The industry needs to adopt an open dialogue about 'despicable' pitch practice

Brands have spent billions tightening up their CSR functions and painting their businesses as socially responsible. But, behind the scenes, are agency suppliers being treated fairly, or do aggressive cost negotiations and late-payment terms amount to exploitation?

For too long, agencies clamoured, brands had been exploiting suppliers with unreasonable terms and corporate bullying

When the Marketing Agencies Association (MAA) hit out at brewer AB InBev for what it termed "despicable" pitch practice, it opened up a proverbial can of worms.

For too long, agencies clamoured, brands had been exploiting suppliers with unreasonable terms and corporate bullying. Now was the time for them to stand, shoulder to shoulder, against this.

Call for strike action

The MAA had urged agencies to strike against AB InBev earlier in the year. It called for action after the brewing company was claimed to have asked agencies in a pitch for several concessions, including how many hours’ work they would provide free of charge and whether they would consider going beyond 120-day payment terms. It also asked how much rebate from their fee they would return above the minimum 5% stipulated, for it to be ploughed back into funding its CSR programme.

However, it emerged last month that, to avoid upsetting the delicate equilibrium, the InBev agencies opted not to retaliate.

Kickbacks into CSR initiatives

"The irony is the CSR programme is called ‘Better world,’" says the MAA’s managing director, Scott Knox, who is leading the cause. "To have that funded by rebates from already beaten-up suppliers is unreal and a disservice to what corporate responsibility actually is."

It’s a food chain and we get that. I’m not saying they should stop negotiating to get a good deal. We just have to draw a line

He calls such increasingly aggressive business terms "exploitative" and says they risk damaging the diverse fabric of the creative industries by out-pricing smaller providers. Trimming costs became commonplace during the recession, adds Knox, but now the belt must be loosened for mutual growth. "It’s a food chain and we get that. I’m not saying they should stop negotiating to get a good deal. We just have to draw a line."

Procurement-led cost trimming

Calls to the MAA’s pitch watchdog have shot up, according to Knox, who explains that in some cases, marketers have complained anon­ymously about the way their brand has conducted business. The MAA is aware of instances where clients have personally apologised for aggressive, procurement-led cost trimming.

The issue was also catapulted onto the political agenda, thanks to a BBC Newsnight investigation into Premier Foods’ demands for "investment payments" from suppliers, including marketing agencies.

While agencies and suppliers are lashing out, albeit sometimes behind closed doors, the accused brands have stayed comparatively silent, quietly carried out U-turns or argued that it is standard industry practice. Advertiser body ISBA was also unavailable for comment.

Payment terms extablished by mutual agreement

AB InBev hit back at accusations that it squeezes suppliers by stating that its payment terms are established by mutual agreement. It also defended the move to gauge agencies’ interest in investing in its CSR programme, because, a spokeswoman said, the business believes strongly in its ‘Better World’ commitment.

You very rarely hear an agency say no

There are multiple stakeholders, so opinion is divided. Tom Denford, joint chief executive of marketing consultancy ID Comms, argues that agencies "do themselves no favours" by allowing themselves to be "bullied" into working on unreasonable terms. "You very rarely hear an agency say no," he adds.

Procurement is often blamed. Readers have flocked to Marketing’s website to share their views, with one pointing out that instead of squeezing agencies, procurement should act as a "marriage counsellor" between parties.

Procurement as a 'marriage councellor'

While the marketing team will select an agency based on the quality of its work, the finance team often weighs in and squeezes the agency "within an inch of [its] life" on a cost-saving drive, says Rob Weatherhead, operations director of SEO and digital-content agency Tecmark.

He also blames big agencies for creating a culture where brands feel they can make unreasonable demands. "The network agencies would rather keep a problem client operating at a loss than lose them to their nearest rival. In this way, the bigger network agencies are as much of a problem as the clients," he says.

Open dialogue between the industry

However, the industry is taking collective steps to collaborate behind the scenes and reset the balance. The IPA, for example, says that it has been working to engage clients and agencies on the issue through a joint council over the past two years.

It is also supporting government moves to tighten up the law in relation to late payments to support agencies.

The recession may have reshaped commercial negotiations, but as recovery gets under way, commercial responsibility is likely to move further into the spotlight as bodies such as the MAA continue fighting to name and shame brands for poor practice. In the meantime, open dialogue between marketing, procurement and agencies can only be constructive.

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