The costly blind spot of the advertising industry: Free pitches

It's a debate in which the last is yet to be said. Should agencies be paid for ad pitches? While agencies say they should be paid as they burn the midnight oil and spend lakhs to prepare presentations, most clients do not agree arguing that this is an agency's business development cost 

Akansha Mihir Mota | Mumbai | July 11, 2016

This is a forever debate that has been raging in the world of advertising: Should agencies be paid for a pitch presentation they make to clients to win their creative mandate? On the one hand, the agencies say they should be paid as a lot of time, money and creativity goes in making even a sample presentation. On the other hand, many agencies are willing to present bids for free if clients don't oblige. Often, clients call in many agencies for a presentation to get the best but only one wins the mandate, and the efforts of others are wasted.

Vipin Dhyani

Vipin Dhyani, Founder and Chief Creative Director, Thoughtshop Advertising, shares his experience of once going for a free pitch for a government body. He said many agencies had come to show their ad samples. The government body gave 10 minutes each to all the agencies and selected just one.

Dhyani said, “There has to be a justification. If the client is calling 15 agencies, then it is a kind of crime and kind of emotional blackmailing of people and this needs to stop. I am putting, energy, time, manpower and everything for a pitch and I have to pay my people for it and then I don't win the mandate.”

Some years ago, the Indian Society of Advertisers (ISA) and Advertising Agencies Association of India (AAAI) introduced the concept of a pitch fee along with some ground rules such as how many agencies can be invited to a pitch and tried to impose it. But the move didn't go down well with the advertising fraternity as they continued to pitch their ad samples in order to win the creative mandate of a company for free.

Pitching is making an ad presentation before a prospective client. Agencies spend a lot of time, money and resources in even making a sample ad and all the effort goes to waste if they don't win the bid.

MG Parameswaran

Veteran advertising hand MG Parameswaran, President, Advertising Agencies Association of India (AAAI) and Founder, Brand-Building.com, said, “AAAI has in the past taken a stance on asking its agencies to consider charging a 'pitch fee'. But due to resistance from member agencies and ISA, we have had to go slow on that initiative.”

No more 'try before you buy'

BestMediaInfo.com met a few creative agencies to know their point of view. All agreed to the concept of a pitch fee from the client, but struggled to find a solution on how to stop free bids.

BBH India doesn't charges clients for their creative presentations but is very selective in making pitches.

Subhash Kamath

Explaining the need to get paid by clients for pitching, Subhash Kamath, CEO & Managing Partner, BBH India, said, “The agencies put in a lot of effort, time and resources into a pitch trying to solve a client's problem. Ideally they should be paid for, even if it's a nominal amount, specifically the agencies that participate but don't win the business. Unfortunately, the pitch fee concept hasn't worked in India. A few agencies say they do but I don't believe it. Sadly, our industry hasn't been able to unite and impose this. It was attempted once in the past but it failed.”

Bobby Pawar

Bobby Pawar, Managing Director and Chief Creative Officer, Publicis Worldwide, said, “There are a very few agencies who are paid for pitching. The environment in this country and every country is that pitches are free and I think that is unfair as it involves cost to the companies. Agencies spend a good amount of money in pitching. It's not fair to ask for an idea to someone and not pay. At least compensate them for their time and efforts.”

KV Sridhar

Joining the conversation, KV Sridhar, Chief Creative Officer, SapientNitro India, said, “We are given a real problem and then asked to solve a real problem. Later you are not respecting the offer or the solution that the agency has put in, which is a violation of copyrights and intellectual property rights. I don't just blame clients; I equally blame agencies and also the entire ecosystem that has developed in the last 20 years.”

Santosh Padhi

Santosh Padhi, Chief Creative Officer and Co-Founder, Taproot Dentsu India, has a message for the creative fraternity. He said, “It is also not right from the industry point of view to pitch for free. We should find a way of becoming one and having a single stance on this issue. Why should brands take an advantage of this situation? Everyone wants business and has to report to somebody senior but that does not mean you will work for free.”

Clients that understand

Flipping the coin to the other side, not all the agencies are upset with the brands for not paying pitch fee. Some said there are a few brands that understand the value of the creative pitch and pay for it.

Josy Paul, Chairman and Chief Creative Officer, BBDO India, doesn't have much to complain. He thinks that “the enlightened clients don't want anything free”.

Josy Paul

He believes that if clients want an idea to be great then they would not be reluctant to pay a fee to agencies to present the ad sample. He said, “I once met a client who insisted that we charge a pitch fee. I thought that was very refreshing and enlightening. Sure enough, the same client is now one of the finest marketers in the world. We once won a big business by just sharing our point of view about the future of advertising. In the course of the discussion we cracked the brand idea along with the client. The idea went on to become a super hit.”

Saurabh Varma

Saying that not all clients are reluctant to pay, Saurabh Varma, CEO, Leo Burnett, South Asia, said, “Some clients understand that there is an effort required in a pitch and they would pay you the pitch fee.”

