No Gain, No Pain

If memory serves, the last time the U.S. economy went into recession, taking the ad industry with it, the pace of account turnover quickened. Some clients sought to blame advertising and, by extension, their ad agencies for their own softening business. Indeed, a slowdown in the pace of account churn was a sign that business was getting better.

That was the early ’90s. This time around, as the economy soured, the pace of account turnover slowed, the reverse of what happened last time. One observer, perceiving a recent pickup in review activity, thinks this may be a sign of recovery—again, the reverse of the pattern 10 years ago.

Have shops overcome their status as scapegoats for business woes?

Of course, a number of factors can lead to an agency getting fired: a general cost-savings initiative or a change in senior management at the client; merger fallout; ineffective work. But in a down economy, agencies commonly took the fall for more fundamental problems in a client’s business. At least, until now.

What happened over the past 10 years to account for such a flip?

We see three main factors.

First, clients may have gotten smarter, or at least more sophisticated. They may be acknowledging that their slump has nonadvertising causes—a crappy economy, for example. If advertising is not the problem, changing agencies is not the solution. With business softening, plenty of things can be done to save profits. An obvious choice is to cut the advertising but not the agency, thereby avoiding a disruptive and time-consuming review.

Moreover, the share-the-gain, share-the-pain compensation plans that some clients have with agencies can also help the shop stay on board.

Second, as holding companies have increased the breadth of their relationships with their major clients, those clients can dramatically alter the mix of marketing techniques they use—sometimes to save money, sometimes to switch from institu tional brand-building tactics to move-the-merchandise promotions. And they can do so without changing agencies. Everything can stay within one holding-company family.

Third, thanks to this elaborate matrix of relationships between client and holding company, the cost of switching—in terms of money and of business disruption—can also keep clients from pulling the plug.

And when you get right down to it, most problems between clients and agencies are not truly institutional problems in which the two organizations can’t work together. More often, they are people problems. Even a medium-smart agency can juggle staffing on a piece of business to make the client happy.

Have clients really become slower on the trigger, less apt to fire their agency when their business softens? We probably won’t know for a year or so. If they have, is that a good thing?

Mostly, but not entirely. When an agency loses a piece of business, it can take steps to cut costs and protect its financial condition. But if clients instead choose to spend less but fail to become less demanding, the pressures on an agency intensify. And there’s not much defense against that but to grin and bear it.