The consolidation scam

It was big news last week that Johnson and Johnson is looking to consolidate its pharmaceutical brands with one or two agency holding companies.

Bad news for independent agencies. And probably for J&J brands, too.

Holding companies are to advertising what HMOs are to medicine: high-volume, low-quality, low cost deals. Within any HMO are some fantastic doctors. But the HMO concept is all about pretending there’s no difference between the worst and the best, and removing individual choice. Same goes with holding companies. Some of the greatest agency brands live within holding companies. But so do some of the worst.

I doubt that J&J’s top marketers use an HMO for their health needs; chances are they like to pick their own doctors. But for their brands… well, that seems to another story. Which doesn’t say a lot for how well agencies are differentiating themselves from one another.

Consolidating pitches with one holding company is like assuming that the all-in-one stereo system has the best speakers, best tuner, best amplifier, etc. Any audiophile can tell you that’s impossible.

Instead, consolidation is exactly one thing: a cost-cutting strategy.

I remember being at a pitch a few years back when a venerable holding company CEO told the prospective clients that his firm picked “best-of-breed” units in each key communications discipline to create his network. Even assuming that the best was available for acquisition—that is, hadn’t been snapped up first by a rival, or preferred the independent life, or wanted too much money—the joke is that half of the units he was referring to were conflicted out of contention anyway. And the client would have found out eventually had the agency won the pitch.

The holding that did win was the one who played “Let’s Make A Deal” the best. One contract, one rate, savings tiers for volume discounts. Whether quality entered into the competition or not, quantity won the day.

As for the other justification bandied about with consolidation schemes—the idea that holding company agencies work better together—I’ve heard it since the late 1970s, when Y&R was touting its “Whole Egg” of integrated agencies. I have yet to see it work seamlessly. Perhaps my exposure has been limited. Still, I enjoyed a column Phil Johnson wrote for Ad Age’s Small Agency Diary this past June 24. In it, he wrote,

"The big guys love to describe their access to infinite resources just a phone call away. Need a PR agency? No problem. Ditto for interactive, direct, media and events. Just remember, it's not true. All those businesses are separate profit centers competing for dollars. They are in competition with each other and find it hard to collaborate. If you've got the budget, you can access those resources just as easily as an agency in the network. As the VP of marketing for a Fortune 50 company told me candidly, the networks talk a great game, but no one has really figured out how to truly integrate their services.

Think about culture. You don't get to be that big without a group of people who know how to jockey for position and play insider politics. That environment produces a lot of snarky people. And who wants to work with snarky people? A technology client told me that one of the big New York agencies we pitched against brought a team of people, some of whom had never met before, and they were outwardly competitive with each other." (http://adage.com/smallagency/post?article_id=127956)

Let’s hope J&J reconsiders its thinking. In an unconsolidated model, each agency in a holding company still gets its fair chance to pitch, so they’ve got nothing to lose except the opportunity to play bully to the independents. And each client gets to choose from a broader palette. So if a brand needs quality, they can find it. The same for low cost.

And as agency people, let’s all work a lot harder on differentiating ourselves. We brand their products wonderfully. Why should it be so hard to brand ourselves?

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