All right, Class, settle down. Here is the key question on your final exam in Advertising 101:
What is the single most important contractual factor in assuring, from the agency’s point of view, that a satisfactory agency/client relationship will exist?
No, it’s not the “duration of the contract”.
It’s not the “stipulations” of responsibilities.
It’s not the “exclusivity” of agency service.
It’s THE FEE.
Of course, you knew that all along. So did Steve Baker & Jack Byrne, two very bright ad men with reputations as long as Steve’s arms.
And, when, in 1965, they merged Baker & Byrne with Mogul Williams & Saylor to form the illustrious Mogul Baker Byrne Weiss, Inc., this much larger agency had placed its operations and fiduciary success in their experienced hands.
Which is simply to set up the following:
Before we had completed our merger, Steve Baker had told me of a man he had met who wanted to talk to us about doing his advertising. Steve was quite vague about what “his advertising” was or even who the company was, but he was very enthused about “the money we could make”. He barely remembered his name, Bob Hague.
So, we had the gentlemen up one morning at Baker & Byrne. As soon as he arrived at our penthouse offices and our secretary, Rita Kasky, took his coat, he instructed her to order up a “platter of eggs, virginia ham, hash browns, coffee, juice, an English muffin, and to tell them “I want it on a dish, not on cardboard.” Then, graciously, he asked his hosts if we wanted anything.
I took an instant disliking to the man. Especially when the food came and Rita paid the bill and when he finally reached into his pocket it was for a cigar to smoke after breakfast. Steve sure knows people, I said to myself. We had already experienced a guy like this, who hit us for breakfast three days straight before we realized he was doing the same all around town.
I was very cool, very detached, and not the least bit impressed by Mr. Hague’s strange story of a promotional idea he had come up with that had Rexall Drug Company behind it and he was signing up big food companies like Lever Brothers, Quaker Oats, American Tobacco, and tying in the trading stamp majors like S&H. It was a coupon program called Bonus Gifts.
The program sounded great, but I didn’t believe for a minute that he controlled borscht. I had deep suspicions that he was a con man who would try to get us to fund him and then he would help us get the Rexall account which I was sure he barely knew – if he knew Rexall at all.
My “Antennae” were raised to the sky, looking for the scam at this meeting and the two further ones. For one thing, the only body to appear before us was that of Mr. Hague, assuring us that he “controlled” the Bonus Gifts advertising by “contract” with Rexall and he was the only one we had to talk with. That did not sound like the Big Business operations I had met.
You bet I smelled a rat.
Meanwhile, Steve in his simple Hungarian manner, chastised me for my rather abrupt attitude with Mr. Hague and for my lack of enthusiasm for the project. This could be our big breakthrough into the Major Food Account category, he kept telling me.
Mr. Hague wanted to have another meeting to discuss the final terms of contract, but we had to put him off as we now were physically going through our merger with Mogul Williams & Saylor.
I thought great, let the new company pay for Hague’s ham and eggs. Or better, perhaps I could have one of our new partners share Steve’s meetings with the hot shot. Hague was too vague was a Byrne concern.
Hague finally got his appointment with us at Mogul Baker Byrne Weiss our new, and far larger, advertising company. I agreed to attend the meeting reluctantly (though a bit short of … “over my dead body.”)
Bob opened the meeting by saying how he wondered if, seeing our handsome new and very large facilities, if his account would be of interest to us. The program was only going into a test market phase for at least two years. (I thought, Aha!, what’d I tell’ya).
He realized we were very top guys and going very far and, though he had already “talked us up” with his associates at Rexall (as a courtesy to them) he would not be offended if we should turn him down.
“What are we talking about here, Bob?”, Steve replied, “We want to help you all we can.” Steve was very solicitous, but you could hear the beginnings of his concern that what I had been saying all along was true – that this thing was going nowhere.
My smile as I tried to show agreement with Steve’s concern was more a smirk. I hope you choke on your next Ham and Hague, I mused.
“We’re talking about 300 thousand, Steve” Bob continued,” I know that’s not any great shakes, but it could grow to a pretty big account, I mean if the test market’s succeed.”
I looked at Steve. He looked at me. We both looked at our note pads where we both had automatically went through the 15% commission for the year divided by 12 months and came up with $45,000 and $3,750.
