• McDonald's recently shocked the ad industry by moving lead creative duties on its US advertising business to the independent agency Wieden and Kennedy from Omnicom.
• Internal documents show how the holding-company giant initially won the business in 2016 with its "flex-model" approach, which focused on using digital and data and spinning social-media insights into content.
• Sources told Business Insider the primary goal of the review was to achieve greater consistency in brand messaging and control the entire consumer journey rather than just save money.
• The fast-food chain spent nearly $800 million on marketing that year, according to the data-insights company Kantar Media.
• Click here for more BI Prime stories.

McDonald's rocked the ad industry with its recent decision to shake up its US agency model by awarding lead creative duties to the independent shop Wieden and Kennedy, ending an exclusive relationship with the holding-company giant Omnicom.

The move came three years after the fast-food chain consolidated its nearly $1 billion stateside marketing account with Omnicom, which presented We Are Unlimited, its new unit dedicated to McDonald's business, as the "agency of the future."

Internal documents obtained by Business Insider, as well as conversations with sources who were close to the agency before, during, and after the pitch, show how Omnicom won the business.

Read more: McDonald's demanded that Omnicom create an ad agency dedicated to its business. Now that unit will fold.

The review focused on transforming McDonald's marketing by integrating digital and data 

According to a source familiar with the pitch, the new model stemmed from former McDonald's Chief Marketing Officer Deborah Wahl's desire to fully integrate digital and data into the rest of the chain's marketing operations for the first time.

McDonald's primary goal was not to save money but achieve more consistent messaging and control over the entire consumer journey using data from McDonald's customers. 

The scale of the chain's business in its largest region made this particularly challenging, but the source said McDonald's updated its internal marketing and production processes to support the new agency model. 

For example, executives at McDonald's interviewed team leaders at multiple holding companies to identify workflow problems ahead of the pitch and designed the request for proposal to overcome the issues they identified.  

In terms of why Omnicom beat out rivals WPP and Publicis, the source said Omnicom's team was truly integrated across strategy, creative concepts, production, and media planning and buying, while Publicis simply mashed together the services of lead creative shop Leo Burnett with "digital business transformation partner" Publicis Sapient. 

Omnicom positioned its new 'flex model,' which focused heavily on insights from social media, as unique despite similarities to other agencies

A second source said the Omnicom pitch focused heavily on its ability to respond in nearly real time to sentiments people shared about McDonald's on social media by creating a set of scheduled posts each day in response to data gathered the previous day. By noon, the agency would have content ready for McDonald's to send out across its social channels.

The internal documents reflect this winning approach, which the Omnicom-owned We Are Unlimited and its parent company, the Omnicom agency DDB Worldwide, dubbed the "flex model." 

Omnicom called the unit dedicated to McDonald's "Cortex,"describing it as"a data-informed view of customers [created] by gathering insights in real-time from experts across digital, social, retail, behavior."

The holding company quickly adapted the model to pitch other clients, including Heineken, State Farm, Volkswagen, and the US Army. The deck demonstrates how DDB positioned the offering as unique within the industry — even while acknowledging its similarity to the approaches of rival agencies like GroupM, J. Walter Thompson, and R/GA.

Wahl left McDonald's in April 2017, less than six months after We Are Unlimited officially launched, and became Cadillac's chief marketing officer in March 2018.

Wahl did not respond to a request for comment, nor did representatives for McDonald's and DDB.

These 2 documents show how Omnicom would structure its McDonald's team

Later materials show how the same approach could be applied to other clients

SEE ALSO: McDonald's and its ad agency sparred over a bizarre campaign stunt involving an LP made entirely of bacon. The agency later lost the majority of the account.

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Good morning from New York's Advertising Week, where declining trust in the media, ad avoidance, and privacy concerns are high on advertisers' minds.

Here's what's kept us busy when we're not moderating and jumping in and out of sessions:

One big theme of the TV business upheaval is that the services that are replacing it are often of the ad-free variety. That leaves longtime TV advertisers in a pickle. My former colleague and ex-BI advertising editor Mike Shields argued in this analysis, his first of what I'm excited to say will be a recurring column, that old-fashioned TV ads are increasingly unwelcome in the streaming environment.

Disney and Apple are sending a pretty clear message: Traditional TV ads are dead

Meanwhile, senior reporter Lauren Johnson talked to a top exec at the holding company giant Omnicom about how it's getting around the rise of ad-free environments by cozying up to them.

With the TV business in flux, Omnicom is betting on Amazon and Netflix partnerships to reach TV-like audiences

This is a problem of TV networks and advertisers' own making, but now advertisers are finding the consumers they most covet are becoming the hardest to reach, I wrote earlier this year. 

People are flocking to Netflix and Hulu, and it's a growing concern for advertisers needing to market to the rich

Hulu for its part is working on a new, AI-informed format to make sure it doesn't turn off heavy users.

Hulu is preparing a new type of ad designed to be less annoying for binge-watchers

The ad saturation problem is even hitting Amazon's platform, which is already getting too crowded for some advertisers' taste, Lauren reported this week. 

'It feels as though lots of brands are getting hijacked': Some marketers say Amazon is too crowded with ads, and they're trying new ways to break through

If you're new to the Advertising and Media Insider newsletter, sign up here. 

Meanwhile, more from advertising correspondent Patrick Coffee on McDonald's' big agency change. The fast-food giant shocked the ad world when it dumped holding company giant Omnicom. These internal docs show how the holding company pitched and won the $800 million business by positioning Omnicom as unique, even though rivals were taking similar approaches.