Pointing to the main problem, Varma said, “Agencies ask for pitch fee, but if the clients don't want to pay, they pitch for free. If the agencies start the practice of not joining a pitching when not paid, clients will start understanding and appreciating the time and effort that went into a presentation and will start paying.”

Solution to the problem

If there is a problem, there is definitely a solution. A lot of discussion has already happened on this. The creative fraternity broadly agrees that while pitching, all agencies should come together and charge a token amount from the brands. The second solution is to call fewer agencies for a pitch so that time is not wasted for the others.

Sam Balsara

Sam Balsara, Chairman and Managing Director, Madison World, said, “Given that the concept of pitching is not going to go away, the solution is for each agency to develop a set of guidelines for itself, based on which it should decide when to pitch, under what circumstances to pitch. This will bring some sanity.”

It is not just a loss for a single agency but for the industry as a whole, feels Sridhar. “The clients are using or rather abusing the entire process to get their strategic thinking, which is very wrong. There should be mutual respect from both the sides. My advice to the clients is not to invite more than two clients at a time and pay them. Get their best talent to work on the business and get a solution. In that way you will benefit in the long run because you will get quality time from the agencies and make a difference to your business.”

Reverse train

In 2010, Reckitt Benckiser (India), a leading name in household, health and personal care products, turned the tables on the advertising agencies by calling a pitch for its Rs 200-crore advertising budget with a condition: that only those willing to pay a pitch fee of Rs 3 lakh to Rs 4 lakh could participate in the process!

That raises the question: Could it be called an unethical practice? Not quite for Reckitt Benckiser, whose justification for this pitch fee was that it made agencies more accountable to their business. The move raised the hackles of industry body AAAI, which issued an advisory to all its members to boycott the Reckitt Benckiser pitch.

The marketers' POV

Along with the creative world, BestMediaInfo.com also spoke to clients to find out their perspective on the issue. Should they pay a pitch fee? Is it justified for the agencies to ask for a pitch fee?

Sanjay Tripathy

Sanjay Tripathy, Senior EVP, Marketing, Product, Digital and E-commerce, HDFC Life, said, “Nowadays, a lot of ad agencies have started charging a 'pitching fee' for various reasons. While it may make business sense for the ad agencies to charge clients a pitch fee for their ideas and time, the question remains whether a client should entertain the same or not. My belief is that a pitch should be treated as a pure sales pitch as the benefits of a sale are realised by the seller only after the deal has been closed. Also, while different ad agencies spend time and come with ideas, often the brief emanates at the client's end and the ideas are not really usable till executed properly. In fact, often pitch ideas need the business filters to be viable for the brand.”

Tripathy added, “The other aspect ad agencies should understand is that if a client starts paying a fee to all agencies that pitch, it would cost the client a fair amount of money for just assessing an agency and its capability to deliver on the brand.”

Lloyd Mathias

Lloyd Mathias, Marketing Head, Consumer PC for Hewlett-Packard, Asia-Pacific-Japan Region, vehemently opposes the pitch fee idea. He commented, “I don't think it's a very good thing to charge a fee as the very fact is that a pitch is not what the clients are pursuing and chasing. The moment you get down to asking for a fee, it's making a mockery of the process.”

Countering the argument from the clients' side, Mathias said, “Incurring a cost while pitching is part of the agencies' business development. Any company manufactures and sells a service, they also have a cost of sales, and asking for pitch fee clearly disputes that. Agencies should make a commitment if they believe in something strongly, and by charging a fee to the clients for pitching is not right in my mind.”

Pawar countered, “Like the clients incur cost to sell a product, our product is our idea. Their cost of marketing is the cost of the product. We put our time and effort in something and we need to be compensated for. Even a token compensation would do.”

But there are brands like Future Group that understand the importance of the hard work involved in pitching and willingly pay a pitch fee amount if they find that the agency has put in some sincere efforts.

Sandip Tarkas

Giving a different perspective, Sandip Tarkas, President, Customer Strategy, Future Group, said, “We sometimes give a pitch fee and sometimes don't. We have in the past paid pitch fees in certain cases which involved a lot of work for the brand. But in general the big brands avoid that. Agencies do serious work and do serious pitches and they should be paid for it. I think asking for a pitch fee is a fair concept. But the big companies would say that our business is large enough for you to invest that much in a pitch. It is a business development process and an expense for the agency and they should take it. I think it is a question of relative strength.”

Tarkas added, “We don't call a lot of agencies because it is also a serious investment of time from our side too. Plus, I don't want people who are not serious to come and clutter the process. They will also feel bad as they have invested a lot of time.”

To sum up, the world has an oversupply of everything – from cars to soaps to advertising, architectural or legal services. Everybody wants to aggressively grow at a rate that is higher than the industry average. This imbalance results in pitching. And in a buyers' market, a buyer is always at an advantage. Agencies, to continue growing, will have to participate in pitches but should do so selectively, and only when they feel that they have a good chance of winning the business.

In short, this is a debate that is not going away all too soon. Perhaps the solution lies in advertising agencies unanimously taking a stand that there will be no free pitches.

Info@BestMediaInfo.com

Info@BestMediaInfo.com