Few advertisers lift the lid on the pitch process, but Walgreens Boots Alliance said its $600 million (£450 million) integrated marketing and communications review, conducted in the middle of COVID-19 and won by WPP, has created a client-agency model that is “genuinely revolutionary” in several ways.
Putting customer data and loyalty at the center of the model, an “open-source” approach to technology to create “a unique tech stack” and a shared approach to co-skilling and co-locating client and agency staff were all part of the winning solution.
WBA and WPP also agreed to a large element of “outcomes-based” remuneration and a single profit-and-loss (P&L) account across all the agency disciplines, including creative, media and public relations.
In a joint interview, WBA global CMO Vineet Mehra and global chief communications officer Aaron Radelet sat down with Mark Read, CEO of WPP, to explain to Campaign why this pitch broke new ground and can be an example to the wider ad industry.
WBA, the owner of pharmacy chains Walgreens in the U.S. and Boots in the U.K., has used WPP since 2017 but both companies insisted the six-month review, which ended in October, was anything but a straight retention.
“The one thing we don’t want is the outside world to just think this is the rehiring” of the holding company, Mehra said. “What we’re doing is almost relaunching the partnership again.”
Read said WPP changed about eight of the 10 most senior agency leaders who worked on WBA during the review process, which resulted in the holding company beating Publicis Groupe in the final round after Omnicom dropped out at an earlier stage.
Read said: “In some ways, this is probably the most important pitch since I became CEO, because it has really tested every part of WPP – our creative capability, our data and technology strategy, what we’re doing in public relations and the ability to bring marketing and communications together, as well as the ability to deliver a client on a shared [financial] commitment to revenue growth.
“It’s been very important to us to demonstrate the value of an integrated approach with creativity and data and technology at its heart," he added.
There is one caveat: WBA has appointed WPP for a relatively short period – only two years, until 2022, with a potential two-year extension until 2024.
Why launch a review in the middle of COVID-19?
Retail was changing before coronavirus, and WBA wanted to take a more data-driven, personalized approach in the face of growing competition from online rivals, including Amazon.
WBA is turning its brands into “customer platforms rather than straight retailers," Mehra said.
And by leveraging those customer platforms, “we can offer the customer many things – whether it be services or products or health and wellness messages," he explained.
What’s more, COVID-19 has been “a massive accelerant” for WBA’s “digital transformation agenda” as consumers embraced ecommerce, and sales in physical stores suffered, particularly at Boots, because of the lockdowns.
WBA’s annual sales rose 2% to almost $140 billion but net income fell 74% to $1.3 billion in the year to August because of restructuring, cost-cutting and the pandemic.
All of that underlined the importance of WBA changing its marketing and communications, so that it would be ready to emerge as a “new company” by the time coronavirus came under control and vaccines came on-stream.
Mehra and Radelet (pictured above) had an additional reason to run the pitch because they joined WBA in 2019 and were not involved in the previous review in 2017, when the pharmacy giant first consolidated all of its agency relationships with a single holding company.
The 2020 review did require some “efficiencies and savings," Read admitted, “but it was very much driven by a desire to take advantage of all the new technologies in marketing."
Data, loyalty and mass personalization
WBA’s shift to a customer platform strategy is based heavily on the use of first-party data, chiefly from its 100 million-strong customer loyalty program across the Walgreens and Boots brands.
The big idea is that WBA will be able to improve customer loyalty and increase sales through mass personalization.
Investing in first-party data is essential because “we are preparing ourselves for a cookie-less world," which will make it more difficult to target consumers on third-party websites and platforms, Mehra explained.
Two years ago, 30% of WBA’s media was powered by first-party data. Now it is 60% and the aim is for it to be 80% within a few years, he said.
It is all part of WBA’s ambition to build “a world-class, identity-based technology engine to do personalization at a scale that’s never been done before” and create “new experiences” for consumers in some of the most personal categories such as health, well being and beauty.
WBA didn’t carry out the holding company review in isolation. The pharmacy giant agreed to technology deals with Adobe and Microsoft in the summer and was looking for an agency group that could work with those tech partners.
“It required pretty much a brand-new model” from both the client and agency, Mehra said.
Or, as Read put it: “WBA is a company that is in transformation, as is WPP, and from our perspective, this review pushed both our companies. Part of what Vineet was pushing us to do was to transform, and we have transformed as part of this.”
That’s ultimately because the nature of marketing and customer loyalty are changing as legacy physical retailers such as WBA need to adapt to a digital world.