Internal documents reveal how ad holding company giant Omnicom won the $800 million McDonald's account and used its model to pitch other advertisers

And for fun: Patrick reported on how McDonald's rejected this idea from its former agency — and it shows the day-to-day back and forth that happens between clients and their agencies. I for one would have found a use for an all-bacon record.

McDonald's and its ad agency sparred over a bizarre campaign stunt involving an LP made entirely of bacon. The agency later lost the majority of the account.

Lauren's also working on our first list of executives who are reshaping martech. Send her your nominations here by Oct. 4.

McDonald's rival Burger King meanwhile is doing something right when it comes to its ad campaigns. Its CMO broke down for senior reporter Tanya Dua how the burger chain wins all those awards.

Burger King's buzzy marketing is boosting sales and sweeping all the awards. Here's the internal memo sent by CMO Fernando Machado that reveals its secret sauce.

Elsewhere, traditional packaged foods makers are finding their products need to evolve as people look for healthier options. Tanya wrote about how Frito-Lay is adjusting to frequent snacking and a demand for healthier foods and personalized options.

A top Frito-Lay exec lays out the biggest trends shaping the food snacks industry — and how the CPG giant is recalibrating to keep up

Here are other great stories from media, marketing, and advertising. (You can read most of the articles here by subscribing to BI Prime; use promo code AD2PRIME2018 for a free month.)

IAC's Dotdash got profitable by shunning the sexier parts of digital media, and now it's applying that playbook to online beauty

The former Netflix exec leading BET Plus breaks down his launch strategy for the streaming service, from price to target audiences

Inside the toy business of YouTube star Ryan ToysReview, the 8-year-old boy who makes $22 million per year

BuzzFeed, which laid off 15% of its staff earlier this year, has made a big new hire to grow its news business

Bloomberg News just announced a slew of changes, showing where the company is placing its bets

Join the conversation about this story »

NOW WATCH: This Facebook exec cofounded and then got fired from Pets.com. Here's why she is no longer hiding from this failure.

• The House Subcommittee on Economic and Consumer Policy sent letters to the CEOs of four top e-cigarette brands urging them to stop advertising their products in the US.
• This request followed yesterday's news that Juul Labs would immediately suspend all print, digital, and TV marketing efforts.
• The letters referenced the recent outbreak of vaping-related illness and noted that no e-cigarette products have FDA approval to make smoking-cessation or moderation claims.
• Two companies said they were reviewing the letters, with one signaling an agreement with the subcommittee's general conclusions.
• None of the companies addressed whether they would suspend or even reduce marketing.
• Click here for more BI Prime stories.

The US House of Representatives continued its crackdown on e-cigarette brands and their advertising efforts this week.

On Wednesday, Rep. Raja Krishnamoorthi of Illinois, who is the chairman of the House Subcommittee on Economic and Consumer Policy, sent letters to four major e-cigarette producers, including Njoy and Fontem Ventures, as well as the tobacco giants Reynolds American and Japan Tobacco International. 

Krishnamoorthi noted this week's decision by Juul Labs to suspend all US print, broadcast, and digital advertising for its e-cigarette products and added, "I am writing today to respectfully, but strongly, request your company to do the same." (The letters are embedded in full at the bottom of this story.)

Read more: E-cigarette company Juul raised billions to pursue global domination, but a rash of challenges is raising questions about its strategy

Altria, which owns Marlboro maker Philip Morris, acquired a 35% stake in Juul last year for $12.8 billion in an apparent attempt to counter the declining number of smokers in the US and beyond. Since then, the latter company has faced a variety of inquiries, many of which focus on its marketing efforts.

The advertising holding company Omnicom and its agency DDB Worldwide won Juul's US marketing business in a 2018 review. Spokespeople for both companies declined to comment, and it is unclear how the Juul news will affect the relationship between these parties.

Subcommittee chairman ties e-cigarette 'epidemic' to unapproved claims made in advertising campaigns

Juul confirmed on Wednesday that CEO Kevin Burns had stepped down and that he would be immediately succeeded by K.C. Crosthwaite, an executive at Altria. That news came one day after The Wall Street Journal reported that federal prosecutors in California had launched a criminal investigation into Juul. 

"As Chair of the Subcommittee on Economic and Consumer Policy, I have led an aggressive investigation into the youth e-cigarette epidemic," Krishnamoorthi wrote after referencing FDA findings that vaping has increased by 135% among high-school students over the past two years.

Earlier this month, the subcommittee found that Juul's attempts to market its e-cigarettes as smoking cessation aids violated FDA regulations. Krishnamoorthi described products that make such claims without FDA review as "unapproved drugs or devices being marketed illegally under the [Food, Drug, and Cosmetic] Act." He went on to state that no e-cigarette or vaping company had been approved to make cessation claims, including the four that received the letters.

These communications came one day after a congressional hearing on the outbreak of vaping-related lung disease. Krishnamoorthi referenced testimony from that hearing, in which Centers for Disease Control and Prevention Deputy Director Anne Schuchat said the process of vaping "may be risky." 

Krishnamoorthi ended the letters by asking the CEOs of the four e-cigarette companies to let him know whether they planned to follow Juul in suspending all advertising efforts.

E-cigarette makers respond to Krishnamoorthi's request that they suspend all marketing efforts immediately

"We received the Chairman's letter yesterday, and are giving it careful consideration," a spokesperson for Reynolds American wrote.

Representatives from Fontem US and Japan Tobacco International confirmed their companies had received the letter, with the former saying its leadership would "respond in a timely manner." 

"We agree with Chairman Krishnamoorthi that youth should not use or have access to electronic vaping products," the Fontem representative wrote. "We believe that vaping products should be used by adult smokers and EVP (electronic vaping products) users only. We strongly support initiatives to prevent youth access to vaping products and efforts to ensure advertising reaches only our intended adult audience. As both a manufacturer and retailer of vaping products, we take our responsibility in this respect very seriously."

