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Brutal Blow to Agency Job Numbers

By: Dwayne W. Waite Jr.

At the start of a new year, big businesses take that time to look at their budgets and line items to see what they think will make them more efficient and streamlined. Others look to change up relationships, and look to see if adding a new spark will be the winning formula. Unfortunately for the agency world, big news about such changes came this week.

First, Goodby, Silverstein & Partners (GS&P) has reportedly laid off at least 100 people at its San Francisco office, which would account for close to 14% of its staff. GS&P lost its relationship with Sprint, who came to them only four years ago and was one of the agency's flagship clients. The phone company has moved its activities to a Publicis Groups–dedicated agency that will be led by Digitas. But this is the second punch in the gut to GS&P; one month earlier, it resigned the rest of its HP business...business that it had for 16 years.

Next, PepsiCo has announced that it is going to get more aggressive with its advertising and marketing activities, but it is not bringing along a couple of folks and agencies to the party. PepsiCo plans to increase its spending by $500 to $600 million and focus more on its flagship cola and chips brands. But the company wants to add some room. PepsiCo announced that it is cutting 8,700 jobs, or 3% of its workforce, across the board. The move alone will save the company about $1.5 billion by 2014. But don't think it is going to leave the agency rosters intact. The company plans to reduce its agency roster by nearly half, even though it already reduced the agency roster in North America from 150 to 50. The CEO, Indra Nooyi, also remarked that with the agencies they have on board, they will implement a pay-for-performance model to entice agencies that want to work with PepsiCo.

What does this mean? It's hard to say. With PepsiCo, maybe the consumer-generated Super Bowl ads (Doritos is a Frito-Lay brand, which is owned by PepsiCo) have gone to its head. It is possible that those ads are much cheaper than retaining several agencies that seem, as Nooyi put it, "non-working." It would be interesting to see how the shops were separated, for before the company cuts its agency ties, it has 300 shops for 400 brands. After the cuts, it will have 150 agencies for 400 brands, basically doubling the work. It should be noted that if some agencies were outperforming the others, then it is nice to see PepsiCo rewarding the ones that were successful by giving more work. If the agencies that are being let go didn't perform, then it is simple economics that the best team won. But then to award more work to agencies, and then switch the reward model to pay-for-performance? It will be interesting how those 150 shops react.

As for GS&P, losing two staple accounts in a matter of months is a stretch no shop wants to have on its record. But, as mentioned above, as long as GS&P can perform better than other shops, it will find clients to plug the holes and stop the bleeding. Maybe changing its logo was bad luck.

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About the Author

Dwayne W. Waite Jr. is partner and principal at JDW: The Charlotte Agency, a marketing and advertising shop in Charlotte, NC. He enjoys consumer behavior, economics, and football.

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