The Troubled Brahmin

IN the advertising business, where stability is as fleeting as a client's gratitude, change has been particularly rapid in recent years. Yet the men who run J. Walter Thompson, the world's largest agency, have held steadfastly to their time-tested policies. They successfully offered creditable advertising ("Pan Am makes the going great," "There's a Ford in your future"), a rich array of services, and a sturdy sense of security to an impressive roster of blue-chip clients. Today, however, the agency's once imperious elan has been badly shaken.

Last week Thompson disclosed that its third quarter was the worst in memory. Profits fell from $959,000 in the same quarter last year to $70,000. Much of the decrease, agency officials assert, was caused by rising costs and an earnings decline in the company's Puerto Rican insurance subsidiary. But Thompson's profits also dropped in the first half, and at the nine-month mark they totaled $2.8 million, down 37% from a year earlier. Billings in the third quarter, at around $169 million, held about even with a year ago, but for all 1972 they are expected to dip about 2% below the 1971 figure of $778.9 million, on which the agency earned $7.7 million net. Any decline in billings would be Thompson's first since 1940.

Thompson has been drifting into trouble for some time, a victim of bad luck, overconfidence and the relentless forces of change. In the past year and a half the agency has lost $50 million in billings, including such choice accounts as Ford's Pinto and Maverick cars, the domestic advertising for Pan American and Singer and all of Firestone. Thompson has snared about $30 million in new business during this period, so its net loss in billings over the 18 months has been held to about $20 million. Still, disenchanted investors have sent its stock tumbling from a high of 60 in May 1971 to 28 3/8 last week.

The agency is in no imminent danger of losing its preeminence. Its worldwide billings from 56 branches in 25 countries still run about $180 million ahead of those of McCann Erickson, its closest rival. Though Thompson does not have a reputation as a supercreative agency, many of its campaigns, including "The taste people hate twice a day" for Listerine, "I wish I were an Oscar Mayer Wiener," and "Seven-Up, the Uncola" have won respect from both clients and competitors. Why, then, the earnings slide?

One reason is that Thompson has had three changes of management in its flagship New York office in the past four years; the shifts have weakened continuity, which is so important in the ad business, and strained relations with some customers. Also, the attention of top executives has been partly diverted from advertising by financial matters, especially since the agency went public in 1969. Besides insurance, Thompson has moved into truck and car leasing and teaching equipment.

Then, too, there is a strong strain of complacency at Thompson. Says the agency's $150,000-a-year president, Henry M. Schachte: "If we lose an account, the tendency has been to look at us and ask what's wrong. But why not look at the clients and ask what's wrong with them?" This Thompson-knows-best philosophy has irritated clients. Explaining why he pulled part of his account from the agency, Henry Ford II said: "Thompson got to thinking it was part of the Ford Motor Co."

Thompson's managers are also extremely cautious about charting new directions. Chairman Dan Seymour, 58, who earns $176,000 a year, is a natty, silver-haired executive who joined the agency in 1955 as chief of broadcast-time buying. A former radio announcer, he still speaks in the sepulchral tones that he used for Duffy's Tavern and other shows. Seymour is a prudent man who is fond of saying things like "Every breeze is not a wind of change." Despite Thompson's problems, Seymour insists, the agency is "now back on the track."

A La Carte. Yet the agency remains curiously aloof to important new developments. For example, until the late 1960s most ad agencies were paid 15% of what publishers and broadcasters billed advertisers for running their ads. For this fee, the agency gave the client services as diverse as market research, ad creation, media buying, and product and package design; admen sometimes even wrote obituaries of executives of client companies. Now many increasingly sophisticated advertisers have their own research and media departments and no longer want to pay for all these services. Full-service agencies like Batten, Barton, Durstine & Osborn, Ogilvy & Mather, and Grey accommodate clients by providing services individually, or "`a la carte," for negotiated fees.

Thompson, though, still works hard to persuade its clients to take all its services and pay the flat 15% fee. That line has cost it some accounts, including Firestone. Says Firestone's advertising vice president, Allen E. Brubacker: "We already had good research and media departments, and taking these services from Thompson would just be a duplication." One reason for Thompson's insistence on selling the full-service approach is that the agency maintains the most comprehensive--and expensive--range of specialists in the ad business. Its staff of 6,500 includes two full-time psychologists and a cultural anthropologist, as well as 219 vice presidents. For every $1,000,000 in billings, Thompson employs 6.7 people, v. 4.3 for Ogilvy & Mather and 3.2 for Wells, Rich, Greene.

At present Thompson's domestic troubles are partially offset by a rush of business from its long-established overseas branches. Last year these subsidiaries accounted for slightly more than half the company's net income, and this year they are expected to produce more than half the billings. Yet advertisers are becoming more knowing about the costs and uses of advertising. Clients will continue to require a broad range of promotional support, and the need for full-service agencies will not disappear. But even the biggest agency of them all will have to show more flexibility than it has yet demonstrated in responding to clients' wishes. In other words, as No. 1, J. Walter Thompson may have to try harder.

This file is automatically generated by a robot program, so reader's discretion is required.