The business runs monthly. What happens 6 months later on a new venture is never assured. So it was automatic to take 15% of a number and divide it roughly by 12 before agreeing to any final terms.
I was not unimpressed. It could be an opportunity. Bonus Gifts included some big grocery names on its roster. I had begun to believe that there really was a Rexall and that there were some major companies participating. But, only a few had actually signed anything and only one was working on marketing material – American Tobacco Company.
But the big question was, “Where’s the Beat?” Hague had not shown us a single piece of paper or letterhead or anything verifying that he had any rights to this account. What was he up to geting from us? I decided this was the time to call his bluff.
“Bob. Are we in a contractual meeting or fishing expedition? Are you expecting us to agree to what you’re talking about or is this just some preliminary negotiation, to find out where we stand?”
“Good question, Jack. The answer is, this is it. I’d like to walk away from here with a contract with you guys, signed, sealed and done…so that we can get on with the business of preparing some presentation materials to sell this deal to the manufacturers.”
“Good!” said Steve. “We want to get started, too.”
He looked at me in a way that said, “don’t fuck up my deal my little hot head partner!” I knew he was thinking, “$3,600 a month new business in our first week will impress our new partners.”
“OK, assuming we come to an agreement and we sign here…who has to sign at Rexall?” I figured let’s flush this guy out.
“Just me, Jack.” He said fishing in his pocket. I thought, “not another cigar”. But, it wasn’t. It was a few sheets of legal-sized paper stapled together and shopworn. He handed it to me.
“So I brought this to attach to the agreement if you wish. It verifies my authority to deal solely for Rexall in this matter.”
Shit. He had the business locked up like a Georgia prison.
A quick scan showed Bob had 10-years of absolute, irrevocable control of all advertising and promotion ever spent on Bonus Gifts Coupons, its spin offs or successors. And, it was on Rexall letterhead and it was signed by three company dignitaries, including its president, Justin Dart.
I sat up in my chair, cleared my throat and my suspicions and said, “This will do fine, Bob.”
“But, back to the point I was making.” Concern rose in his face again, “Can you guys handle it for 300?”
Steve looked down at his sheet again, giving the proper presidential deliberation…”Bob, we’re willing to sacrifice up front…”
I thought to myself, didn’t he just say for 300?
“You see,” Bob continued over Steve, “we’ll be running 10% of the nation in test at 2 but when we go national…”
SHIT! He’s talking 2 million! He’s talking $300,000 FEE! I tried to give some kind of warning to Steve so that he would not talk about $45,000 being plenty for us…He wasn’t looking my way.
“No, it’s all right, Bob,” said Steve. Not listening to a word Bob was saying. “I can’t speak for Jack but I am the President..” he went on warming the room with a benign and winning grin. “We’ll be pleased to work with you…and let the future take care of making any real money.”
I breathed easier.
“As a matter of fact,” Steve continued, “We have plenty of accounts…”
“… In the two to three hundred thousand dollar FEE range.” I almost shouted as I interrupted him. “You’re spending $2 million in test, Bob. I assume your national budget is projected at $20 million?”
Steve’s face was blank. The benign smile was still there but he sensed, once again, that something was going over his head. He wasn’t sure. But, from previous experience with our partnership, he had learned there is a time one says nothing, if one is Steve.
“Twenty seven five, Jack” Bob answered. “And, I tell you we really have a good run at it and Rexall has committed funds for two years of testing to give the program its best shot.”
Steve, somewhat confused, thought better of talking and went to the bathroom.
I suggested that Bob and I go to my office work out the specifics of the agreement which I would have my secretary type up at which time we would get Steve to sign with Bob.
As Bob waited in my office, I left to “tap a kidney”.
Steve was there. “What were you shouting all up about?”
“Not $300 thousand billing, Steve. $300 thousand annual fee! Not $3,500 a month Steve. $25,000 a month! Starting today.”
“Yeah, that’s better”, Steve replied. “He’s a nice guy, huh?”
“He’s a sweetheart, Steve, ” I agreed. Mr. Hague had just increased our new agency’s income by some 15%.
I returned to my office and bummed a cigar from my good friend, Bob.
We lit up and wrote the deal.
Now, you see how it’s done.