Ad Agency Discounts May Hurt Long-term Image

A July 13 article in Advertising Age discusses how some ad agencies are getting creative to land new business. According to the article, which is titled “Shops Give Away the Shop as Recession Buster,” a number of agencies are offering big discounts on their rates or even free work.

One promotion that particularly caught my eye was the Brainstorm Group in Toronto, which ran a full-page ad of a coupon offering new clients a discount of $40,000 on a $250,000 retainer.

The agency had a spike of 1,600 Web site hits the day it ran the coupon and was invited to participate in five new business pitches. No takers, however, on the coupon.

I’m all for creative ideas, but I can’t help but wonder what the long-term effect will be for agencies that use such tactics. Whatever happened to emphasizing value rather than positioning oneself as the Wal-Mart of adverting agencies?

Besides, there are some things that just don’t seem appropriate for discounts. For example, in recent years I’ve seen ads from LASIK eye surgeons offering reduced fees for a limited time. I don’t know about other people, but if someone is going to be doing surgery on my eyes, I’m far more interested in getting the most competent doctor than in getting the cheapest one.

While ad agencies that offer discounts for new business may have some short-term gain, the damage to their image will, I believe, be hard to shake. Of course, if an agency needs business now to survive, the long-term isn’t the most pressing concern. But for those agencies that intend to grow rather than just survive, discounting services now may end up having a higher price tag later.

If a retainer was worth $250,000 a year ago, it ought to be worth that today.

For clients who can’t afford to pay as much as in the past, the better approach is to reduce value (i.e. agency time spent on the account) commensurate with the reduced fee.

Don Beehler provides public relations consulting services to small- and medium-sized advertising agencies and businesses.

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