PAYING YOUR WAY

PAYING YOUR WAY
Phantom pitches, shady deals and disrespectful clients are damaging the business in Singapore. What can be done about cleaning up pitches, and is it time to introduce the drastic measure of compulsory pitch fees? John Davidson finds out.

Picture this scenario. You are the managing director of an ad agency. You, along with 19 other agencies, are invited to participate in a pitch for the account of a lucrative client, a client who has both a global presence and a large bank balance.

You arrive with your team for the pitch and are only given 40 minutes to do your full proposal, covering both above and below-the-line, and to present your credentials. A week later the client shortlists 12 agencies, you make the cut, and the pitches continue for three more months. At the end of that period the client makes a decision, and decides to stay with its incumbent agency of the past three years. You and your agency have missed out on the big client, and now you have to go to your boss and justify why more than three months' time, money and effort have been wasted.

That might seem like an unlikely scenario to you, but to many agencies in Singapore it's an all too familiar occurrence and one many are clearly fed up with.

One high-profile pitch this year for a banking client was a case in point. The process was plagued by agencies pulling out as they were enraged at the shoddy way the pitch was run, which included the use of a bell to indicate when the time for a presentation was finished. Eventually at the end of the pitch the incumbent was reappointed, and the industry was awash with outrage.

So what is the answer? Malaysia has had a system of pitch fees installed by its industry body the 4A's for the past few years. Should Singapore follow Malaysia's lead, is being paid to participate in a pitch the divine cure for the industry's malaise?

"A friend remarked to me that 'anything which has no cost, is going to have little value attached to it'," Steven McGinnes, strategic planning director of Saatchi Lab in Singapore, Malaysia and Indonesia, says.

"So whilst there's no cost attached to pitching, then there's going to be very little value in the process. Or little value attached to the work's that shown. Which is why the phantom pitches, the forgone conclusion pitches, and the pitches which invite every agency in town can occur. If there was a cost attached, then the marketing manager has to justify a budget cost. Therefore they have to be more selective and careful when they are handing out the invites."

However, McGinnes can see both sides of the coin.

"You don't walk into a restaurant, sit down, have a starter, half the main course and decide you don't like and go to the next restaurant without paying," he says.

"But on the other side of this though, if there is a pitch fee in place, which can limit the number of agencies a client can see, then this might close the door to the smaller agencies. If you can only afford to bring in four agencies, you're going to go for the four relatively big agencies which is going to be more of a guarantee of a reasonable quality of something interesting. Rather than risk money on a smaller shop which may or may not deliver something. That could [have an] impact on the opportunities for small shops to become bigger players."

Anthony Coundouris, managing director of Firestarter, agrees, and believes smaller agencies need the comfort of pitch fees while bigger shops don't.

"To survive, they must deliver fast and accurate work to their clients," he says.

"Instead of pitching, they build intimate relationships with fewer clients, and incremental grow their retained business. After all, it is statistically proven easier to retain business than win new business. Larger agencies are different. Their business model requires they drive new business, which means lots of pitching. They have more fat in their organisation, and need to continuously pitch to cover their large overhead. Quite often they are pitching on budgets of S$250k and higher, making the carrot enticing enough to pitch for free. They can afford to lose a few pitches and not feel the pinch."

While most agree that reform needs to take place, opinion is divided in adland about whether introducing mandatory pitch fees in Singapore would solve the problem.
Patrick Stahle, CEO of Aegis Media Asia Pacific, feels that the issue of pitch fees has both pros and cons. Stahle says better education for clients on the art of pitching is the way to go.

"It's getting very complicated," he says. "I can understand clients needing help for pitches. Some clients need to better educated on pitching, on how to brief an agency."
Frank Young, MD and ECD of Crush Advertising, is an advocate of pitch fees but says they are a pipe dream. Young believes part of the problem is that agencies "don't have pricing power in Singapore", and often they don't exhibit a lot of self-control.
"Demand is fixed," he says. "Ultimately market forces are at play. There's no silver bullet. The 4A's are our best hope."

Like Young, Omnicom Media Group's APAC executive director of business development Jim Goh thinks mandatory pitch fees should be brought in Singapore. But Goh is skeptical because he says he has not seen a compulsory pitch fee system work in Asia.

