Frenemies Read online

  5.

  ANXIOUS CLIENTS

  “If you want a good kisser, we’re your date!”

  —Michael Kassan

  At dinner at one of Michael Kassan’s favorite Italian restaurants, Scalinatella on East Sixty-first Street, a darkened, downstairs cave where waiters greet him by name and he hugs Johnnie, the majordomo, and everyone knows he prefers his vodka martinis dry without olives and straight up, Kassan ordered a tomato-and-onion salad followed by a generous veal chop with a side of broccoli rabe. Tucking into his meal, attired casually in the California style he prefers of a sweater over an open-necked shirt, dark khakis, and soft, black shoes, he recounted a pitch he’d made to the CEO of a major advertiser. “You talk to all my competitors,” the worried CEO told him. “How can I feel comfortable opening my kimono to you?”

  “Look at it this way: we’re fortunate that we get to kiss lots of girls,” Kassan told him. “We never kiss and tell. It just informs our ability as kissers. So if you want a good kisser, we’re your date!” Kassan likened his mix of powerful clients to the Hollywood law firm of Ziffren Brittenham or New York entertainment lawyer Allen Grubman: “You go to them because they represent everybody and know everything.”

  Spurred, in part, by Jon Mandel’s assault on agency holding companies, throughout 2015 and into 2016, brand clients reviewing whether to kiss their agencies good-bye—Unilever, Bank of America, 21st Century Fox, among others—turned to Kassan for guidance. The trust issue went far deeper than a matter of hidden kickbacks, as Bank of America’s longtime CMO and now vice chair, Anne Finucane, would explain. Finucane believes that financial transparency can be codified in agency contracts, and she has done so, but a larger issue is that the agencies are now parts of bigger marketing Goliaths offering a range of services, which pull agencies away from “thinking like a client.” It bugs her when agencies bombard her with “hard sell” proposals for new services from their sister divisions.

  Jack Haber of Colgate makes a similar point about how agencies sabotage trust by constantly peddling a variety of services. Once, the relationship between client and agency was simple, he says. Instead of a lucrative 15 percent commission, agencies now negotiate a fee. And they are part of giant holding companies seeking more and more fees. “When I worked at an agency, I wanted to sell ads. Now our agency, WPP, wants to sell other services. Their strategy is to get more money out of clients.” In earlier days, “the focus was on the work. Now the conversation has shifted.” Agencies talk more about data, and spending more money to target audiences, and bringing in public relations and social network experts. He says he keeps asking, “Where are the creative people?” The biggest change in his own behavior as CMO, he says, was that “we had to be more demanding.”

  There are, of course, other logical reasons for tensions between clients and agencies. Step into the shoes of the client: new technologies and a multiplicity of digital platforms offer baffling and expensive choices.

  No secret drawer contains a checklist of the correct answers to the dizzying array of new choices clients face. No agency or McKinsey adviser who is not insufferably arrogant would declare they know the answers. The CEOs of the brands badger their team about company profit margins, as if marketing costs were an extravagance. The agencies complain they are being choked by low fees, but the CEO knows that agency holding company profit margins are still a relatively robust 15 or so percent. So the company CEO demands to know the return on investment of what is spent on marketing, and the honest answer is at best a guess. Corporate raiders are circling, pressing companies to manufacture short-term gains. The average CMO holds office for only about two years before being replaced by a new CMO. The new CMO is probably inclined to bring in a new agency and to insist that the agency reduce its costs.

  What does the CMO do about the digital fraud issue? A 2015 study by Distil Networks concluded that one of every three digital ad dollars is wasted by ad fraud, meaning ads are clicked and paid for but are not viewed by desired consumers. Often, the culprits are computer programs or bots. The CMOs’ official spokesman, Bob Liodice of the ANA, said in late 2015, “Roughly at least twelve percent of digital ads are going to nonhumans, and twenty-three percent of digital ads are going to criminals.” He pegged the cost to his advertiser constituents at $6.5 billion, and bluntly blamed clients for being “negligent. We spend nothing on cybersecurity.” The Distil study totaled the loss to clients in 2015 at a much higher $18.5 billion. Liodice’s global counterpart, the World Federation of Advertisers, estimated that if fraud continued unpoliced, by 2025 global marketers would be robbed of $50 billion annually.