Fontem Ventures is a division of the British tobacco conglomerate Imperial Brands.

"Clearly the focus from Congress is very much on Juul activity, which in no way is reflective of our own strict marketing principles," said the JTI spokesperson, who added that the company supports "increased enforcement by authorities" and believes its "limited and responsible advertising plays an important role in communicating to adult smokers the differences between Logic capsule products and other pod-based products, including Juul."

Krishnamoorthi's press secretary declined to comment. Njoy did not respond to a request for comment.

Juul sent Business Insider a link to yesterday's press release announcing the changes but declined to elaborate.

None of the companies said whether they would suspend or even reduce marketing. According to numbers from the market-intelligence firm Kantar Media reported by Adweek, Juul increased its paid media budget from $1.4 million in the first half of 2018 to $104 million during the same period this year.

SEE ALSO: The precarious path of e-cig startup Juul: From Silicon Valley darling to $38 billion behemoth under criminal investigation

Join the conversation about this story »

NOW WATCH: This Facebook exec cofounded and then got fired from Pets.com. Here's why she is no longer hiding from this failure.

• McDonald's recently shifted its lead US creative duties to the independent agency Wieden and Kennedy, which means the fast-food giant will share the agency with its rival KFC.
• Some analysts say this shift could signal a change in how big marketers manage their business.
• McDonald's willingness to work alongside KFC could mean looser conflict-management policies that let agencies pursue new business more aggressively.
• Some analysts disagree over whether the new arrangement will work out for McDonald's and its agencies.
• Click here for more BI Prime stories.

McDonald's recently shifted much of its US ad business from the holding-company giant Omnicom to the independent agency Wieden and Kennedy, which means it will share an agency with its rival (and longtime Wieden client) KFC.

Analysts called the chain's decision to abandon previous conflict-management policies that would have forbidden its agency partners from working with competitors a significant development.

Read more: Internal documents reveal how ad-holding-company giant Omnicom won the $800 million McDonald's account and used its model to pitch other advertisers

The McDonald's move hints at changes in the way major brands manage their advertising efforts.

Relaxed conflict-management policies could be good news for ad agencies

The most important question stemming from the McDonald's decision is whether it means other marketers will follow suit and let their agencies work with more openly with direct competitors, Brian Wieser, the global head of business intelligence at WPP's GroupM, said.

Jay Pattisall, the chief analyst at Forrester chief, said he believed agencies could benefit from such a shift by getting greater freedom to pursue new business, while brands would be less restrained by concerns about what their competitors are doing.

"If McDonald's is willing to let go of their obsession around conflicts and exclusivity, then other brands should consider it as well," he said.

This sort of conflict management is the foundation of the modern ad industry. The first holding company, IPG, formed in 1961 when the ad agency McCann tried to avoid a conflict with Coca-Cola by creating a larger company whose other divisions could work with the soda giant's competitors. As if to demonstrate why that approach was necessary, Nestle stopped working with McCann two years later because the agency acquired Erwin Wasey & Co., whose clients included the Nestle rival Carnation.

More forgiving clients could also theoretically allow agencies' consulting divisions to pitch against management firms such as Bain and McKinsey, which have long used their work with one company to sell services to its adversaries.

"Two accounts in the same industry is a conflict, but three is an expertise," Wieser said.

Will the new model ultimately work for brands?

According to the same observers, McDonald's shift to Wieden simply proves that company structure and client policy are irrelevant if the resulting creative work isn't good.

Multiple sources who worked on the McDonald's account at Omnicom also said the dedicated holding-company approach — combined with a corporate structure that requires a board run by McDonald's owner-operators around the country to approve all major ad campaigns — didn't always allow good ideas to break through.

One example of this strategic disagreement between agency and client centered on an idea to produce an LP for McDonald's that would have been made entirely of bacon, Business Insider reported earlier this week.

Greg Paull, the principal at the marketing consultancy R3, said the McDonald's-Omnicom partnership "never gelled creatively."

"[Fast food] is an incredibly demanding daily business with overnight sales results," he said. "Without innovation and creativity, the weak will not survive."

"All [the KFC decision] tells us is that there's someone smart at McDonald's who wants an agency that can create good advertising," said Bob Hoffman, an agency executive and the creator of the popular Ad Contrarian blog and newsletter. "Now the question is, will they let them?"

Pattisall remains skeptical, saying that McDonald's abandoning the dedicated-unit model is "a big loss for creativity." He described the decision to divide the business among Omnicom and other agencies, rather than maintaining a single cohesive unit to handle responsibilities like digital, social, client-loyalty marketing, and TV work, as "counterproductive."

The Forrester analyst compared the divided model to those of decades past, when clients would bring on specialist agencies for each of these disciplines and force them to collaborate. "It didn't work then, and it won't work now," he said.

McDonald's did not immediately respond to a request for comment.

SEE ALSO: McDonald's demanded that Omnicom create an ad agency dedicated to its business. Now that unit will fold.

Join the conversation about this story »

NOW WATCH: This Facebook exec cofounded and then got fired from Pets.com. Here's why she is no longer hiding from this failure.

• This week, the leading e-cigarette maker Juul Labs announced its CEO would step down amid investigations by federal agencies and said it would suspend all advertising.
• Several of those investigations focus on the brand's marketing practices, and the longtime ad exec and anti-smoking activist Alex Bogusky blamed the company's Silicon Valley-style approach for its problems.
• Bogusky said Juul, like other startups, pushed for growth at any cost by positioning itself as a tech company to avoid federal regulations on tobacco-derived products.
• Two sources said DDB struggled to staff up on the Juul account because some creatives and strategists didn't want to be associated with the brand.
• Click here for more BI Prime stories.

