Might free-pitching be really a red herring?

Jeremy Haines asks if free-pitching hides a bigger issue of falling margins, while Ian Cochrane offers his verdict on the dilemmas consultancies face

The free-pitching bone has been dug up for its annual gnawing following last month’s debate at the Packaging Solutions Advice Group. Likely as not, it will be carefully reburied soon enough so consultancies can pursue such briefs with a clear conscience.

But, among all the gnashing of teeth, what appears to have been missed is the fact that free-pitching is only the tip of an iceberg – namely, the wider erosion of margins in design. In real terms, fees and hourly rates have been in decline for a number of years. The free-pitch is simply the most visible manifestation of the trend.

One reason for this is that in design, unlike most marketing services, there appears to be no widely recognised rate for a given piece of work. Of course, there should be some flexibility in negotiating with clients, but the sheer scale of disparity between what different organisations expect to pay can be jaw-dropping.

Last year, our consultancy talked to two world-famous, highly successful cosmetics companies: one was comfortable paying £150 000 to move from initial design development to a finished concept, the other expected to pay £500 – oh yes – including artwork.

Design consultancies frequently complain that their work is undervalued. As in most industries, however, value is established not by the sum total of happiness that accrues or even a client’s return on investment, but by precedent. In other words, by how much someone else is prepared to do it for.

It’s no coincidence that the gradual erosion of profitability in design has been mirrored by the sector’s continued fragmentation. With the exception of the mega marketing services groups, the design industry is undoubtedly more cottage-like than it was 15 years ago. Ironically, some clients still find it hard to differentiate between groups. Given the esteem UK designers are held in abroad and the vibrancy of the sector, the emergence of a number of large international groups might have been expected. But this has not been the case – certainly in comparison with our cousins in advertising.

Needless to say, a fragmented industry will find it difficult to fight its corner or to point to best practice, especially while organisations such as the Design Business Association struggle to establish common standards over even the most basic issues.

Many large clients are introducing procurement strategies, which may spell trouble for inexperienced negotiators. Mark-up on bought-in supplies has been a traditional source of profit for consultancies, but it is becoming a major focus of scrutiny. Another area being nibbled away is artwork, which is often taken in-house or handed to preferred repro suppliers.

This all places greater onus on fees to remain the backbone of consultancy profits. The sad news is that most clients now believe design can be carried out much more quickly – and cheaper – than in the past. Financial managers within design need to be astute enough to gauge the most lucrative facets of their business. Industry analysts regularly highlight the inevitable consequence of static fee values and escalating wage bills, which would suggest that tight cost control is not a strength. Indeed, the pattern of the past points not to improvements in commercial management, or even mergers, but to yet more start-ups.

To a large extent, the current problems confronting our industry have been brought on by the arrival of technology. Instead of being a platform for adding value, digital design has blurred the distinction between good and bad creative work. Placing design capability in the hands of many more people has tended to commoditise their skills rather than creating a premium for them. As a result, designers are generally working harder for less. But it would be wrong to blame the Apple Mac for this malaise. Underlying these working practices are the inclinations of designers themselves.

For all the knockabout style of the PSAG debate, you cannot refute its advocacy of a more commercial approach. Massive consolidation in the industry is a far from flippant suggestion – it may presage a beneficial shift in attitude.

Traditionally, designers are fiercely defensive of their individuality. Strange, given we are seen by outsiders as a fairly homogenous bunch. Nevertheless, this is why we have been slow to form larger groups and why we have more in common with rock bands than ad agencies – with all the tiffs and splits that the parallel implies.

We need larger, more influential consultancies – or perhaps better professional representation – to provide the stability and clout our industry so badly needs.

Ticegroup management consultant Ian Cochrane comments:

‘There seems little point in focusing on things we can’t influence: the design industry will always be fragmented due to the very nature of design; technology advances will continue to drive consumer prices down; clients will continue to use procurement people to get the best deal; the scope for making money on ‘bought-ins’ is declining, and there will always be consultancies that pitch for free.

Design is no different in these respects to many other people-based sectors. However, it’s entirely feasible for design consultancies to build their own brands and so differentiate themselves from other consultancies. Making good margins on fees is about two things: selling ideas rather than implementation, and selling value rather than cost.’

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