Reckitt Benckiser wants advertising agencies to pay for the privilege of making a pitch. Will the agencies fall in line?

The Advertising Agencies Association of India (AAAI) recently reacted to the outrage among advertising agencies over Reckitt Benckiser (India) Limited trying to change the rules of the business to make agencies more accountable.

Reckitt Benckiser, a multinational household and personal care products company with big-budget brands such as Cherry Blossom, Dettol, Harpic, Clearsil, Lizol, Mortein, Strepsils, Vanish, Veet, etc, had called for a fresh pitch for its business from advertising agencies, but with a big catch.

It wanted agencies to pay for the privilege of making a pitch. According to Exchange4Media.com, which tracks the advertising business very closely, this amount may have been as high as Rs3 lakh-Rs4 lakh. The irony of this demand is that it has come at a time when the industry is debating aloud whether it ought to charge clients for making a pitch, because they are giving away creative ideas for free. In fact, Raj Nayak, formerly of NDTV Media, had raised this question while moderating an industry seminar earlier this month.

The immediate reaction to its move was howls of protest. Some called it ridiculous, others wanted agencies to "unite and fight" the move. Some said that it will only lead to cost-cutting without improved efficiency, and so on. At the same time, nobody is willing to bet on who will blink first. After all, Reckitt has one of the biggest advertising budgets in the country and spends as much as 14% of total turnover on advertising.  Dettol, its flagship brand, alone fetches Rs1,000 crore and accounts for 25% of the company's turnover. Significantly, competition in all its product categories is intense and Reckitt is working hard to contain cost pressures and increase sales through innovation such as smaller unit prices instead of cost cuts. Obviously, in Reckitt's case, the large advertising budget is bound to be one of the many big-ticket items that would be under management scrutiny for possible cost-cutting or wringing out more value.

Clearly, clients are in the driver's seat and both media and advertising will end up falling in line. So, while AAAI may have advised agencies not to pitch for the Reckitt Benckiser business, not everybody agrees with its stance. The blunt speaking Meenakshi Madhvani, founder and managing partner of Spatial Access Private Limited, says, "Smart clients have realised that agencies make huge incomes from media owners in the form of volume discounts and rebates.

The valid point is-why should the advertiser pay if the media is paying extra commissions? Therefore, in my view, hats off to Reckitt. They have brought into the open an issue that agencies and advertisers together shy away from acknowledging." Ms Madhvani should know-her firm specialises in helping companies evaluate their media investments and get more bang for their marketing and advertising buck.

Interestingly, behind the public outrage at advertising summits and on blogs, Reckitt Benckiser's strategy is not without supporters. One insider says, "Frankly, if agencies can expect a bonus for over-deliveries of targets, then surely the clients should seek a compensation for under-delivery on promises?"

So, what exactly had Reckitt Benckiser asked for? Apparently, the company is not talking. But Exchange4Media reports that it wants commitment rates (per rating point). For the first 12 months, it wants the agency to pay Reckitt Benckiser a commission, because association with it would increase volumes significantly.

Advertising stalwarts wryly admit that competition is so intense that some agency is bound to find it worthwhile to agree to Reckitt's terms. And then, it is only a matter of time before all major advertisers in the auto, durable, personal care and food space demand similar terms.

When asked, Archna Vyas, media relations executive of Reckitt Benckiser, said, "We are aware of the questions raised and believe that they are ill-conceived and the fears are incorrect."