable for all concerned.

7 comments:

  1. Great advice, Paul. I can't think of too many agencies that have honestly proclaimed: "Getting bought out was the best thing that ever happened to us."

    Also, thanks -- as always -- for evoking some nice memories of the Madison Avenue of yesteryear. When I was working my way up through the account management ranks in Manhattan, McCaffrey & McCall was one of the many impressive shops on my radar screen. They were swallowed up before I could even get my foot in the door.

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    1. I loved working for David McCall. We remained friends until his tragic and untimely death in 1999. It was a fabulous agency and a wonderful place to work.

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  2. While I don’t disagree with the basic point made in this article, there is a big difference between a Procter & Gamble shedding or selling off a brand in its portfolio and an agency holding company (IPG, WPP, Omnicom, et al) doing the same.

    In the former case … When a client marketer such as Procter sells-off an established brand that’s under-performing relative to corporate revenue and profit targets, it is still selling something of intrinsic value from a consumer sales viewpoint. That is, a physical product or service brand that has a solid track record and consumer franchise (albeit a shrinking one.) A brand with genuine equity, that some other company, corporate, or VC “buyer” might feel has untapped potential and can be leveraged toward greater success.

    On the other hand … … When an agency holding company is not satisfied with the financial performance of one of the agencies in its portfolio or simply looking to boost their bottom line, they either sell it back to the founding partners (if they want it) or merge it into a larger and more successful agency in its more viable portfolio. That is, keeping the client list from the closing entity and folding it into the new one, while slashing costs related to back-room and below-the-line operations; i.e. eliminating redundancies and firing lots of people.

    All of which is to say … Established CONSUMER brands like P&G’s Ivory, Braun or Gillette generally have far more sustained and potentially greater value than AGENCY brands, which just seem to come-and-go like the weather these days.

    Anonymous, but (LOL) guess who?

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    1. @Anon: What is your point if you agree with my premise? I didn't say anything about agencies under-performing. I said that they were unhappy serving the holding company masters. Agencies are a creative entity and perform best when they are happy. The holding company model is purely financial and has nothing to do with creativity or culture.

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    2. By the way, I welcome disagreement.

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  3. Dear Paul,

    I thought the opening paragraph of your article made your point and established your premise pretty clearly ...

    "Several weeks ago Procter & Gamble announced that it would be divesting itself of its weaker brands. That is a smart move. The ad agency holding companies should do the same."

    And in the opening sentence of your very next paragraph you said, "One of the reasons why some ad agencies are 'under-performing' is because they have a millstone around their neck."

    Then you rejoined my commentary by saying that you never said anything about holding companies divesting themselves of "under-performing" agency assets.

    So I'm confused by your reply to me and what do you now mean? You can't have it both ways my friend. And by the bye ... What's "happy" got to do with anything in business (unless you’re a shareholder)?

    Finally, while you say that you always welcome “disagreement”, you sure have a funny way of showing it (generally castigating contrarians or those with further/other insights on a subject which might not gel exactly with what you have said.) Every now and then you might just say, “Touche!” or “Thanks”, rather than attacking the messenger.

    Respectfully, Anonymous again


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    1. @anon: I don't know why you have to send comments anonymously since your comments will not affect your job or career. (I know who you are.).

      This whole commentary is wishful thinking on my part. There are many agencies which would be performing better if they had not been bought. Perhaps I was unclear. Under-performance has everything to do with energy and good work. And, absolutely, happy has a lot to do with productivity. I suspect you have never worked for a happy and motivated and well functioning ad agency (they do exist). The holding companies merge assets to save money and rarely does it have to do with performance. The smart agencies have all written into their contracts with the holding companies that they cannot be merged and the holding companies cannot interfere with their management if they are delivering a certain level of profitability, over and above what is demanded by their owners. Nevertheless, even when contractually left alone, the owned agencies remain unhappy at excess paperwork and interference which is inevitable, despite their level of profits.

      And, by the way, I like rigorous discussions. I have every right to disagree with you if your comments don't make sense to me.

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