  The CMOs feel trapped. Their CFO or procurement officer demands that the company stop wasting money on false clicks and ads that were paid for but never delivered to an audience. But how? Can the CMO fully trust social networks like Facebook, given that the more reported viewers of an ad, the more Facebook gets paid? The CMO doesn’t completely trust the ad agency, for they are compensated for placing the digital ads. The CMO is wary of Nielsen or other measurement agencies, for they still have a primitive way to gauge the size of the digital audience and whether an ad was actually viewed.

  Not all clients are dissatisfied with their agencies. Keith Weed of Unilever, for example, has four hundred brands served by multiple agencies, foremost among them the agencies of WPP. Weed flatly says, “I don’t trust my agencies less.” And as for the cost cutters, he says, “Procurement works for me at Unilever.” It would have pleased advertising agency executives to attend a crowded panel discussion among CMOs on the beach at the 2016 Cannes festival. Marc Pritchard, the chief brand officer of Procter & Gamble, the world’s largest advertiser, surprised members of the audience by expressing sympathy for agencies and criticism of many clients: “When we treat our agencies as partners, we get great work. When we treat them as suppliers, we get crap work.” He heaped blame on procurement officers: “The single biggest complaint agencies have is that this relationship is managed by procurement. The problem is we are thinking of marketing as a cost rather than a value.”

  Brad Jakeman, then president of the Global Beverage Group at PepsiCo, jumped in, noting that his company eliminated the procurement function earlier that year in order “to focus on marketing.” By moving procurement “out of a control function,” Michael Kassan would later say, PepsiCo had boldly relegated them “from first string violin to the orchestra.” Jakeman went on to express sympathy for beleaguered agencies: “They knew we respected that they had to make money. They’re a public company, like we are. They have margin commitments to hit, just like we do. They have revenue targets to hit, just like we do. And the only variable they have to play with to hit these margins is the quality of the people they put on your business. So if we pay them less, they’re going to put more junior people on the business. Probably not as talented people. And that’s going to show up in the quality of the work.”

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  The agency reviews of 2015 engendered some bitter feelings. Maurice Levy of Publicis, as we’ve seen, was angry that Omnicom bested Publicis to snatch the P&G account from them, and he was ecstatic to pluck the Bank of America strategic planning business from WPP’s Martin Sorrell. Levy was on his game for that pitch, exuding Gallic charm, and in control of the message from the broad strokes down to a granular level. He promised that his respected chief strategist, Rishad Tobaccowala, would be directly involved with BofA in planning and executing its annual $2 billion marketing spend. By contrast, BofA executives grumble that they were offended by WPP’s performance: Martin Sorrell brought in a truckload of different CEOs, many of whom did not seem to know one another, and their presentation was disjointed. Bank executives felt Sorrell and Irwin Gotlieb lectured them. “Martin spoke for a half hour,” a senior executive says, “and Irwin for one hour. That only left a half hour for discussion.”

  There was nothing new about nailing a pitch in an agency r
eview, or blowing it, for that matter, but the wave of agency reviews that started post-Mandel’s 2015 speech felt different. For the first time ever to this degree, efforts were intensifying to discard the middleman. Increasingly, clients were taking work away from agencies to do it in-house. Procter & Gamble has created its own proprietary programmatic ad buying system, taking some—not all—of programmatic buying away from its agencies. The ANA reported in 2016 that 31 percent of advertisers responding to one of their surveys said they had brought elements of programmatic ad buying in-house. Obstacles remain, particularly for smaller companies, because programmatic buying rewards scale, but for agencies the trends are ominous.

