Consultants, in-housing and other negative talk about the agency business doesn’t bother IPG CEO Michael Roth.
Rather, he sees it as a validation of his sector.
“Clients are faced with disparate questions about how to navigate their dollars,” he said. “Our job is to help them do that.”
IPG, which outperformed its peer set in organic growth last quarter, is doubling down on its agency brands while making it easier for them to collaborate and share insights across clients. It’s a strategy many holding companies are taking as clients demand faster results.
But misaligned incentives often stymie collaboration, and agencies usually care more about their own bottom lines. Roth makes sure that’s not an issue at IPG by “holding the pencil and eraser.”
“If one organization is disproportionately favored by a collaborative engagement, I can adjust it,” he said. “It’s up to us to make sure the various networks get compensated for the work they deliver. It’s accounting, and accounting is our issue.”
AdExchanger caught up with Roth in Cannes to chat about the agency business and reflect on a more subdued festival.
AdExchanger: Does Cannes feel different to you this year?
MICHAEL ROTH: It’s more manageable. It doesn’t seem quite as hectic. That’s good. People were complaining it was too festive. It seems more businesslike.
It’s been a good balance between meeting with clients, potential clients and our people, one right after another. With all the hoopla about being in Cannes, I get to see people and clients from all over the world, so it’s productive.
Will you be back next year?
Well, it may be in Brooklyn instead of Cannes, but yes.
2017 was a slow year for agency growth. Will 2018 be better?
If you saw our first-quarter results, we grew at a decent rate. Our goal of 2% to 3% is still out there. I’d like to outperform that, but right now the tone of the business is OK.
Are clients still scaling back their spend with agencies?
It depends on the sector. They all recognize they have to spend marketing dollars to move the needle. They want to make sure it’s efficient and the dollars they’re spending are providing ROI. We have to make sure that’s happening.
Some sectors are spending more. Even CPG clients know they need to spend to move the market.
On IPG’s Q1 earnings call, you said CPGs are coming back. Is that happening?
At least, they promise us that they’re going to come back. Some of them are. They believe in spending marketing dollars. They’re still cautious about the outlook, but they have to spend.
Are agencies getting paid for the value they deliver?
I never think we’re getting paid enough. It’s hard to value a billion-dollar idea, and I don’t know whether the industry will ever get that right.
If we come up with a campaign that gives rise to a billion-dollar brand, should we get paid on an FTE model with value-add? When it’s successful, we’ll argue we want that value-add. When it’s not, we’ll argue we should get paid on FTE.
But our margins should be higher. And the only way to get there is to do performance-based pricing.
How common are performance-based pricing agreements at IPG?
On the media side we have performance-based compensation. If we can provide the same coverage for less cost, we share in more of that.
Has in-housing affected IPG’s business, or is the trend overhyped?
Some of our clients have taken programmatic inside, which is OK. We've helped them do that. Other clients have taken production inside. Retailers tend to do that because they have so much daily production.
That’s the nature of our business. I prefer if we were doing it, but all of our margins are blended. Most of the clients don't need to do that. It’s probably inefficient.
Are they doing it for trust reasons?
As far as the media side, our clients have a great deal of trust in what we do. That said, they look very carefully at transparency. There are consultants out there that get hired to try and take that apart.
We give clients the ability to audit results. Now, almost every contract has an audit component. We can prove where we save dollars and where we don't. If it makes clients more comfortable, that’s fine with us.
Are consultants becoming more of a threat to your relationships with clients?
They’re talking more about being a threat. We still haven’t seen them a lot on a competitive basis. When we do, we perform well. But there’s no question they’re out there.
They don’t bring that integrated offering to the table, and it’s hard to believe they have the capabilities our media agencies have. The agreements we have with providers go back a long way. We have exclusive rights in some cases. It’s hard to believe the small buying units that they've acquired will have the clout that we have.
One more question, which I’m sure everyone is asking you.
What do you make of his new venture?
I can’t have a conversation without somebody asking me this.
Someone asked me if I was nervous about it. I competed with him when he was running WPP, and I wasn’t that nervous about it. We were outperforming WPP. So I certainly shouldn’t be worried about his new venture. We’ll see what unfolds.
Are challenges at WPP an opportunity for IPG?
Whenever you have that kind of disruption at a company, people get uncomfortable and they're more likely look for employment elsewhere. To the extent that’s true, we obviously view that as an opportunity.
This interview has been edited and condensed.