"The challenges agencies face when such a mandate is imposed is that someone out there will renegade on the agreement; and once this happens, the whole mandate will fall apart," he says. "My practical answer to this, however, is that 'there is no point' as all agencies are tasked to deliver their corporate KPIs, and some who are more 'desperate' will break the pact. Moreover, most advertisers will not pay a pitch fee as they view the time and resources spent by agencies on the pitch as 'an investment' to secure the business."

Goh believes both clients and agencies need to take more responsiblity for their actions in pitches. "Both parties are involved in the process, hence, both parties could potentially be blamed, depending on situation and circumstance," he says. "Sometimes, clients who are uncertain about what they want, regard the pitch as a solution for changing partner(s); In some pitches, the brief is either too 'brief' or unclear and as a result, trying to answer it becomes a mammoth task. On the other hand, some irresponsible agencies tend to make unrealistic promises or commitments and try to manage the consequences and expectations later on." 

Firestarter's Coundouris is another that believes that agency self-control and the selection of when and when not to pitch is crucial.

"The best military leaders of all time never went to war unless they knew they were going to win," he says.

"I think pitching for free is much the same. When you consider the opportunity cost of battling it out with agencies - the angst, forgoing paid work and over-working staff - you really have to pick your pitches carefully. Unless you have intelligence which suggests you will win, perhaps the time is better spent on an existing client."

But, Coundouris also says that clients could be doing their business a disservice by calling a pitch. He feels that "free" pitches can devalue the agencies that are involved.
"In most cases when you pitch, you have to reveal your big idea," Coundouris says.

"You deal your trump card, right at the start of the game. Any seasoned poker player will advise you such a move smells of desperation. In addition, giving away the most valuable work at the beginning, devalues the remaining work to be completed. This could be avoided had the client paid for the big idea."

Simon Sherwood, BBH's group CEO, has been involved in the Singaporean ad industry for 12 years after setting up BBH's fledgling Singapore office in his apartment in 1996.
Sherwood says the discussion around pitch fees here is something that is far from unique, it has been debated vigorously in various parts of the world.

"I don't think a pitch fee would ever be substantial enough to cover the costs of either the agency's time or the value of its idea," he says.

"When we've been paid pitch fees in the past they've been tokens, rather than fees. It would be unusual for a client to offer a fee of more than, well in London 50,000 pounds would be a good pitch fee, but most clients don't do that. You can always ask. No one has to pitch. I know it's the way we win business, but everyone should go into a pitch with their eyes wide open. You can always withdraw."

Sherwood also feels that ad agencies need to do more to protect the intellectual property of what they do. "So when we do a pitch we always say to clients ‘this is our idea, and you have no access to it, no rights to use it', and everything is stamped with, as much as that can protect you, but its made very clear and upfront that all materials have to be returned, everything belongs to us," he says.

"If they want to appoint us then obviously you have a different kind of conversation. But I don't think the answer to the question about protecting an agency's ideas is pitch fees."

Whether agencies believe pitch fees are the cure for the local ad industry or not, Singapore's 4As is taking notice. Anthony Kang, president of the 4As, says the issue is back on the agenda.

"We are aware of the challenges and difficulties associated with imposing such a policy across a broad base of key advertisers that include government agencies and government-owned companies and organizations," he says.

 "We are fully aware that only less than a handful of agencies in the Asia region have implemented the mandatory pitch fee to a certain degree of success albeit not total success. Each country in the region has its own constraints and local issues to address before such a system can be implemented and managed effectively. A good example is the case of Singapore where Government agencies and Government related bodies are key advertisers. Yet, because of regulated requirements they have to call for public tender without pitch fee if they need to contract an ad agency to work on their ad campaigns."

Kang told Marketing that the Singapore 4As has had recommended pitch fee policy in place for more than 10 years, however, it has not ruled making pitch fees mandatory in the future.

"We are constantly studying and monitoring the situation especially in countries that have made it mandatory," he says. 
"Having said that, the Confederation of Asian Advertising Agency Associations (CAAAA) which was officially formed late last year, and of which the Singapore 4As is a member, are also studying this issue closely and determining how it can be possibly implemented on a mandatory basis across all countries in the region. In fact, this is a topic in the agenda for discussion during the upcoming General Members' meeting of the CAAAA to be held in Bali on 31 October".

