How the billion-dollar 'reviewageddon' will shake up ad relationships
Reviewageddon is real – and represents a major shakeup in the relationship between big brands and big ad agencies.
No matter what you call the phenomena – “reviewageddon,” “mediapalooza” or “pitchapooloza” – the main thing is to understand how the ripple effects are likely going to affect the industry beyond this current spate of activity.
What is it exactly?
In an unprecedented industry development, many large brands are reviewing their relationships with their large advertising agency partners at the same time, represented what has been estimated as $26 billion in ad spending. According to a Morgan Stanley report from last month, this amount exceeds the total amount of accounts reviewed over the past three years combined.
Paul Sweeney, media analyst at Bloomberg Intelligence, explained the development to Fortune, “It’s simply their clients putting pressure on them to deliver. And, one of the ways you put pressure on your agency is to put that business up for review to make sure that you’re getting the best deal [and] the best execution out of Madison Avenue.”
According to Maurice Levy, chief executive of Publicis Groupe, the reviews are result of brands looking to cut costs both in fees paid to agencies and also pay less for media buys with Levy emphasizing that marketers “want the price of media to go down.”
The Paris-based Publicis Groupe is one of the agencies facing a large number of reviews and being forced to defend $7.2 billion, which represents 1.7% of its yearly revenue. P&G are one of Publicis’ largest clients currently reviewing that relationship. Another agency facing a large number of reviews is UK-based WPP defending $8.5 billion representing 1.1% of its yearly revenue.
A research firm owned by Publicis, ZenithOptimedia, has already repeatedly lowered its growth forecast for 2015 global ad spending from 4.9% at the start of the year to a current 4.2%.
More on the buzz and brands
Brands initiating account reviews were a big part of the chatter at the recently held Cannes Lions International Festival. Due to the industry shake-up that will be the inevitable fallout from the review process, some agencies stand to win at their competitors’ expense. Even though it’s facing a large number of reviews, WPP CEO Martin Sorrell sees reviewageddon as an opportunity for the world’s largest ad agency. Another agency cited in the Fortune article as potentially benefiting from the process is Japan-based Dentsu, a firm that’s currently seen as having a “hot hand.”
In a mUmBRELLA article, Darren Woolley CEO of marketing management consultancy TrinityP3, offered a little more insight into why reviewageggon might be happening right now, "There are two things driving these pitches. The big revelation back in March from ex-CEO of Mediacom US (Jon Mandel) that all agencies are getting kickbacks. So there is an absolute fear of missing out or fear of being ripped off. Then there is an absolute desire to get lower prices – that’s both lower media and lower agency fees."
To provide an overview of just how far reaching reviewageddon is for the industry here are just a few of the brands currently reviewing their agency relationships:
- Proctor & Gamble
- Johnson & Johnson
- Mondelez International
To take a deeper look at just one brand, Volkswagen is reviewing its entire roster of brands including its namesake Volkswagen, Audi and Porsche, brands that spend more than $1 billion worldwide each year. The company utilizes a number of agencies with WPP as its primary shop, and the review process for that large ad budget is expected to extend into late fall. BMW is expected to only affect its U.S. media buys where it spends more than $150 million annually, with Interpublic Group's UM defending its status as BMW’s agency.
WPP's Chairman Philip Lader puts the blame on a shift to digital, saying media account reviews were largely driven by clients' desire to "optimize their media spending in an increasingly digital media environment."
Marketers may be hoping to use their spending power to drive down prices, but some of the forces at play creating this environment are out of their sphere of influence, including this shift to digital, geopolitical uncertainty, low inflation and investor’s focus on short-term goals, could thwart those attempts.