Pitching is artificial. 'Land and expand', advises S4 boss Sir Martin Sorrell

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Pitches are often hailed as the bloodline in advertising, but it comes at a cost for the agency - not just in dollars and cents, but also talent and burnout. As most agencies go through a state of unrest, Sir Martin Sorrell, founder and executive chairman of S4 Capital, shares that "land and expand" could now be a better approach to building up the business, rather than the age-old ad pitches.

During a recent live fireside chat at MARKETING-INTERACTIVE's Digital Marketing Asia 2020 virtual conference, Sorrell shared that S4 Capital prefers to start working with clients on a project-basis and develop the relationship from that entry point.

"We tell clients to give us a project, maybe it's the toughest thing they have to do, and we then work on it and build on the relationship from there. That's a far better way of developing the business than just showing and telling [that often happens in pitches]. For pitches, clients have little idea about what the agency can truly do," Sorrell said.

Calling the pitch situation artificial, he added the “land and expand” strategy is a “second-by-second appraisal of what you're doing and is a far stronger way of building the relationship”.

The pitch situation is artificial. Land and expand is not. It's a second-by-second appraisal of what you're doing and is a far stronger way of building the relationship.

That said, Sorrell explained that even though the team pitched for the BMW business, "by and large, [the agency does not] like pitches". When asked if project-based work might make it harder for agencies to plan long-term financially, Sorrell argued that it gives agencies more time to actually show clients their capabilities and secure the business for the long-haul.

"We are a 3,000-people small company and we don't have the resources to run our business, our existing clients, and pitch for business. We can do it, but it puts great strain on our resources and our people. We have to think about pitching very carefully. It's a long and arduous process and takes a lot of effort. We feel that time and effort can be better focused on existing clients," he explained.

Citing the six-month agency review by retail and pharmaceutical company Walgreens Boots Alliance, which recently concluded in the US as an example, Sorrell said incumbent WPP went up against Publicis and the fact that the review took that long was probably "a huge diversion of resources".

"You always have two teams - one running the business and one pitching it. That's a huge diversion of resources and the existing clients suffer as a result. I think the land and expand route is far better," he added. Aside from pitches, budget cuts have also been a concern for marketers and agencies during the pandemic. Companies worldwide have slashed ad spend and are reallocating their dollars to try to figure out marketing in the new normal. But Sorrell urges marketers to take back control. And more importantly, take back their first-party data.

“In the world where Google is nixing third party cookies, clients need to take control of their first-party data. First-party data is critically important to manufacture and creates content personalised at scale. Consumers shouldn’t be surprised when they find out their data is being used,” he said. So that is one area clients should invest in, he emphasised.

"Clients need to have more creative control of their content and media. Marketers should also invest in in-housing or embed the agency with the client to create content and deploy it programmatically," Sorrell added.

When asked why it took a pandemic to accelerate digital marketing and disrupt the stagnancy, Sorrell said there was a resistance to change where the mindset was "we’re doing fine, let’s not disturb things that work well”. "But COVID-19 blew a hole in all of that," he said.

“You have people willing to embrace change now because there is nothing left to preserve. The status quo is gone. Clients want the best people working on their business in one firm,” he said. Throwing in a jab at the holding companies, he added that holding companies now should be “broken up because they don’t function effectively” and struggle to “integrate the biz effectively”.

“They talk about integration but vertical brands operate in different ways. It's a difficult model now to execute,” he said.

Meanwhile, S4 Capital recently reported strong revenue growth in Asia Pacific, with gross profit up almost 83% to US$9.6 million in third quarter of 2020 (Q3 2020) and up over 26% like-for-like. Year-to-date gross profit for the region grew over 85% to US$24.2 million and like-for-like increased to over 21%. Overall, its revenue rose almost 53% to about US$113.8 million, and a 79% increase in gross profit to about US$99 million for Q3 2020. Its content as well as data and digital media practices also did well in Q3 2020. Its content practice revenue went up over 69% to US$91.3 million, with a like-for-like up almost 15%. Meanwhile, Q3 revenue for its data and digital media practice rose by almost 10% to US$22.5 million and almost 7% like-for-like.

How will Southeast Asia benefit from the ongoing US-China tech war?

Over the past week, the world watched with bated breath as the US Americans headed to the polls during the recent elections. The current Trump administration has seen geopolitical tensions between US and China rise. From the ban on Huawei last year, to Trump previously threatening to sign an executive order to ban TikTok over privacy concerns in August this year, this has led to Chinese companies turning their focus to Singapore as its regional hub. These companies include Tencent and TikTok. Alibaba also bought half of AXA Tower in May this year, which is reportedly worth US$1.2 billion, the Financial Times reported.

The shift in focus towards Southeast Asia, along with next year's Tokyo Olympics and UEFA Euro championship next year, as well as the prospect of a vaccine being developed, makes for "a very good environment", Sorrell said.

"I'd look at it more optimistically for Southeast Asia. For the region, the strong macro tailwind will be good news. I think China will come out of COVID-19 stronger than other nations. According to the official statistics, its GDP will grow by 1.1% or 2% next year and I expect a blow out," he added.