Just two months ago, Juul Labs was still on a venture-capital-fueled high. Now, with the company facing an uncertain future, the 30-year ad veteran Alex Bogusky attributed its apparent fall to a marketing strategy ripped straight from the Silicon Valley playbook.

With a $12.8 billion investment from the tobacco giant Altria and a $38 billion valuation, Juul's US ad budget exploded to $104 million in the first half of 2019 from $1.4 million in the year-ago period, according to Kantar Media.

Read more: E-cigarette company Juul raised billions to pursue global domination, but a rash of challenges is raising questions about its strategy

To solidify its position as market leader, Juul hired the Omnicom-owned agency DDB to produce its "Make the Switch" ads and built up an internal team led by Chief Marketing Officer Craig Brommers, formerly of Gap Inc., and creative director Perry Fair, who'd been with Red Bull and Beats by Dre.

Earlier this week, the company agreed to suspend all advertising amid a crackdown on vaping by the Federal Trade Commission and the US Food and Drug Administration.

Juul bypassed federal regulators by calling itself a tech company, the executive behind anti-smoking campaign Truth Initiative said

Alex Bogusky, who is the cofounder and chief creative engineer at the ad agency Crispin Porter Bogusky and who launched the anti-tobacco Truth Initiative campaign in 1998, said Juul rapidly rose by exploiting a regulatory loophole and positioning itself as a tech company to avoid rules that applied to other tobacco-derived products and prescription-only anti-smoking aids like gums and patches.

"[Juul] wound up in this happy place where they could advertise, and they did so aggressively," he told Business Insider. "They're not a cessation product, they never filed to be a cessation product, so the FDA doesn't regulate them the way they would a cessation product."

Bogusky said Juul adapted the same philosophy as pseudo-medical startups like Theranos, which initially succeeded in bypassing federal regulators because "they'll just take your word for it unless it's proven otherwise."

As the company expanded, and reports of vaping-related illness increased, the FDA and Congress took notice. In a series of letters sent to four top e-cigarette producers this week, Rep. Raja Krishnamoorthi of Illinois called Juul's marketing tactics illegal, specifically because the company did not receive federal approval to claim that its products help smokers quit.

According to a study published by Stanford in January, the brand also actively targeted teenagers with ads like the ones below.

Bogusky said private-equity- and venture-capital-backed startup models encourage this sort of behavior because Juul had to grow sales, even though its self-defined customer base of adult smokers was shrinking.

The company's decision to target teens created an ethical issue for the ad industry

The brand recruited young influencers, advertised on Instagram, sponsored summer camps, and held presentations in high schools in which representatives described its products as "totally safe" in a strategy reminiscent of past tobacco campaigns that featured doctors smoking cigarettes.

Juul later said it had abandoned those tactics, but its fastest-growing market continued to be young people, even as its ads shifted to focus on older smokers.

"The message to a teen is, 'You can't be hurt by this,' but for some reason, it's something held out for adults only," Bogusky said. "And that message is really provocative."

Bogusky wrote a New York Times op-ed in May that called Juul's marketing an ethical issue for the ad industry.

DDB has struggled to staff up on the Juul account despite actively recruiting for that team in its San Francisco office because some creatives and strategists do not want to be associated with the brand, two sources familiar with the business told Business Insider on condition of anonymity to speak freely about the subject. DDB and Omnicom declined to comment.

Bogusky said he understood why agencies would work with such companies, especially when the client positions its products as a safe alternative to cigarettes. "We're a desperate industry," he said.

He said the FDA should treat e-cigarette marketing the same way it treats ads for tobacco or prescription cessation products. Regulators seem to be moving in that direction, though unintended consequences could follow. BuzzFeed reported that some smoking experts fear an all-out vaping ban could end up boosting cigarette sales.

Juul did not respond to a request for comment.

SEE ALSO: Read the House Oversight Committee's letters calling on top e-cigarette brands to stop advertising their products

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• Three years after consolidating its US marketing business with a dedicated agency created by holding company Omnicom, McDonald's moved lead creative duties to indie shop Wieden and Kennedy.
• The move led analysts and observers to ask if the industry was too focused on data over creativity.
• Business Insider obtained internal documents that revealed how Omnicom initially won the business and why the new agency thinks it recently prevailed.
• Business Insider also reported on how the burger chain will also now share an agency partner with rival KFC, which could signal significant changes in the way big marketers handle their advertising business.
• Visit Business Insider's homepage for more stories.

Earlier this month, McDonald's concluded a review of its US marketing strategy by assigning lead creative duties to independent agency Wieden and Kennedy.

The move took many in the industry by surprise three years after the world's biggest fast-food brand consolidated work in its most important region with holding company giant Omnicom. But what did the move really mean for the market? 

Was it yet another sign of weakness for the Big Six holding companies that control most of the world's ad spend? A strike against the industry narrative that places data over creative quality when determining the value of ad work? Or was McDonald's simply an outlier?

See what the winning agency had to say: Internal memo from McDonald's new ad agency reveals why the world's biggest fast-food chain bucked industry trends to reshape its marketing strategy

Wieden and Kennedy leadership told staff that the decision was a victory for traditional, back-to-basics storytelling. In the note, the agency's copresidents said incumbent We Are Unlimited "forgot the power of creativity (or arguably didn't have much to offer)" and all but dismissed the original pitch, which promised to place data "at the core of everything they did."