Marketing spoke to a number of clients for this story. None would speak on the record, but the consensus among them was that many clients feel that listening to an agency pitch is like doing a test drive while buying a car - you expect it to be free and an important element in the decision-making process.

Marketing pitches need to be measured qualitatively. According to clients, agencies need to take the pitch cost as part of the business development and relationship building investments. While being mindful of ethics and respect to intellectual property, the agencies need to realise it is a buyers market and need to build their strategies not in terms of charging for their pitches, but rather picking the right customers to pitch to and understand which customer to say no to.

In the view of BBH's Sherwood, the best way to win business from an agency's perspective is to try and persuade a client that actually the process of a pitch is not going lead to the right answer.

"Because pitches do not create partnerships," he says.

"Very rarely is the right answer produced in the artificial, arms-length kind of relationship that a pitch is. Normally the greatest campaigns in the world we're not created in pitches, they were created in partnerships with clients and often they take a long time to get to. What we often say to clients is the pitch is not going to get you the answer. You are going to get to see lots of stuff, but you're probably not going to find the right answer. I don't think an agency is capable of finding the right answer in a three week hot-housed process."

Sherwood admits this policy works for some clients, but not for all. And he feels it wouldn't necessarily work in Singapore because "a lot of people just want instant solutions and they want fast answers that don't necessarily have to be right, because the whole process will begin again in a year's time".

"One of the keys to long-lasting relationships, is because the business was won on a completely sound basis, it wasn't won a speculative, creative shootout," he says.

"Because you wouldn't find the answer that way."

According to Saatchi Lab's McGiness, the reality is, the pitch fee is at most a token gesture.

"But even a token gesture, at least puts in some structure," he says. "The agencies and the clients are equally responsible for this. The agencies are the first to moan when they are the wounded party, but they are also complicit when they are the ones benefiting from it."
McGiness believes there would be a number of consequences to introducing mandatory pitch fees to Singapore: it would shut the door to smaller agencies, it would help out the larger agencies who can guarantee a certain level and it possibly makes clients more risk adverse.

"But then there also the clients who don't buy into that," he says.

"In Indonesia, the big agencies are trying to put into place a mandatory pitch fee situation but the big clients are refusing to go along with it. In which case the agencies which take the high ground, and refuse to participate, are penalised because they are no longer eligible for the jobs which come up."

So what is the answer? Compulsory pitch fees or not? The industry, at best, is divided on the issue. But it seems clear that professionalism and improving the current status quo is a given. Both clients and agencies need to lift their game.

"All across Asia, pitch processes are structured differently - some pitches are more transparent than others; some pitches provide advertisers a ‘legitimate’ excuse to steal ideas whilst some just want to pitch to drive down costs," OMG's Jim Goh says. "In Singapore, this is no exception. As long as there are willing sellers and willing buyers, the whole mechanics of free-trade economics will prevail.

McGiness believes the industry in Singapore can become more professional through the 4As with dialogue with both clients and agencies.

"I don't think putting in place a heavy handed set of rules that benefit one side or the other, is the answer. Because as with what's happening in Indonesia, big clients will just refuse to take part."

BOXOUT:
PUT UP OR SHUT UP
Three years ago the 4As in Malaysia implemented mandatory fees for pitches held in the country. Datuk Vincent Lee, president of Malaysia's 4As and group executive chairman for Naga DDB, says the industry body introduced the system because of a number of reasons: there was too many pitches occurring, too much money was being wasted and so was clients and agencies time.

"There was the unsettling of staff because of pitches, and some clients were not professional in terms of stealing ideas," he says. "Most important, it was to make our industry more professional."

Not every agency in Malaysia is a member of the 4A's, and government departments do not have to pay pitch fees.

"On members which we have no jurisdiction over, we tell clients if they are not our members they are not worth the salt," Lee says. We brand ourselves that 4a members are the true professionals."

Lee says the 4A's have been able to enforce the fee structure effectively because it has a united organisation with strong leadership and "good press support".
"A principle is not a principle unless it costs you money," he says.

Asked if there is too much power in the hands of the client in the agency-client relationship, Lee says: "The one that pays the money has the last say. The one that pays for advice and uses the advice is smarter than the one that doesn't listen."