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.
Bad idea.
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.
Great story! Reminds me of the time I met with a client and the third-party head of a media organization pulled up to the client's headquarters in a Rolls. We had been waiting for this individual in the lobby. After the meeting, the client looked at me and said - "There is just no way we are giving him our money."
ReplyDeleteAnd one more...after a media meeting in SF with a client, we were all heading out to dinner somewhere in the City. A colleague from our agency's SF office offered to drive the client and me. We followed him down to the parking garage in the building and while he went to pay for his parking, the client and I admired a beautiful Maserati. Imagine our surprise when my colleague walked over, clicked the doors open and told us to hop in! After what was admittedly a fun ride downtown and a very expensive dinner (nothing new in SF), the client and I took a cab back to the hotel and his only comment was that he wished he was paid enough to own a Maserati.
Reminds me of a client side CEO who bought a brand new BMW Z8 the same day that the company announced both his $4 million bonus, thanks to "accounting related changes that increased shareholder value" and the fact that managers and directors were not getting bonuses due to "one time accounting changes that negatively impacted profits".
DeleteWe have all heard the story of a client coming into an agencies lobby and based on how nice it was using that against the agency. Then again there are clients who feel the need to work with nothing but the "best" in which case they should expect to pay the price.
ReplyDeleteI once worked for a terrible agency for six weeks. Their offices were intentionally very quiet - they felt that an ad agency should be like a bank. When a new business prospect came to the office, they told the agency it was too dull for them!
DeleteI am reminded of my own childhood by this story. My parents were successful professionals who, by and large, lived frugally, considering their means.
ReplyDeleteIn addition to highly paid professional roles, they also owned a number of apartment buildings and, rather than pay for outside managers, they ran the buildings directly.
In the late 1970s, thanks to a weird series of events, my father bought a brand new Corvette for substantially less than sticker price. My parents both agreed that he would never call on tenants in the Corvette, as it would send a message that we were "rich", even if that wasn't wholly accurate. They recognized that it was beneficial to our family business for our tenants (in effect, our customers) to perceive us as "needing" the rents they paid each month.
A bit of a pantomime, to be fair, but an important business lesson, all the same.
Mallthus, that is the whole point. It was not necessary to see how this chairman lived or what he owned: his collection(s) were incredible and sent a wrong signal because he had his own family money. Same good principals your family lived by.
DeleteA few years ago, during a week long shoot in LA, the overly consumptive ECD insisted on renting the largest Hummer. Additionally, she/he never came to dinner with the client and rest of the team, yet submitted sumptuous meals on her/his BILLABLE expense account - and listed the client as a dinner companion. That was the beginning of the end. Asshole.
ReplyDeleteBack when I was a young media planner I recall a media rep friend telling me that no matter how cold it was, she never wore her full length fur when calling on agency media planners and assistants. Smart.
ReplyDeleteVery smart. I once had a candidate who did not get a job because she wore her mink on an interview; the company felt she did not need the job.
DeleteVery smart. I once had a candidate who did not get a job because she wore her mink on an interview; the company felt she did not need the job.
DeleteI once flew into Phoenix to visit a client, a large telecoms provider. When I got to curbside at the airport to seek out a cab, a guy with a white stretch limo approached me and offered to take me to my destination for 20 bucks (it was a slightly worn vehicle I might add). I was young, in a hurry, and quite interested to try out a stretch limo, a first for me. I must admit I was intermittently giggling during the short ride because I felt ridiculous. We pulled up to the client, a large telecoms company and I exited the car unnoticed. I remember thinking that it was a really good thing nobody saw me!
ReplyDeleteYears ago, one of the major agencies had a rule about entertaining clients. In essence, it said that employees can go anywhere and do anything as long as both the agency person and the client were totally comfortable. A good rule. The chairman in my story never gave comfort a thought.
DeleteHubris exemplified! Reminds of the time that Peter Arnell arrived in a chauffeured driven Maybach for a McDonald's meeting and despite the second glances from clients, he went on to tell a story of how he took a helicopter and landed the bird on the back lawn of Flia for an introductory meeting.
ReplyDeleteEarned wealth doesn't buy common sense!
Good point David-Anthony. And look at what eventually happened to Peter Arnell.
Delete