  Even more worrisome, clients are also doing more creative work in-house. Unilever outsourced Unilever Studio to a company to perform tasks once outsourced to agencies. Airbnb CMO Jonathan Mildenhall, who left a top marketing job at Coca-Cola to join this digital upstart in 2014, says half his marketing department “are creative. They’re writers and art directors and photographers and videographers.” A major reason, he says, is that agencies don’t move fast enough. A client performing more of its own creative work was a practice he followed when he was at Coca-Cola, and it’s practiced at companies like Apple. It’s true as well in the world of fashion, where the designers’ vision is central, and where internal marketing departments are usually entrusted to create marketing campaigns.

  More nimble public relations firms now commonly supplant ad agencies to tweet, blog, and podcast for advertisers. Edelman is the largest privately owned public relations firm in the world. For clients like Samsung or Taco Bell they engage in online discussions with consumers on social networks or on the client’s Web site, or recruit influencers to engage consumers on various digital platforms. For the Dove Hair team, for example, CEO Richard Edelman says they created a variety of colorful, curly-haired Love Your Curls emojis, generating 414 million impressions on sites like Fashionista.com, HypeHair.com, MarieClaire.com, and SheSpeaks.com. With newspapers contracting or closing, he says, “We’re trying to find other channels because we can’t pitch to reporters anymore. We’re now dealing with Buzzfeed and Vice and Business Insider. They want sponsored or branded content. They want something funny, clever” to sneak past the defenses of millennials on guard against interruptive ads. To millennials, he is selling advertising, not news.

  But even with more work migrating to PR agencies or in-house for the creation and execution of big brand ideas, clients are still usually reliant on their agencies. While Mildenhall says “eighty percent of my content needs I do in-house,” he also says that his agency, TBWAChiatDay, “gets eighty percent of my media budget.” His in-house creative revolves mostly around promotional materials and activities like designing corporate Web sites. Because speed counts, clients increasingly take in-house their blogging and tweeting and social network posts. What retards a client’s ability to do more of its own creative work is that creative executives don’t clamor to work for a single brand, as ad agency executives proclaim, because abundantly talented creatives don’t want to devote themselves to only one client. “The best people want to feel free to work for many clients and across many sectors,” Sorrell’s éminence grise Jeremy Bullmore says. Nevertheless, clients moving more work in-house poses an ongoing challenge to agencies.

  Another assault on agencies comes from publishing platforms performing the creative functions of ad agencies. This effort is fueled by native ads which can take the form of stories about a brand that appear in newspapers, magazines, or online and look like news stories; or compelling human interest stories in which the brand is barely mentioned. An impetus for these native ads came from the introduction of ad blockers, which imposed a nearly impregnable wall to block clearly labeled ads. Because they don’t appear to be ads, native tricks the ad-blocking software and, often, the consumer. Vice was a native pioneer when it went to Intel in 2013 and created an online Intel art exhibition that encouraged residents of certain areas to communicate with each other by joining, say, the Brooklyn Art Project. Publishing platforms sell the storytelling ability of the journalists they hire to craft native ads, and bypass the agency to pitch clients directly. The New York Times may be shedding older journalists, but it had hired 110 copywriters and art directors (almost one third of its ad sales department) to create native ads for brands. Agencies desperate not to offend clients have little leverage to counter this new threat.

  To discuss the various threats to his agencies, Martin Sorrell leans forward on the wooden chair facing the small conference table cluttered with papers in his second-floor London office. He is not blind to these threats, and often speaks of the competition from digital and consulting and PR and publishing platforms. If anything, his constant travels and attendance at conferences and meetings with an array of frenemies make him unusually aware of potential threats to his business. Of the threat posed by platforms serving as agencies, he notes that WPP has partial ownership stakes in some of these potential competitors, including Vice. “Just think about our strategy: It’s to get the Don Draper companies—the traditional companies—to move quickly into digital. It’s to get the digital companies to go even faster,” and he cites the aggressive move to beef up the digital operations of such WPP companies as Wunderman, Ogilvy, and AKQA. He dismisses the notion that the New York Times poses an advertising threat. “I don’t worry about them. The Times should be worried, because 110 people creating native content are not going to put off the evil day, the continued decline of print.”