Mehra said: “Loyalty is going from transactional – ‘How many clicks can I get from a coupon?' – to more ‘How can I build deep relationships with customers over a prolonged period of time and really build the most love for my brand and also the most economic value of this relationship that I can?’”
In the case of Walgreens, it changed its U.S. loyalty scheme in November so that “it now requires digital engagement to even receive the coupons and the offers," he pointed out.
That paves the way for WBA to start offering services such as telehealth appointments, vaccinations and locally relevant health information.
“That's not promotions, it's a service,” Mehra said.
One agency team – not a collection of agencies
Three years ago, WBA appointed a collection of agencies from across WPP. This time, the client emphasised that it wanted more of a “one-team approach” to talent and remuneration and “how we all have to be wearing the same jersey across WPP and WBA," Radelet said.
Read and the other members of the WPP pitch team responded on a video call early on in the process by all wearing the same tie-dye shirts and they sent the same “jersey” shirts to their WBA counterparts.
WPP made significant changes to the make up of its agency teams and their capabilities, something that Read's lieutenants did last year to retain and expand Centrica’s integrated business and L’Oréal’s U.K. and Ireland media account.
“While we were the incumbent, we probably changed eight out of the 10 people working on the business between starting the review and the end of the review,” Read said of WBA. “It’s really a new team of people.
“We’ve embraced a model which is much more agile, much more data- and technology-driven, much more on-site, with greater proximity to WBA as a client, and with much more ambition, both from a creative perspective and a personalisation perspective, than a model that was set up more in an era when it was focused on cost and efficiency," he said.
Mehra added: “We have really pushed around this idea of a singular P&L, one sort of [team] badge [across WPP’s agencies]. We are obviously drawing on the best of WPP, which is the largest holding company in the world and, by definition, have the biggest resources in the world to help us with our mission.”
That commitment to a “one-team approach” meant that Read declined to identify which agencies are working on the account.
“We’re really creating a dedicated agency for WBA, drawing people from existing teams but largely from new teams, and they have access to the full resources of WPP, so it’s not really an agency-specific model in that sense,” he said.
Previously, when the result of the pitch was announced in October, Campaign reported that marketing talent will come from VMLY&R, MediaCom, Berlin Cameron, Hogarth, Essence and Wunderman Thompson, and communications resources from Ogilvy, Hill+Knowlton Strategies, BCW and Finsbury. MediaLink advised WBA on the process.
'An open-source' approach to technology
Data is at the center of WBA’s new marketing and communications model, and WPP offered what Mehra called an “open-source” approach that is “genuinely revolutionary” and “pretty unique."
It made sense for WBA, because the pharmacy giant already has data from its own 100 million-strong customer loyalty operation and various technology partners, including Adobe, Microsoft and Epsilon, the data arm of Publicis Groupe.
Mehra said: “What WPP is bringing to the table is much more of an open-source model where we are essentially custom- and co-creating an identity graph of our customers that takes all of the signals that we have of our customers, combined with the third-party matching signals that WPP has of our customers as well.”
WBA and WPP will “co-create an entirely new technology stack that connects our Adobe and Microsoft solution in an engine room that can be operationalized by WPP on our behalf," he added.
To manage the data, WBA and WPP will develop virtual “clean identity rooms," where “both companies can work together to activate personalization at scale," which is a growing industry trend, according to Mehra.
He predicted that building this new set-up will be the “hardest” challenge facing the new WBA-WPP partnership over the next three to six months.
“This technology doesn’t exist – not to do it at this scale, with a holding company and multiple businesses,” Mehra said.
Read stressed the importance of WPP being “agnostic” about data and technology, so that it can take a “collaborative approach” with the client’s technology partners, and “really helping to build something strong and specific for WBA."
He added: “WBA is one of the first companies to put a real emphasis systematically on activating first-party data in its marketing, which I think we’re going to see increasingly in our industry as companies figure out how to gain competitive advantage against the walled gardens and Amazon.
“Its biggest asset is how well it knows its customers and it can activate that not just in its own channels but also out into paid media through the work that we do," Read said.
Outcome-based remuneration to drive growth
WBA used the review to align agency incentives much more closely with those of the client and WPP agreed to “a very outcomes-based contract," Mehra said. “This is probably the most outcome-based RFP arrangement that I’ve seen in my career.”
Part of the WBA’s thinking is that mass personalization strategy can drive sales.
“Mass personalization is not a marketing concept, it’s a growth concept,” he explained. “That’s really the job of a CMO, and a holding company relationship, is to drive growth.”
Read added: “We’ll benefit if WBA grows, particularly grows its revenues. It is well balanced between delivering revenue growth and efficiency.”
