This is an amusing story of what can happen with fees paid to an advertising agency. It is a true story of a client who was paying a fair fee to an agency. But first a short background.
Back in the late eighties, Robert Jacoby, then chairman and CEO of Ted Bates put over $100 million in his pocket when the Saatchi’s bought his agency. He was accused of being greedy and was highly criticized over the amount of money he earned. It certainly helped to put the nails in the coffin of agencies earning commissions as many clients felt that their agencies were overpaid and switched to fees as a result.
This is a true story of another situation where a client ended up resenting the fees it paid to one of its ad agencies. I have been asked to keep the identity of both the agency and the client private.
An agency chairman/CEO was attending a focus group in a nearby suburb. As it was told to me, he decided to go because the groups were taking place only about ten minutes from his home. In attendance were several agency people as well as two client brand managers, a client R&D person and the two or three people in the corporate new products group. Towards the end of the afternoon, the chairman thought it would be nice to invite the group back to his home for tea and coffee.
The chairman was independently wealthy and lived in a huge home right on the Long Island Sound. It was one of those homes that ends up featured in “Living Large” and selling for millions. One of the executives from the agency warned the chairman that this was the wrong group to see his home; they were mostly junior to mid-level executives. His home was filled with antiques and incredible and expensive artwork. The executive who asked him not to do this thought it inappropriate for the clients to see how the chairman lived.
The chairman would hear none of it. He called his housekeeper and asked her to set up for ten or twelve guests. What she put out was very elaborate.
When the clients went to the home they were overwhelmed by its opulence. As I was told this story, none of the people from the client had ever been in a home like this (true of everyone there).
The next morning at about 8:30am, the head of account management at the agency got a call from the client marketing director (who had not been there). The conversation was startling. It went something like this, “What did Peter [made up name] do last night? Why would he have middle to junior level executives in his home? They had no business seeing his riches and were actually overwhelmed. As a result, two people have already come in to my office this morning to complain that we were paying too much in fees to the agency. Before this visit they already thought it was too high [it was]. I have no choice but to cut the fee.”
The fee was cut by several thousand dollars a month. For the chairman, it was a very expensive lunch.
There is a lesson here. In a service business, where fees are paid, it is probably a good idea to keep what you own and have to yourself, no matter how modestly or elaborately you live.