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Why Unilever is halving its agencies and investing in strategy

Agency

Why Unilever is halving its agencies and investing in strategy

One agency executive recently said he sees more fear among packaged-goods clients than he’s witnessed since the economy bottomed out in 2008, miring the country in the Great Recession. He blamed pressure from retailers and investors alike.

The massive marketer Unilever has seen plenty of both, having thwarted a proposed acquisition by 3G in February. Now it’s trying to make its own operations more efficient, starting by combining two global marketing organizations into one. And Chief Marketing and Communications Officer Keith Weed is equally keen on eliminating waste at agencies.

“We should get the best price for our consumers,” he said in an interview last week in Cannes. “And if that means rooting out inefficiencies in someone else’s business, I will do it.”

Here’s some more of what Weed had to say, lightly edited for clarity and flow.

How — and why — do you go about developing in-house production?

Our studios are located with the marketers, so there’s a proximity. We also position them with our centers where we scrape off the social-media data, so we get more data-driven and can modify and respond in real time. So there’s a time and agility benefit. But they are of course much cheaper. To me it’s part of an overall mix that’s a modern way of marketing.

But you still work with creative agencies.

Absolutely we still work with creative agencies – WPPs, Omnicoms, Interpublics, Publicis of this world. But the combination of the two are working well for us. We also have U Entertainment where we’re looking at creating our own content.

And at the same time you’re also going to make fewer ads?

We also created a tool to appraise wear-out [when ads become overly familiar to consumers] and wear-in. We were only wearing out 1% of our ads, and weren’t wearing in 60% of our ads. So we’ve cut the number of ads we’re making by 30%, keeping our brand marketing investment, but within that cutting what we spend on production and agency fees.

Meaning, fewer agencies.

We had too many agencies – 3,000. We are halving the number of agencies we work with and investing more with our strategic agencies. We’ll still be working with locally relevant agencies — that mobile specialist in Jakarta — but that group in the middle didn’t offer any differentiation. It will save time, but also means we can negotiate better, more complex agreements with fewer agencies.

How are you handling compensation?

We’re structured more around results rather than fees. So we’ve created a grid of saying for this type of asset, this is the sort of money we believe we should spend. When we did the review across agencies, the difference in pricing was considerable.

So it’s value-based, but with performance incentives?

Yes.

Has the media transparency issue been solved, then?

There’s never been such a time when you more need an independent professionally run media department. And certainly there are multiple ways we audit people we work with. There are over 20 measures we go through to make sure we get the right transparency. I can absolutely understand there may be others who don’t have the right leverage or the right skill sets. It is buyer beware. There are a lot of snake oil salesmen.

Like whom?

Programmatic is a perfect way to lose that control. I think we were quite lucky to set up an independent programmatic trading desk within Mindshare and WPP. We have complete visibility into what’s going on.

With hard discounters spreading to the U.S. and the growth of Amazon, isn’t it just inevitable that pricing pressure continues and you have to pass that down to agencies?

It’s really important to build strong and robust brands, and that will give you pricing power. The fact that we have the No. 1 or 2 brands in categories we compete in shows we have strong brands. I absolutely believe weaker brands will succumb to the pressure. I would argue in some ways it’s good for the advertising industry, because it means more brands will be investing more money to build stronger brands.

Sounds like there’s a ‘but’ in there.

Having said that, there will always be all kinds of dynamics in the industry around efficiencies, and there will always be downward pressure. And why should the consumer pay more for inefficiency? We should get the best price for our consumers. And if that means rooting out inefficiencies in someone else’s business, I will do it.

 This article originally appeared on AdAge.com

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