WBA has already credited mass personalization marketing for a 1.4% increase in sales at its U.S. retail business in the last quarter.
The potential upside is significant, given that Walgreens’ U.S. operation had $108 billion in sales in the last financial year.
WBA’s marketing and communications teams have committed to generate “many billions of dollars of growth” over the next few years and “the incentives of this contract are very much based on delivery of that revenue, based on our mass personalization strategy," Mehra said.
“I’ve negotiated billions of dollars of contracts and this one is pushing the needle further than I ever had before and speaks to where the industry is going," he said.
Ultimately, it’s about making marketing more measurable and accountable in the boardroom.
Mehra cited as examples: using first-party data to measure active users on WBA’s digital properties; online conversion rates (for example, flu shots that are marketed on a one-to-one basis); loyalty (measuring share of coupons clipped and promotions redeemed in store); and ecommerce traffic (WBA is encouraging consumers to buy online and pick up in store).
“The beauty of mass personalization and identity or first-party marketing is you can measure conversions because everything is programmatic and trackable,” he said. “And that’s how the CFO gets confidence in talking about results, It’s very measurable in driving growth.
Diversity of talent and co-skilling
WBA made diversity and inclusion “a key scoring criterion” during the review and WPP sold itself on its ability to offer more diverse and digitally savvy talent.
“We can’t say diversity is important to our customers if we’re not walking the walk ourselves,” Radelet said, explaining it is a growing influence on the company’s reputation.
Read added diversity is “an increasing component” of agency reviews.
Talent recruitment is also changing because “we’re looking at more specialist talent than ever before, than I would say generalist talent," Mehra said. “People are coming from deep-technology and data architecture-type backgrounds.”
WBA has been looking to improve the digital skills of its in-house teams and more than 1,000 of its marketers have taken part in six “sprints” with General Assembly, a company that specialises in online education.
“WPP is accessing those exact same sprints,” Mehra said. “It’s really important. We’re learning and co-skilling together while adding [digital and data] specialists right at the core of the staffing model, not at the periphery.”
WBA has an existing in-house creative operation, The Beehive, which is “churning out” fast-turnaround content “at a massive scale," according to Mehra.
Yet it is staffed partly by talent from WPP’s production arm, Hogarth.
That reflects the fact that “even in-housing is becoming a bit more of a joint-venture game," especially as WBA is "never going to be able to build and have the number of production studios and production talent that WPP is going to be able to bring in."
Mehra added WBA and WPP staff increasingly will be co-located in the same buildings in Chicago and London in a post-COVID vaccine world.
“We’re almost becoming one unit. It’s not in-housing but it is an adjacency to in-housing, which is going to change in the industry,” he added, describing it as “a JV in-house model."
The future of marketing and the rise of ‘owned platforms’
WBA’s investment in its own platforms and apps reflects a belief in its own media channels as communications channels at a time when it is increasingly difficult to reach consumers through paid media.
“More and more marketing is not just about buying media,” Mehta said. “As we become a platform company, more and more of our communications with customers is going to come through our app, through our website, through direct notifications and SMS and text and email.
“Marketing is going to become much more of an owned-platform game for companies that have customer data at our scale,” he predicted, adding that marketing is moving from “from activating outside of platforms to activating inside our own platforms” in a cookie-less world.
As part of this shift, WBA is looking to sell advertising to third parties on its own channels and launched Walgreens Advertising Group in November.
One question is whether WBA felt it would be too big a risk to drop WPP and change agency partner during the middle of a pandemic.
Mehta insists that wasn’t a concern: “The bigger risk would have been to choose the wrong partner here. The stakes are too high."
“The days of fleeting RFP reviews, where it’s literally about GRP [gross ratings point] efficiency and hourly reductions on making creative ads, are gone," he explained. "These reviews are going to get more and more complex.
“We are interlinking very complex data and technology systems and so the risk of making a decision like that and getting it wrong on a technology side – because that’s the engine of our entire machine here – was just too high.”
WBA’s technology team spent close to 40 hours assessing WPP’s systems and data architecture.
“In many ways, the modern chief marketing officer and chief communications officer are operating like chief information officers now,” he said, although the CIO was “deeply involved” in the WBA pitch too.
“When you’re activating everything through first-party data and 80% of your buy is linked to that, then the pipes better connect really well on your technology and that’s what takes the time [in a review]. The risk of getting that wrong is enormous.”
Industry observers and rivals will be watching closely to see whether the new WBA-WPP partnership also produces more engaging creative for the Walgreens and Boots brands in future.
This story first appeared on campaignlive.co.uk.