Read more about how Omnicom won the account three years ago: Internal documents reveal how ad-holding-company giant Omnicom won the $800 million McDonald's account and used its model to pitch other advertisers

Omnicom promoted its "agency of the future" model back in 2016 by hyping cross-agency integration and "embedded teams" from Google, Facebook, and Twitter along with its ability to turn insights gleaned from social media into promotional content. The holding company framed this approach as unique even though it was similar to offerings from other agencies.

The holding company will fold its once-dedicated division into parent company DDB: McDonald's demanded that Omnicom create an ad agency dedicated to its business. Now that unit will fold.

While the holding company retained the vast majority of its McDonald's business around the world, the loss was significant enough to spark a significant strategic shift. Sources confirmed to Business Insider that the dedicated agency We Are Unlimited, which was founded as a standalone business, will soon become part of parent company DDB.

Check out an insider's view of how the agency-client relationship broke down: McDonald's and its ad agency sparred over a bizarre campaign stunt involving an LP made entirely of bacon. The agency later lost the majority of the account.

Disagreements between agencies and their clients are a daily fact of life in the ad industry. But one particularly crazy instance for McDonald's and Omnicom involved a pitch for a record made entirely of bacon to promote the chain's new "bacon week" deal.

The move could signal a new approach to conflict management for big spenders: Advertisers have long avoided sharing agencies with competitors. McDonald's just abandoned that tradition, and other big brands could follow suit.

The most interesting aspect of the McDonald's shift, according to several industry analysts, is the fact that Wieden and Kennedy will now simultaneously work with rival KFC in a reversal of both chains' exclusivity politices. If this turns into a trend, it could be good news for brands and agencies alike.

Join the conversation about this story »

NOW WATCH: Burger King's CMO explains why the biggest risk in marketing is not taking one

• An internal audit found that the US Army wasted more than $36 million on marketing in 2016. An earlier version of the report said $930 million spent over the previous three years "didn't provide best value."
• The Army's new marketing leaders told Business Insider they would ensure a greater return on taxpayer dollars.
• They're upping Army's presence at events like Comic-Con and Pax, a conference for gaming and esports, because gamers "make good soldiers."
• As a result of the audit, the Army earlier this year slashed the size of its marketing team, relocated them to the homebase of new ad agency DDB in Chicago, revamped its events strategy, and sought to improve its internal data system.
• Officials also said they would hold ad agency holding company Omnicom more accountable for results.
• Click here for more BI Prime stories.

Last year, an internal audit found that the US Army wasted more than $36 million in taxpayer money on marketing in 2016. An earlier version of the report found an eye-opening $930 million spent between 2013 and 2016"didn't provide best value to support Army recruiting."

The Army's new marketing leads — assistant secretary for manpower and reserve affairs E. Casey Wardynski and enterprise marketing chief Brigadier General Alex Fink — told Business Insider how they plan to ensure a greater return on that investment by holding themselves to the same standards as any other major advertiser.

Read more: The US Army has struggled to get recruits. Its new marketing heads explain how the military will target Gen Z with personalized, data-driven ads.

The Army revamped its events strategy and plans to update its internal data system

The audit led to a complete overhaul of the Army's marketing operations.

Most of the programs labeled ineffective concerned events marketing, so Wardynski said the Army is abandoning efforts like the Tough Mudder series, which cost about $2 million and only led to seven contracts. Instead, it's focusing on conventions like Comic-Con and gamer gathering Pax, where the Army can set up virtual recruiting stations and quickly see ROI.

Last month, the Army introduced its new esports team at Pax West in Seattle. Wardynski said gamers "make good soldiers" due to their ability to absorb information.

The audit also faulted Army employees for failing to enter data -- into what it calls its enterprise marketing management system -- that tracks campaign results or submitting incorrect numbers.

Fink said improving that record is one of his key goals; IT firm Booz Allen Hamilton recently won a $152 million contract to develop software for managing recruitment and retention, and the Army eventually hopes to combine the two systems.

Army leaders say they would hold themselves and their agencies to a higher standard

As part of its 2019 defense spending bill, Congress withheld 50% of the Army's marketing budget pending a report on the audit by then-Secretary of the Army Mark T. Esper, who was confirmed as President Trump's Defense Secretary in July.

Esper's report led the Army to slash the size of its marketing organization from 60-plus employees to 20 and move it to Chicago, blocks away from its new ad agency of record DDB and parent company Omnicom.

Wardynski and Fink called the new Chicago division the product of a collaboration between the US Office of Personnel Management, the Army, and unnamed marketing execs that it brought on to advise them.

Wardynski said the new group, called Office of the Chief Army Enterprise Marketing, may eventually grow to more than 50 employees and that there would be an emphasis on hiring longtime military staff who are better equipped than civilians to translate the military experience to its ads.

Fink also reports to a newly formed governing board consisting of Wardynski, deputy chief of staff Lt. General Thomas C. Seamands, and Lt. General Paul Funk, who was appointed commanding officer of Army Training and Doctrine Command in March to lead the overhaul of its recruitment efforts.

Since Congress ultimately controls the purse strings, Army marketing leaders addressed the Senate and House Armed Services Committees in January 2018, after Adweek broke news of the audit. Since then, Wardynski said his team has continually updated Congress about its move from a focus on broad-reach TV campaigns to a targeted and data-driven one.

Finally, the Army plans to make ad agencies DDB and OMD more accountable by attaching numeric goals to every budget item and offering incentives to get the best results.

Fink said if a platform doesn't deliver — linear TV included — he would quickly move on to one that does.

SEE ALSO: The Pentagon is expected to spend more than $56 billion on combat vehicles by 2024 — here's what analysts say companies need to do to compete

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NOW WATCH: This Facebook exec cofounded and then got fired from Pets.com. Here's why she is no longer hiding from this failure.

