At the beginning of this year, when PepsiCo CEO Indra Nooyi approved a $500 - $600 million boost to the company's ad budgets, the news should have been greeted with joy by the ad agencies handling the company's various brands: It's a rare day when a client adds half a billion dollars in spending at the stroke of a pen.
But a source tells us that the extra media muscle is withering as PepsiCo's procurement executives — who are tasked with ensuring the company gets value for its ad dollars — stamp out spending that already received the approval of the managers in charge of the brands.
Pepsi has the campaign approval process backwards, our source tells us. Brand managers negotiate with their agencies for a project or a campaign, and agree a fee based on the scope of the work. Then, executives from PepsiCo's procurement come in and cut the fee — leaving the agency fuming and the brand manager unable to get the work done, our source says.
That spend went behind 12 brands — including Pepsi, Diet Pepsi and Gatorade — not the entire portfolio. Which means that not al brands, and therfore not all agencies, got the benefit of the largesse.
Naturally, some people close to PepsiCo aren't happy about that: The situation at PepsiCo is currently "atrocious," this source says. He declined to speak on the record because he attends meetings with PepsiCo's brand managers, procurement staff, and the agency people who must do the work.
The situation at PepsiCo is exacerbated by the fact that, since 2008, 28 senior brand managers have left the company, not counting innumerable internal switches. With brand management weakened by the churn, advertising has become "a completely procurement-driven thing. They rake you over the coals, they cut you down to the bone," our source says.
I put it to the source that PepsiCo had every right to examine agency fees, and that this kind of budget scrutiny isn't new in the business and shouldn't be surprising.
The source agreed, and said he had no problem with procurement scrutiny in principle. But, he added, the balance had tipped too far in procurement's favor. "It's worse now than ever," the source insisted. "We know their behavior is much worse. There's no alignment between the brand group and procurement."
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