Q&A with R3 principal and co-founder Greg Paull: There is turf warfare in agencies and there’s more disruption on the way

The principal and co-founder of pitch consultant R3, Greg Paull, discusses the recent developments at Dentsu Aegis and Publicis Groupe, suggests marketers are heading towards a Mad Men mentality and warns of new competitors on the agency landscape.

Recent events at Dentsu Aegis have been likened to Game of Thrones. What is your take on developments?

It’s endemic of a lot of agency groups. It’s turf warfare. You’ve got to remember that agencies were once upon a time integrated and the people from the creative side were running the place.

In the last 10 years, media agencies and departments have become more powerful and are generating not just billings but huge revenue for agencies, so there is a lot of conflict between the traditional creative agencies and the media agencies.

Media agencies are getting content more and more, they are working with media owners to get things done, so the lines are blurring quite a lot and obviously not everybody is happy about that.

Is the industry more disruptive than you have ever seen it?

It is, and I think it is only going to get more disruptive when you have players like Google and Facebook employing content developers. I would certainly much rather have someone at Instagram making my campaign than someone at a third party agency because they are going to know the absolute latest techniques and latest capabilities.

So the market is going to get more and more disrupted as the so-called media owners and publishers increase their content capability.

It has been suggested that Dentsu Aegis has suffered from a clash of cultures and internal politics. Is that how you see it?

It could be a clash of cultures but it’s probably more a clash of personalities. There is the Japanese method of doing business but let’s remember, that method is a media buying centric model at Dentsu. That is how they make most of their money in Japan, so it shouldn’t really be a clash of culture because that’s kind of the Dentsu way and the Aegis way has a lot in common in that sense.

You just have some very aggressive and determined personalities on both sides and that is likely to be part of it.

But to be fair they are not the only holding company with these sorts of issues. What Publicis is going through now is going to be just as significant.

On the subject of Publicis, what is your view of developments?

I think it’s kind of been buried a bit as a story. You’ve got to remember these four divisions are only going to happen in the top 20 countries in the world. For all the other countries it’s more of a real estate and finance play, consolidating agencies, so it’s going to be quite disruptive for the people that work outside of the top 20 countries.

For better or worse, Publicis creative agencies have never expanded into digital in the way an Ogilvy or a BBDO or McCann has, so they have been a little slow into a fully integrated digital offering. Meantime the rest of Publicis has invested in Sapient and Digitas so there needs to be some kind of integration.

Are we witnessing a natural evolution of the industry?

There will be more of this to come. I think you have to question the role of the creative stand alone agency, particularly an above the line stand alone creative agency and the relevance of that.

There will more evolution, or revolution in the coming few years. It’s going to be very tough to justify margins when you are an above the line creative agency.

Moving on to other issues, what trends do you see emerging in the relationship between marketers and agencies?

I think you will see more marketers divert to a Mad Men mentality where they have a single agency take the lead and play the integration role.

Right now, marketers are juggling 10 balls at once, with different agency relationships and I don’t really think they want to play that role long term. I think they would much rather have one agency take the lead and try to integrate everything else around that rather than [the marketer] be the point of integration. I think it’s going to be too challenging for marketers to play that role.

Turning to your own business, how often are pitch consultants called in to manage a pitch process?

In the US it’s about 35-40 per cent, but in Asia it’s about 10 per cent. Asia is a market that is more likely to use their own internal procurement departments, and not everyone is aware of pitch consultant services.

That seems a surprisingly low figure, particularly compared to the US. How do you explain that?

In the US there are probably 50 companies like us, in Asia there’s less than 10 so that is part of it. Asians often rely on friends’ recommendations and advice and that’s been a big part of it. When pitches are called they will go and ask their own friends or marketing directors of other companies for references. That tends to be common.

Do you find that frustrating?

Its fine, but it’s such a big decision. We often joke and say the largest agency in the world is called MCA – My Cousin’s Agency and it happens all over the world, as much in Asia as anywhere else.

That’s the reality. It’s happening less than it did 10 years ago but it’s always going to be the case. What we bring is a much more transparent point of view of finding the best possible partner.

Is there perhaps a sense from marketers that you have your preferred agencies?

I think agencies [believe that] but rarely marketers. Once they get to the process, they realise we don’t actually pick the agencies and in our case we come in with as many as 20.

We are neutral. We did a pitch for Four Seasons in Hong Kong and London and they picked agencies that they had never heard of and we had never heard of, so we just did our research and found some new agencies that fit the bill and Four Seasons agreed.

You need that independent mindset. It’s about looking for the right partner for the right client.

Eighty per cent of agencies lose pitches. You only get one winner out of four or five agencies so 80 per cent of agencies are going to be disappointed, so why not point the finger at the consultant or the client?

What is the secret to a successful pitch?

Honestly it comes down to people and chemistry. We can spend as much time as we want looking at templates and creative strategies and creative executions but people want to work with people.

Sometimes they will take an agency even if the idea is wrong because they feel there is a comfort factor there. They feel it is someone they can develop great work with.

It’s a collaborative process so you want to end up with a partner that long term you can have a good strong relationship, and one with trust.

Clearly procurement departments are involved in the pitch process. Is there often a difference of opinion between procurement and marketing?

Procurement departments have got other KPIs [to marketing] and they are naturally driven around getting the best value. But quite often the least expensive agency may not be the one with the best chemistry with the marketing department but that debate has to happen in every pitch.

Is it fair to say procurement are more involved than they have ever been?

Yes, in 70 per cent of pitches in China they will be involved in the compensation agreements but it keeps going up every year and it’s the same all around the world, particularly in Asia.

Asia was actually a little bit late to procurement. It’s happened more in the last five years and it’s now quite a strong trend.

That must be frustrating to some degree if procurement are attempting to drive down the price?

In any company or division you are going to get good, bad and ugly so good procurement people, a lot of whom we work with, are very progressive.

They are looking at value, they are looking at the overall contribution of the business and playing a very positive role in the agency relationships and structure.

However, quite often it doesn’t happen like that and we have to deal with that unfortunately.

With procurement heavily involved would you advice agencies to be very aggressive in terms of pricing?

We encourage agencies to have more diversified pricing. Unfortunately, because of the fee system now with hourly rates, agency fees are more consistent than they have ever been so, just like I can buy a Mercedes or a Toyota, I should pay a premium to work with the top agencies. The best agencies should feel free to charge a premium for what they do.

But isn’t that up to the agencies to prove their worth in the pitch and to demonstrate how, although not the cheapest, they provide value for money?

Correct. But it is always tough when you are in a competitive pitch. But if I am going to buy a car and looking at a Mercedes or a Toyota, Mercedes isn’t going to drop the price to that of the Toyota.

And what of the role of the marketer today, what is their biggest challenge?

The biggest challenge for the marketer is to justify their role to the boardroom. What they have been doing in the past has been very intangible, but now with big data and CFOs and procurement people they need to justify far more of their marketing investment.

So they have a huge challenge to work with the right agencies, to really justify the role of marketing in the business. That is their biggest issue.

More than ever they are having to justify all the different marketing tactics.

And finally what of agencies? Can we expect more upheaval?

I think you’ll see a lot more but I also think you’ll see more people like IMB and Accenture stepping in to play a bigger role on leading digital engagement.

So it’s not going to be just a matter of WPP verses Publicis, it’s going to be WPP verses IBM and Accenture, and Google for that matter, so the competitive set is going to change significantly.