• The US Army has struggled to reach its recruitment goals over the last two years due to a lack of relevance among Gen Z.
• While past campaigns revolved around big-budget TV ads, Army officials said they're now focusing on "immersive, episodic storytelling" designed to reach young people where they live and emphasize career opportunities in the military.
• The Army has a new agency, DDB, and its first campaign is set to go live before the end of the year.
• The Army's top marketers also said they also plan to recruit more data scientists to exert greater control over its ad buying and targeting strategies.
• Click here for more BI Prime stories.

The US Army failed to hit recruitment targets last year for the first time since 2005 and reached its 2019 goals only after reducing its target by 8,500. According to the Army's new heads of marketing, this is because the organization has failed to prove its relevance to young Americans.

Amid this challenge and fallout from a 2018 audit that identified more than $35 million in wasted spending for fiscal year 2016, the military's largest branch has revamped its multi-billion-dollar marketing operations with a new home base, a new holding company partner, and a new targeting strategy.

E. Casey Wardynski and Brigadier General Alex Fink, who became, respectively, the Army's assistant secretary for manpower and reserve affairs and enterprise marketing chief earlier this year, spoke to Business Insider about how they plan to attract Gen Z with data-driven, online campaigns.

Read more: The US Army wants to combine its powerful new night-vision goggles and its new pocket-sized spy drones so soldiers can see the battlefield like never before

The Army plans to target individuals, not broad audiences

First, the Army — which estimated it could be spending up to $4 billion on advertising over 10 years — will follow the ad industry at large by pivoting away from mass-reach, big-budget TV spots to more personalized ads.

Fink cited recent surveys which found that 50% of Gen Z know little to nothing about military service and that messages focused on the idea of defending the US "only appeal to about 10%" of the public. He said his goal is to emphasize the Army's relevance to young people by emphasizing career opportunities in areas like drones, aviation, medicine, and cybersecurity, as opposed to older ads that emphasized combat.

"The Gen Z population are digital experts," said Fink. "They're skeptical of solicitation and idiosyncratic in their tastes. Whereas in the past, the Army expected prospects to meet us on our terms, we recognize that we must inhabit their world."

Army officials have recently spoken of attracting young recruits with meme-style content designed for platforms like Instagram and TikTok. Fink said the debut campaign by new agency DDB, set to launch before the end of this year, will consist of "immersive, episodic storytelling" that evolves over time based on the audience's response.

"What we've got to have are thumb-stopping experiences," he said, describing traditional military ad campaigns as "a sea of sameness."

Wardynski said the new approach is modeled in part on America's Army, a series of first-person shooter games whose launch he oversaw in 2002. The project remains one of the Army's most successful marketing efforts, attracting more than 14 million total users, Wardnyski said.

Officials moved Army marketing operations to Chicago and hired several former big-brand CMOs to help design the new team

The Army's use of digital advertising is part of a larger shift that took place over several years as the military, like many marketers, sought to prove the effectiveness of its marketing spending.

The shift led to the end of one of advertising's more established agency-client relationships.

After an extensive review, US Army dropped its agency of more than 10 years, McCann Worldgroup, part of holding company IPG, and hired Omnicom's DDB in November 2018.

Adweek later reported that the Army would dissolve its Washington, D.C.-based Marketing Research Group and relocate to DDB's hometown of Chicago.

During this transitional period, the Army contracted several consultants who were formerly CMOs of major brands to help design its new team. Wardynski wouldn't name them, calling them only "great Americans who served quietly."

The new entity, Office of the Chief Army Enterprise Marketing, will employ more data scientists drawn from different branches of the armed forces — a significant change from past marketing teams that primarily consisted of public affairs officers "more attuned to the art of the word than the art of the data," Wardynski said.

New data agreements give the Army greater power to shape its ad buying strategy

The Army will have greater access to consumer data than in the past, giving its new team more power to shape its strategy rather than relying solely on its agencies.

"Whatever data DDB sees, we can see too," said Wardynski. Fink added that he would make the ultimate decision on all future media buys.

This digital approach will also apply more directly to future recruitment efforts; the Army is developing a way to track the anonymized online behaviors of prospects so it can better target them with ads.

Fink wouldn't give specifics about where he plans to spend digital dollars, but the Army is active on social media, with 4.8 million Facebook followers, 1.8 million Instagram followers, and 1.4 million Twitter followers. 

Army officials said DDB and OMD will present a detailed media plan to their team later this month ahead of the campaign launch.

SEE ALSO: The US Army is planning to send 20,000 soldiers to Europe for its largest exercise in decades

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NOW WATCH: Burger King's CMO explains why the biggest risk in marketing is not taking one

• An Omnicom team led by DDB last year won the US Army's ad business, covering an estimated $4 billion over 10 years.
• Business Insider got the full pitch deck that won the account.
• DDB's first multimedia campaign is set to launch in the coming weeks on platforms like Instagram and Facebook.
• The winning pitch includes personalized social-media videos targeting high-school students, ads featuring headshots of new recruits, and a campaign starring soldiers' parents as influencers.
• It also proposed the Army run ads on publishers such as BuzzFeed, Twitch, and The Washington Post.
• Click here for more BI Prime stories.

The holding-company giant Omnicom's Team DDB in November won the US Army's ad business after a multiyear review, covering an estimated $4 billion over 10 years. In addition to the lead agency DDB, the winning group includes the media shop OMD, the public-relations firm FleishmanHillard, and the multicultural agency Fluent360.

Business Insider obtained the full pitch deck that Team DDB presented to Army officials. The document is embedded in full at the bottom of this story.