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  Bill Bernbach and David Ogilvy would be horrified by the behavior of today’s restive advertising clients. Those, of course, were simpler times. Ad agencies were once mom and pop businesses that oversaw everything, from devising the strategy to creating the ads to buying ad space. But when the founders of these agencies sold to emerging holding companies, these giants consolidated strategy and media buying under separate media agencies whose size granted leverage over the TV and media platforms who were selling ads. And as the profitability of creative agencies contracted and marketing functions expanded, holding companies purchased direct mail and public relations and polling and design and other marketing agencies. In place of a single 15 percent agency fee, each agency charged a separate fee for their services.

  The media landscape changed just as fundamentally. “Back in Don Draper’s day you had three major networks,” says GE’s Beth Comstock. “You had people’s attention. People had fewer choices.” Today, she continued, “digital changes the definition of what advertising is. A well-done thirty-second spot in the right form is really very good. But luckily it’s not my only option anymore.”

  Comstock’s early career did not herald that she would be an innovator. She joined NBC as publicity coordinator for NBC News in 1986, worked in publicity for CNN and CBS News, returned to NBC in 1994, and became chief of all NBC communications in 1996. GE was the parent company of NBC, and when its top communications job opened in 1998, CEO Jack Welch plucked her for the job. She made it her business to become expert on an array of subjects, from the digital upheaval to social networks and new ways of marketing. After CEO Jeff Immelt elevated her to CMO, she took it upon herself to become GE’s digital point person, constantly exploring how digital would change not just marketing but all of GE. Then as vice chair heading Business Innovations, Comstock became the company’s chief futurist, attending digital confabs, planting herself in Silicon Valley, scouting and making it her business to know cutting-edge agencies and entrepreneurs, seeking out partners for unusual ways to market. A marketing challenge for GE, enunciated at every monthly marketing meeting chaired by CMO Linda Boff, with their agencies in attendance, is to shift the brand ID of GE from an old industrial to a cool digital company. Cool digital companies are more attractive to Wall Street because they are perceived as growth stocks, and are seen as welcoming to the young engineers that shape digital companies.

 
A way to advance this goal was for GE to establish under the auspices of the CMO a four-person office, the Disruption Lab, directed by Sam Olstein, thirty-three, who comes to work with his hair spiked and wearing jeans and sneakers. His foremost task, he says, is to “have a good perspective of trends and technology; of where we see activity of new start-ups forming around, say, messaging, around content creation.” He says they search “for what people think is cool and interesting and primed for growth.” He scans Apple’s App Store to check on new apps that break into the top 100. Encouraged by Comstock and Boff, he pushed, he says, to make GE “a publisher, a content creator. What our brand represents is science and technology and the awe around science and technology, and that’s a very focused perspective. It’s the same focused perspective that HBO has, that Discovery channels have, that the Walt Disney Company has. We want to build a platform with the reach of any other media and entertainment platform out there.” It need not be branded like Disney, but he believes GE can create content and distribute it over its own Web site, over Facebook, Instagram, Twitter, Snapchat, National Geographic channels, or online publications like Slate.

  As a content creator, GE formed a partnership with the National Geographic Channel “to bring to life great stories” for a six-part series called Breakthrough. It was directed by Ron Howard and shaped by Howard and his Imagine Entertainment partner, Brian Grazer. (WPP owns 10 percent of Imagine.) Each one-hour segment covered scientific topics like robotics, the brain, and energy. GE did not suffocate the drama with advertising. Instead, each hour opened by saying it was codeveloped by GE, and Boff says the episodes featured “our scientists or technologies or customers, but in an organic way.”