race to the bottom

I made a proclamation last week that the production company model isn't dead but that doesn't mean we aren't killing ourselves. 

I've previously mentioned the P&G preferred vendor list. P&G has told the production community that they will not use any company that does not provide a list of rates they perceive to be below market value. They recently began to enforce that policy. 

Being the largest advertiser in the world, P&G felt entitled to a volume discount. For decades, they have been spending wholesale but paying retail. I totally get it. So, guarantee me 10 million in annual revenue I'll give you a discount. As a matter of fact, I'll go to my crew and vendors to ask for the same. I'm confident they'd sign up. We'd all have better management of our annual cash flow knowing there is a guaranteed annual revenue stream.

Unfortunately, P&G cannot guarantee that revenue, they rely upon the agencies to make the recommendations. In other words, I can be on the P&G list by committing in writing to lesser rates yet bid on 20 jobs but land none. This is the flaw in their logic while lowering our value. Apparently at least 40 known companies, including AICP board members, don't see it that way.

I understand why a few of my fellow AICP members agreed to the preferred vendor terms. It was easy for me to be critical and decline the offer. In the last 3 years, we have done less than 5% of our jobs with P&G brands. Deciding against being a preferred vendor was a no brainer. But, what if you are a company that does a meaningful percentage of your billings with P&G brands? Depending on the percentage, losing those clients can be the difference between making a profit or even staying in business. Also, saying NO places your company in peril of losing directors who service those brands. They may go to a company that is a preferred vendor. I'd also be fearful of alienating P&G. Fear is a very powerful emotion. This is exactly what P&G is counting on. And its working.

For those of you that signed, think about this. Whatever percentage of the business you perceived as saving has now jeopardized all the rest. Do you think that Unilever or Imbev or J&J or Coke or any other major advertisers is going to sit idly by while P&G gets discounted production? I doubt it. Then what? The free market is destroyed. The profits we reap are no longer equal to the risk we take. Also, we have left the next generation with an industry decimated by fixed pricing. It destroys incentive and neuters entrepreneurial spirit. 

If we are not going to fight back our only savior is the ECD's and top clients who understand the creative value of production companies therefore don't want to potentially exclude top talent from the process. I can't speak for you but that doesn't give me a lot of confidence. There is less emphasis on creative effectiveness and more on cost savings. From my perch, I see procurement driving the industry these days not creative. 

As Matt Miller has been saying it's a race to the bottom. What is most upsetting is some of our leaders are in front of the pack. Deciding as an organization how we are going to deal with this issue is critical not only to the future livelihood of our industry but also to the very existence of the AICP. 

There has been a lot of talk of how we should address P&G and other divisive issues. It is not as simple as getting everyone to say NO or applying peer pressure. We must see the P&G policy as a symptom of a bigger illness. There must be a comprehensive strategy on how to move forward together. An agenda and industry stance we all can agree upon. What do we want the future of the AICP to look like? How do we hold our leaders accountable? What responsibility does membership entail?

It is said, vision without action is a daydream. Action without vision is a nightmare. It's time for all of us to wake up and start defining our future. If not someone else will gladly do it for us.