PepsiCo’s agency wins Coke, Engro’s agency wins Nestle – the conflict shop phenomenon in advertising

WPP winning the Coca-Cola media review, while retaining PepsiCo as a client, is a lesson in how to grow your business amid category exclusivity clauses

When the effects of consolidation, diversification, and globalization began to sweep through the advertising industry and exposed the limitations of the traditional norm of exclusivity, discordant agency-client relations surfaced. And this led to hybrid conflict policies.

One of the best badly kept secrets in Pakistan’s $2 billion media and advertising industry is the open acknowledgment that MNC client requests for category exclusivity requests are to be dealt with by using one holding company over multiple conflict shops, which is separate agency brand created so the holding group can serve multiple advertisers in the same category.

This is exactly how WPP recently won the Coca-Cola media review, with GroupM in Pakistan taking the multinational beverage corporation under its agency brand called Mediacom. For the media executives unaware of the concept of conflict shops, this news came as a shock since the Mindshare media agency under GroupM in Pakistan has been leading media investments for PepsiCo for a number of years.

“We have any and every possible way to ensure that the client confidentiality is maintained at all points of time,” said Naveed Asghar, CEO of GroupM Pakistan. “Having a separate agency, separate teams,  seperate locarions, separate operating models and having rigorous firewalls to ensure absolute confidentiality. For example, in most countries, we do Unilever and P&G together. In Pakistan, we handle competing brands via independent agencies/teams and the testament of that is the fact that we have been successfully working with these clients for decades.” GroupM isn’t alone on this.

Z2C Limited has three of the four largest telecom brands under its portfolio companies: Zong is with Publicis Media affiliate Pak Media Communications (PMC), Mobilink is with Spark affiliate Blitz Advertising, and Telenor is with Starcom & MediaVest affiliate Brainchild Communications Pakistan (BCP). 

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The same group has found a way to serve multiple CPG companies such as P&G, Friesland Campina, Reckitt, Mondelez, and now Nestle. Parked with different media agencies across its portfolio companies, Z2C Limited justifies these competing category clients by giving each a separate agency, agency team, business office, reporting line, and adheres to a range of client-led SOPs around ensuring that data on the activities of one advertiser or brand are not leaked to the account team from the competing category brand.

“The critical feature of hybrid policies is the establishment of distinct organizational units operated separately, but in parallel, while under common control and/or ownership,” wrote Alvin J. Silk, the Lincoln Filene professor emeritus at Harvard University in a paper titled Conflict Policy and Advertising Agency–Client Relations. “Competing accounts/clients can then be served by quasi-independent units, subject to the protection against security breaches afforded by safeguards that serve as organizational and personnel mobility barriers.”

He said that this flexibility facilitates the selective relaxation of the demands of strict exclusivity and fosters the design of customized conflict policies to address the heterogeneity and dynamics of agency and client interests.

Elephants enter the room

On the one hand, most advertisers – be it telco or CPG – will shout from the rooftops that the brands in their portfolio have no equal in the country and are number one, which itself makes the insistence for category exclusivity perplexing, to begin with. If your brand cannot be beaten due to its customer sentiment, customer loyalty, and value for money, what difference does it make if an agency works on both your supposed star brand and the inferior other as you put it?

That may be the topic for another report about how deep down all advertisers in Pakistan know they are peddling commodities that only sell due to penetration pricing rather than the value-based pricing model commonly associated with actual brand builders such as Apple and Tesla. Back to conflict shops.

The absence of this business strategy is reflected in the 2020 media agency rankings from RECMA, where the agency groups that lack a conflict shop are struggling, to put it mildly:

  • OMD affiliated Manhattan shrunk by 48%,
  • Carat affiliated Synergy Dentsu shrunk by 23%,
  • Havas affiliated Media Axis shrunk by 18%,
  • UM affiliated Orient Communications shrunk by 17%

It also doesn’t help that the aforementioned full-service agencies have a track record of working with advertisers that have been suspended by the Pakistan Broadcasters Association (PBA) multiple times due to late payments. 

Given that advertisers, particularly multinationals, tend to request documentation from prospective media agencies to prove they have the financial muscle and liquidity to handle their business, it is often that poor cash flow clients hurt credibility during these bids.

“Marketers can protect themselves from the impact of conflict by making sure that key competitors, those who should not be in the same agency brand, are named in their contract,” said Nadia Shchipitsyna, marketing manager at the ID Comms Group, a consulting firm that helps advertisers through the media review process. “The same document should also specify how a company’s data is managed and protected. Marketers should expect agencies to let them know that they are pitching for business that might be of interest.”

She added that it shouldn’t take an article in the trade press – such as Profit being the first to report that Publicis Media won Nestle in Pakistan – for the client to find out. She said that advertisers need to seek reassurance that they still have priority status or else they may want to rethink their relationship.

“Of course, advertisers also need to work hard to maintain that priority status,” she said. “Even small brands can raise their status at an agency by being good media partners. Building a productive relationship with your media agency is a two-way street and both parties need to work hard to drive business success. Managing conflict well is one key ingredient that both sides increasingly need to get right if they are to have a lasting relationship.”

This is why Adcom Media set up the short-lived digital-first media agency Green Man’s Ark, why IG Square has Mesh Media, and why IAL Saatchi & Saatchi has a close relationship with Digitz, where the companies share the same faces in the board of directors. 

The real issue

The scale and reality of conflict are something that all marketers should consider, planning ahead to make sure it does not have a negative impact. This is independent of the conflicts created when agencies win the bid for events and then sell sponsorship deals for those events regardless of what the Medialogic data suggests. 

“The risks are less about media buying capabilities, although all marketers will want to ensure they are paying competitive rates for media, particularly compared to competitors in traditional media,” said Shchipitsyna. “What really makes a difference when it comes to conflict and will have a dramatic effect on business and the ability to drive growth through media is talent and innovation. Add also, today’s big concern and a key driver of potential growth: data.”

As cautioned by Profitmonths ahead of the global panic around data depreciation – investments towards first-party data are critical for all advertisers around the world and more so in Pakistan where there is only one second-party data marketplace

Given that data will be the most important asset an advertiser has, the first-party data it does acquire needs to be first housed within a customer data platform (CDP) that only advertisers and dedicated agency teams can access. This approach quells the relatively meaningless concerns around conflict shops, placing advertisers back in the driver’s seat.

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