Read more: The military can't get Gen Z to enlist. Here's how top Army marketers plan to fix the problem.

Omnicom pitched a variety of digital and social efforts, including episodic Instagram stories and sponsored content on BuzzFeed, Twitch, and Reddit

The deck includes a wealth of proposals for the company's first multimedia campaign, under the new tagline "Tomorrow Takes an Army," which is set to launch in the coming weeks across platforms including Instagram and Facebook, and youth-oriented media outlets.

Brig. Gen. Alex Fink, the Army's head of marketing, told Business Insider his team looks to reach the elusive Generation Z with "immersive episodic storytelling," like that featured in "72Hours." That's one of the ideas in the pitch deck — an Instagram and YouTube video series highlighting individual missions and updating every three days.

Other potential aspects of the campaign include Facebook video ads targeting high-school students by name and sponsored BuzzFeed surveys that show users jobs they might get after serving in the Army.

Additional slides list Reddit, Snapchat, and the gaming platform Twitch as potential destinations for sponsored content alongside traditional publishers like The Washington Post and the Houston Chronicle.

Spec ads say soldiers could get jobs at tech companies like GitHub and LinkedIn

The deck lists Microsoft, General Electric, Tesla, and Amazon among Omnicom's potential partners on the Army account. It also implies that service in the armed forces could lead to jobs at "great companies" like Google, Facebook, and Apple.

Omnicom proposed an unbranded campaign called TTAA, or Operational Thunderbolt, that would attract recruits by promoting high-skill jobs at tech companies such as GitHub, CareerBuilder, and LinkedIn.

Spec ads highlight high-tech Army initiatives like "real life Iron Man suits," as well as work in the solar- and wind-power industries and a proposed Lab of Tomorrow, described as "an interactive, multisensory futuristic dome, highlighting the innovation and technology of the US Army."

The new campaign has tagline 'Tomorrow Takes an Army' and features ads starring recruits and proud parents as influencers

The deck even proposes enlisting soldiers' parents as influencers who create sponsored blogs and content on Goarmy.com to position membership in the Army as a family decision.

Another proposal involves creating a database of headshots from every new recruit to target people with personalized ads across platforms, including social, digital, and even highway billboards.

The agency proposed making a big shift into online video, away from linear TV

Omnicom pitched significantly cutting the Army's linear TV spend in favor of online video, search, social, and influencer content. Another slide describes this strategy as "mobile to the core," though TV ads would still make up the majority of the Army's annual paid media budget of about $100 million.

Omnicom also proposed using behavioral data to shift its buys from segments to individuals, with potential buys on platforms such as Spotify, Amazon Prime, and Hulu; travel hubs like TripAdvisor; online job sites for major employers like Walmart; and publishers including ESPN and TMZ.

In terms of hypertargeting, Omnicom proposed using search-engine data to identify people who recently bought test-prep books or searched for jobs in healthcare.

Fink told Business Insider the Army would hold the agencies more accountable by attaching goals to every individual budget item. Another slide identifies some of the numbers Omnicom would be expected to deliver.

The new campaign's key goal is to make the US Army more relevant to young Americans

The pitch deck opens with a bold thesis of "reverence vs. relevance" and cites surveys finding that while most Americans have great respect for the Army, they know little about it, do not find it relevant to their lives, and have no interest in enrolling. 

That sentiment was echoed by Army officials who told Business Insider that this irrelevance, combined with a low-unemployment economy, is to blame for the military's recent recruitment struggles.

The pitch emphasizes that the military is about "more than combat and war," with soldiers enlisting to expand their career options, rather than "as a last resort."

Omnicom encouraged a particular focus on recruiting women, with additional spec ads highlighting diversity efforts amid emotional appeals to protect the US from outside threats and "hate."

The Federal Procurement Database lists the minimum value of Omnicom's contract at about $128 million over a 10-year period, but according to a Department of Defense statement, the company could earn significantly more, depending on how many projects the Army assigns.

Read the full pitch deck below.

SEE ALSO: An audit found the US Army wasted $36 million on marketing in one year. Here's how its new leaders plan to ensure a return on taxpayers' money.

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NOW WATCH: Burger King's CMO explains why the biggest risk in marketing is not taking one

• The US Army has struggled to recruit new soldiers and prove the value of its $400 million annual advertising budget in recent years.
• Its new marketing leaders told Business Insider they would shift toward digital, data-driven marketing and away from linear TV to target the elusive Gen Z. 
• The pitch deck that ad holding company giant Omnicom used to win the Army account includes Facebook ads targeting high-schoolers, soldiers' moms as influencers, and campaigns highlighting potential jobs for Army vets at tech companies like Google, Facebook, and LinkedIn.
• Future recruiting efforts will also focus on events like Comic-Con and Pax, because officials said gamers "make good soldiers."
• Visit Business Insider's homepage for more stories.

The US Army isn't just any advertiser.

While membership in the military has dropped significantly since the 1970s, the largest wing of the American armed forces spends around $400 million dollars annually on marketing to recruit and retain soldiers, according to Department of Defense estimates.

The Army failed to meet its recruitment target in 2018 for the first time in more than a decade and hit more modest goals for 2019 by focusing on student loan debt.

Through interviews with top Army officials and a pitch deck that reveals how holding company giant Omnicom won the Army's ad business, Business Insider offers an exclusive look inside the military's plan to reverse those trends by shaking up its marketing strategy.

Most young Americans don't think the Army is relevant to their lives: The military can't get Gen Z to enlist. Here's how top Army marketers plan to fix the problem.