Join us on a three-week journey at Digital Marketing Asia 2020 as we delve into the realm of digital transformation, data and analytics, and mobile and eCommerce from 10 to 26 November. Sign up here!

Read the rest of the interview here:

MARKETING-INTERACTIVE: The FAANG companies are under a lot of scrutiny globally - Facebook, Amazon, Apple, Netflix and Google. Some of these names are also S4 Capital's clients. How does that risk and scrutiny translate for your business?

Sorrell: At the end of the day, from an advisory point of view, we look at who the companies are. Google, Facebook, Amazon, Tencent, Alibaba, TikTok, Apple, Microsoft, IBM, SAP, Twitter, Snap, LG, Samsung, Pinterest, Spotify, Netflix, Xiaomi, Baidu and Epic - these are the sort of companies that we try and understand as much as possible, and assess the relative merits of our clients.

If they are split into 40 or 60 companies [across different markets and geographies], advising them would be even more complex. Ironically, if there was regulation in the form of splitting these companies up, that would be to our advantage as it would make the decision our clients make more complex. But do I think breaking them up is going to solve the problem? No. Do I think regulating them will solve the problem? No.

We've seen this in the energy and telco industry before. These companies get big and powerful [and have a target on their backs]. The moment Apple, Amazon, Microsoft and Google go past a trillion dollars in market cap, the media focuses on that and that's a big target on their backs.

But I have to say I've seen them exercising more responsibility. They are acknowledging that with their powerful positions come responsibility. We see how Facebook has hired [an army of] people to monitor editorial content. They have got rid of extremist groups and they have dealt with some of the extremes of fake news or facts that are in controvertibly false.  

In China we’re seeing the government exercise greater control with the cancelling of Ant Financial's IPO. Clearly the Chinese government is really pointing out who is boss. They are basically signalling that these companies have become too powerful, and of course in the Chinese system, what I call state directed capitalism, the state is the boss and it determines what happens. They planned it very well and the Chinese economy is the second largest in the world.  

The final point is that we have to be careful of what we wish for. All of those platforms, the ones in the West and East, 60% to 70% of their ad revenues come from small businesses, that's the salvation for these businesses. If we regulate or make it more difficult for [the platforms], it will make it difficult for SMEs. It is [difficult] now, but it will be more so in the future.

The platforms are starting to position themselves as Jack Ma has done continuously around the small business positioning. I think that’s what they should do. That is the most effective way of dealing with the regulators. As Facebook [pointed out], over the last few quarters, it is quite noticeable that their business is outside the top 100 or 200 companies.

I regret that we had this competition, that China and US can’t work together and have one system. If we’re going to have two systems, that’s a good way of putting it that they should compete with one another and see who the best man or woman wins.

MARKETING-INTERACTIVE: Which industries are you focusing in on?

Sorrell: The general shape of what I perceive to be happening is the reverse square root, a sharp downturn with a sharp upturn. I'm very bullish on 2021. People are down at the moment and for Southeast Asia and Asia Pacific, it varies enormously from country to country. When we get into the second quarter of next year, when the vaccine starts to kick in, Q2 is when we start to return, but not to normal because things will be different permanently.

Tech and healthcare are 55% to 60% of our revenue base. The whoppers we refer to, those are the clients which we operate with more than US$20 million revenue, including Google and BMW. [Whoppers is a term S4 Capital uses to describe its 20-squared client objective which means to develop 20 clients with more than US$20 million revenue per year.]

Tech, healthcare, online shopping, online communication, online education and online financial services - all these are areas I would call V-shaped. The second area is FMCG and automotive, but it depends on how the shape of the U is for FMCG. It might be a much more narrow U and a less difficult U for single product category companies such as L'Oréal, Colgate, General Mills and Kellogg's rather than more diverse companies such as P&G, Unilever and Nestle. Although P&G has stood out with stellar Q3 growth at 9% and Unilever's [growth] is strong at 4%. Even the multi-category companies are doing well in packaged goods where they have product portfolios that appeal in the COVID-19 environment.

Next is the L-shaped sectors which are more of travel and hospitality, although with the recent announcement by Pfizer, obviously the focused has switched to them and it is interesting. Some of the tech platforms' biggest clients are in travel and if they recover and come back to spend, which they will do with the vaccine, we will then see growth there. But our focus will continue to be on those more V-shaped and the narrower U-shaped areas because that's where we see the greatest potential.

MARKETING-INTERACTIVE: What is the legacy you'd like to leave behind and are there any regrets or ambitions you had at WPP that you are now fulfilling at S4 Capital?

Sorrell: The mission for S4 Capital is to create a new age, new era advertising and marketing service model. In 20 to 25 years' time, people will look back and say it understood the changes and were in the vanguard of creating a new age model which is purely digital and uses the holy trinity model. That covers first-party data, digital advertising content and programmatic. Thirdly, it is also faster, better and cheaper, and most importantly, it is unitary in concept.

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