Vale International LTD

New Business Practices among independent advertising agencies

Vale International Ltd., completed an in-depth analysis of new business practices among independent advertising agencies from a six continent study carried out in March 2010. “Almost 320 offices with 12,800 employees enabled us to compare 2009 versus 2008 practices and we were surprised at some of the findings” said Jorg Borgwardt, Managing Partner of Vale International.

One of the most interesting findings was that agencies which insist on being paid for the pitch average a 57.8% success rate. Those that did not ask for a fee had a success rate of slightly fewer than 10%. According to Mr. Borgwardt, to the best of our knowledge no other study uncovered this

Significant highlights from the study:

Increased pitching activity

Overall, agencies participated in 13 pitches in 2009 vs. 11 in 2008. This is an average drawn from 40% that pitched more (15) clients; 40% that pitched fewer (10) and the remaining 20% that held steady at 8. This increase could be conditioned by the economic downturn.
Lower budgets and shorter contracts

Budgets tendered in 2009 were 29% lower and most agencies reported a sharp increase in requests for project rather than campaign work. A substantial amount of contracts won were not executed and a new tendency emerged in pitches initiated to find a lower cost supplier rather than a novel creative concept.
Worsening quality of briefs

A consequence of increased pitching frequency is the deterioration of the briefing quality. Agencies blamed short-term client focus and suggested pitching is becoming a commodity habit with the strategic role of communications shrinking rapidly.
More agencies fighting for smaller budgets

In 2009, on average, 6.3 agencies competed for the same prospect; a 24% increase vs. year ago. More dramatic is the fact that 27% of agencies counted eight or more competitors pitching for the same business.
Agencies are in danger of giving away the shop

Just 30% of agencies stated they pitch only if paid a fee. 70% of agencies are pitching for the honor, a highly questionable practice which Borgwardt blames in large part for diminishing value perceptions of agency contributions to client business.
Lack of client feed back

Three quarters of agencies said they didn’t receive advertiser feed back after pitching. Of the 25% that had feed back two-thirds judged it inadequate or useless. Not a surprise for Borgwardt: “Clients have difficulty judging more than 3 or 4 presentations; how can they be expected to provide feed back to 8 or more agencies that competed? If chances of quality feed back are low, agencies are better off not to compete.”
Increased role of the procurement officer

In 2009 procurement officers took over making 77% of decisions for agency revenue. While greater efficiency is a must for all involved, Borgwardt actually denies the procurement people that role for one simple reason: “If only 26% of them took part in setting the pitch parameters; how can the others price what they didn’t brief? This is a fundamental flaw in the current system of equating ideas and creativity with a pound of nails or a sack of beans.”

Most important, Borgwardt suggests that agencies must redefine their new business strategies, get closer to the CEO while also embracing procurement. “The purchasing executive has a fundamental role in any client’s business; so don’t blame them for making your life difficult; help them understand what you do for a living and how that contributes to corporate value.”

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