The advertising industry in Australia is being pulled in two directions as brands seek savings to cope with rising prices and agencies needing bigger fees to pay for talent.
The pressure for brands, in an uncertain economic climate, is to do more with less.
One solution is to go to pitch, putting pressure on agencies to deliver the same service for a lower fee.
“There is definitely a danger of pitching becoming more frequent as any economic downturn begins to impact marketing budgets,” says Darren Woolley, founder and managing director of pitch consultancy TrinityP3.
“We have already had conversations with several brands, locally and globally, looking to go to pitch,looking to obtain lower fees through a competitive tender.
“This downward pressure on budget and therefore agency fees will be a real test for the agencies to not start the race for the bottom again by promising lower fees to clients as a way to add accounts to their client roster."
Woolley sees a rise in middle level accounts, not the majors that make the headlines, but advertisers spending $5 million to under $20 million on media.
“These are pitches largely managed in-house with either marketing or procurement teams managing the process,” he says.
“The danger is that the cost cutting exercise now could end with them locked into agency contracts that could be under performing for the next three to five years.
“The challenge is getting the balance right in not paying too much or too little for the services, skills, capabilities and expertise required. The irony being that at best the agency fee (media and creative) is often only 15% of the total advertising and promotions budget. The wrong cuts here can negatively impact the other 85% of the investment.”
Woolley says a combination of the talent shortage last year, with agencies paying higher salaries to keep and attract people, and the upward pressure of living costs on business operating costs, means that agencies on fixed fee agreements are having to find ways to maintain margins (downsizing real estate, salary freezes and head count freezes) but it is putting upward pressure on fees in a market that is highly competitive and price sensitive.
Ed Womersley, director and founder, Hustle, is seeing a decent volume of mid-level pitches going out to tender.
“Many independents and smaller group agencies are seizing these opportunities,” he says.
“At the back end of last calendar year, there was a real surge in pitching. With covid in the rearview mirror, many brands wanted to change their agency roster.
“After any rise, you always have a slight drop as brands bed in their agencies and focus on the task at hand; this is where we're at now. That being said, brands are always looking for new and innovative partners who can help solve their challenges.
“Brands are keeping a laser focus on the bottom line right now. As rising inflation impacts agency retainers due to an increase in headcount hours, we're seeing that some brands are going out to find more economical agencies that can work within their new budgets.”
Woolley at TrinityP3 says a few truly global pitches that impact the Australian market are going on at the moment but there are no more pitches than usual.
He sees activity in combination:
- Some catch up from delayed reviews during COVID.i.e procurement now wanting to go to market from when the contract was rolled over one or two years ago.
- Agencies and clients announcing pitch wins when it has simply been retained without a competitive process.
- The fact that a lot of pitches have been going on previously but not been picked up until recently, with an increased focus in the trade media on pitching.
- Also many pitches are dragging out particularly the contract finalisation. Longer average pitch completion times mean more in the market at any one time.
“No matter how much the industry/agencies complain about pitching (and have every right to when you hear about some of the practices in the market), there is no shortage of agencies wanting to pitch,” says Woolley.
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