Procurement Perspectives on the Omnicom/Publicis Merger: Expert Interview (Part 2)

Spend Matters: Will this deal do anything to limit choice? How important are the holding companies, really, when it comes to agency selection? Doesn't the individual firm matter most?

Brad DeHart: Does this profoundly change the dynamics of choice in the marketplace? Largely not – fundamentally, advertising and marketing buying comes down to the individual agency. In certain cases, with larger advertisers, network relationships have been in a test mode for approximately the past ten years. There does, however, seem to be an increasing appetite for considering network relationships (the digital ecosystem is a compelling area that is helping the cause). When you look at a particular brand and you look at the number of agencies who cycle through a marketing leader’s office, the number of firms they must interact with is growing exponentially. The market is more open to networks than in the past in spite of the lack of fulfilling the promise of a relationship in early deals.

Networks are typically best suited for the largest relationships. On the marketing frontlines, it's sort of a mixed bag – for an advertiser looking for a new creative hotshop, it does not play into it. For a large global advertiser that is looking at their stable of agencies (e.g., hundreds of agencies and hundred of millions in spend), it can make more sense.

Spend Matters: How will the other agency holding companies react and compete from a network perspective?

Brad DeHart: For the other holding companies, it will be hard to keep pace with the network scale of the potential new number one player (if the deal closes) without further corporate development. Now WPP will become a distant second (a somewhat strange circumstance for such a large network already) – and others, such as Havas, JPP, Dentsu, are further down the pack. To keep pace, we expect material follow-on activity and exploration because of it. Until we see further consolidation, it will be hard for others compete for the big network pitches in the same manner as the combined Publicis Omnicom, granted there are fewer than a dozen of the truly big pitches annually, but the pots of spend are substantial.

Spend Matters: How sophisticated are agencies today when it comes to analytics and intelligence? Isn't the amount of manual work required still a worst-kept-secret in the industry?

Brad DeHart: The combination will make getting to data that much easier. There is a fair number of efforts going on (e.g., Google, WPP, Twitter, Publicis, etc.) by the networks and agencies to strike deals to obtain more social data and also build out advanced data analytics teams. The networks will increasingly focus on this area, but the onus is not completely on the ad agency. The reality is that since advertising and the days of “Mad Men” broke away from a truly integrated one-firm model, it's taken the burden away from the creative shops to manage the end-to-end process through reporting, market mix analyses across channels as many of the channels fall outside of the traditional agency’s realm.

Generally speaking, more and more advertising and media buyers are going to expect new types of insights and reporting. When it comes to analytics and assessing agency performance, however, there will always be a healthy interest in keeping this away from the agencies. Whether it is assessing media buying performance through offerings such as Media IQ, or developing a comprehensive, ongoing marketing spend analytics and evaluation using a firm such as Market Share This will require “keeping the fox out of the henhouse” – it is the classic principle of separation.

Still, the network (i.e., integrated agencies), insofar that more advertisers work with a single network, will lend itself to integration of data, but it will not change the importance of working with outside parties in certain areas and the willingness to pay outside parties and integrate with their data sources.

Spend Matters: What will the future of networks hold – and what will it bring to procurement?

Brad DeHart: It is important to remember from a procurement stand point that there are very good reasons why agencies are their own entities in the networks. Granted, the networks are slowly (in very subtle, somewhat quiet ways) getting their act together in terms of shared resources, such as legal, financial and procurement – this in some way is the end prize in terms of classic merger synergy savings. No doubt, such combinations will also usher forth calls for more integration. People [such as financial analysts] will want to see efficiencies from the tie-up. There are commonly expected synergy savings to running a $24 billion company compared to a $10 billion one.

From a network perspective, it is the customer relationship at the top that will matter most for larger companies that want to get more from a networked type of model. Sir Martin Sorrell (WPP) has been involved in structuring network relationships and maintaining personal connections with his firm’s largest customers. Maurice Levy brings this same focus and has been doing it for his firms as well, helping build some of the larger network relationships to date.

No doubt some advertisers will still eschew the big agencies and networks and even overtures from their leaders. But others will like working with the biggest one, particularly really big advertisers who see a lot of compelling agency choices and scale benefits in bigger network relationships. For these organizations, WPP will be somewhat at a disadvantage in terms of the stable of agencies it can offer a larger advertiser vs. Publicis Omnicom, until Sorrell responds on the competitive front… which we know he will given his competitive nature. At the same time, while Publicis Omnicom grapples with the massive task of creating this mega network, WPP can continue existing efforts to build out a strong network without such the significant distraction of this merger.

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