Pitch-ed battle in offing as ad firms unveil new fee plan

A battle between clients and agencies is brewing over a new fee proposal "� pitch fee "� being put forward by the advertising agencies' body, Advertising Agencies Association of India (AAAI).

The reasoning behind the pitch fee "� proposed to be levied on clients "� is that the agencies incur operational costs while preparing speculative campaigns based on the clients' brief.

AAAI has set up a consultative committee to draft guidelines for the new system. The terms of reference for the committee include the punitive action to be taken against non-complying members.

The consultative committee consists of Josy Paul, chairman and national creative director, David, K Ravi, managing director, Pinnacle Advertising, Mahesh Chauhan, president, Everest Integrated Solutions, Nirvik Singh, president, South East Asia, Grey Worldwide, Preet Bedi, president, Rediffusion DYR and Rajeev Ruia, managing director, Overture Communication.

While the panel has been able to elicit responses from agencies, clients are not receptive about paying the fee.

Bharat Patel, chairman, Indian Society of Advertisers (ISA), said, "No industry body should intervene in a deal between an agency and a client. Such bodies are meant for settling payment disputes. Third-party associations, such as AAAI, should not get involved in matters that concern the client and agency. And if they are planning to make the fee mandatory, clients will look for agencies that do not impose this."

However, Rajeev Shukla, head of marketing, Hyundai Motors, is of the opinion that pitch fee is a good system by all means.

"The agencies do have to work a lot for preparing the pitches. So it is fair that they are remunerated for this. However, that the fee should be determined by the ad spends of the client does not make any sense. The fee should be a flat fee or should be based on operational costs."

A section of the clients was of the opinion that a pitch should be considered as the initial investment going in for the purpose of business procurement.

Rajesh Jejurikar, executive vice-president - marketing and sales, Mahindra and Mahindra, said, "Agencies themselves will break away from the structure later on. Pitch fee, essentially, is a business development fee, which should be borne by the agency and not by the client. This is the case in most business-to-business (B2B) sales. Clients are unlikely to accept this."

Saugata Gupta, head of marketing, Marico, seconds, "Any service provider has to pitch for business, agencies are no exception. In any case, I believe they themselves will break this rule. It is to be remembered that clients also should remain stable and have a responsibility of not calling for frequent pitches."

Girish Bapat, head of marketing, LG, says, "The impact of this will be that clients may stay away from mainline and AAAI agencies."

However, AAAI members fear that the mandatory pitch fee may work only for multinational agencies as younger agencies, particularly those with lesser credentials, may be forced to stay away from this system.

The copyright of the ideas and creatives presented at the pitch remains with the agencies, and the clients are not allowed to use then if the agency has not won the bid.

Another issue that is being discussed is that once the information that an agency has reported a pitch becomes public, more agencies are likely to rush to present pitches.

Moreover, in places such as New Delhi and Kolkata, AAAI agencies are often pitted against non-AAAI members, many of whom are active and growing. This could pose trouble for member agencies.

In addition, there are a lot of small and mid-sized agencies, which operate like independents, calling themselves creative hot-shops and still not aligned to any industry body.

It has been pointed out that clients would take a combination of a creative hot-shop or a non-AAAI member agency and a media agency for handling their business. Small and medium-sized creative agencies of AAAI may, therefore, turn out to be the losers.

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FACE-OFF

Pitch fee is to be paid by clients to ad agencies for speculative campaigns they prepare based on the clients' initial brief

Ad firms want the pitch to be considered an initial business investment

Agencies say they incur operational costs while preparing the initial campaigns