The Army's new heads of marketing said they planned to move away from big-budget, broad-reach TV ads focused on defending the US in combat and focus on episodic content on platforms like Instagram and Snapchat that courts people by highlighting potential jobs in high-tech fields like drones and cybersecurity.

The Army slashed and restructured its marketing division in an attempt to spend money more effectively: An audit found the US Army wasted $36 million on marketing in one year. Here's how its new leaders plan to ensure a return on taxpayers' money.

After Congress withheld half of its ad budget due to an audit that revealed millions in spending that didn't deliver results, the Army dissolved its marketing division, relocated to Chicago, and revamped its approaches to data and events. Officials told Business Insider they planned to emphasize conferences like Comic-Con and esports festival Pax, saying gamers and programmers "make good soldiers."

The winning pitch promised to move millions in spending to the places where young people live: This pitch deck reveals how ad giant Omnicom won the US Army's $4 billion marketing business. Its first ads are about to hit digital and social media.

An extensive deck that the world's second-largest ad holding company used to win the Army account provided more evidence of the military's plans to reach young people by targeting Facebook ads to high-schoolers, running sponsored content on platforms like Reddit, BuzzFeed, and Twitch, and casting soldiers' moms as influencers.

It also listed buzzy brands like Tesla and Amazon as partners and suggested that soldiers could get jobs at companies like Google, Facebook, and LinkedIn after they leave the military.

Join the conversation about this story »

NOW WATCH: Burger King's CMO explains why the biggest risk in marketing is not taking one

• State Farm, America's largest insurance provider, said it would stop using the agency-of-record model for its ad business, joining the ranks of other big advertisers like General Mills.
• One goal is cost cutting. The insurer slashed its marketing budget by 15% last year, according to Kantar.
• State Farm's move is a loss for DDB, which has worked with the company for decades and created the "Like a Good Neighbor" campaign in the 1970s. State Farm moved its creative work to another Omnicom agency, The Marketing Arm.
• State Farm said it's working on a new campaign directed at tech-savvy consumers that will debut next year.
• Click here for more BI Prime stories.

State Farm has become the latest major brand to drop the classic agency-client model in another sign of challenges reshaping the ad industry.

The Bloomington, Illinois-based company, America's largest insurance provider and one of the country's top 50 advertisers, chose The Marketing Arm, an agency owned by the holding group Omnicom, to lead its creative campaigns moving into 2020. It's a loss for State Farm's longtime agency of record DDB, which is also part of the Omnicom network. DDB created State Farm's classic "Like a Good Neighbor" ads that blew up in the 1970s, thanks in large part to a jingle written by Barry Manilow.

"We want to leverage the full talent of our agency ecosystem, and the recent shift is another example of this philosophy," Patty Morris, State Farm's director of brand content and development, said. "Our agency model will always be flexible."

One reason for the change may be efficiency; State Farm cut its marketing budget by more than 15% last year to $615 million, according to the market-research firm Kantar Media. These figures may exclude some variables like SEO and social-media-marketing budgets.

DDB, the agency behind 'Like a Good Neighbor,' will stay on State Farm's roster but still lose a good bit of work 

Morris said the decision came after an extensive internal review and a yearlong period during which DDB served as lead agency on State Farm's business. She said the firm would continue to handle "lower-funnel" marketing but confirmed its role would be diminished.

"We tried some things and learned some things," Morris said of this yearlong period. "We're not moving forward with the 'lead-agency' model, but our relationship with Omnicom is still intact."

The Marketing Arm has had State Farm as a client for about a decade, but the new role is a significant change, since past work focused on areas like music-festival sponsorships, contracts with individual artists, and TV or film integrations.

An Omnicom spokesperson declined to comment, and DDB has not responded to a request for comment.

This shift marks another strike against the classic agency-of-record model

In recent years, advertisers like General Mills have moved away from the agency-of-record model in which a single agency is contracted to handle a brand's business. Instead, they're working with agencies on short-term basis.

These shifts have caused significant disruption in the ad industry as holding companies and their agencies struggle to recapture what were formerly reliable sources of revenue.

Repeated surveys of chief marketing officers find that a perceived lack of innovation among agency partners, combined with a desire to take greater control of the work, often fuels these changes. Some companies, like the State Farm competitors Liberty Mutual and Allstate, respond by developing in-house teams. Morris said her company would not take that route.

State Farm's move also seems to signify yet another strike against holding companies' efforts to stay relevant by creating multiagency divisions to serve a single client. An Omnicom team led by DDB adopted that approach to win McDonald's US account in 2016, then used it to win more of State Farm's business the following year.

After McDonald's awarded lead creative duties to Wieden and Kennedy in the US earlier this year, Business Insider reported that We Are Unlimited, Omnicom's McDonald's agency, would fold into DDB Chicago.

State Farm is developing a new message for tech-savvy customers

In May, State Farm launched a review to replace"Here to Help Life Go Right," its 2016 tagline developed by DDB to promote its message of providing insurance products for long-term planning. A source who worked on the campaign told Business Insider this effort polled poorly with consumers.

Morris said a new campaign, set to debut next year, would focus on the longstanding State Farm agent model and newer developments, like the company's mobile app.

SEE ALSO: Liberty Mutual slashed its agency costs 30% by bringing 80% of its creative work in-house

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NOW WATCH: 9 items to avoid buying at Costco

• Omnicom's cultural consultancy Sparks & Honey is rolling out Q, a new self-service SaaS platform that promises to use artificial intelligence to turn cultural trends into actionable insights.
• Sparks & Honey says the platform scours through millions of cultural signals around a topic from across the internet.
• Q claims it can predict how a cultural trend will evolve with 85% accuracy.
• The agency sees Q not only being useful as a cultural component of Omni, Omnicom's data hub, but a separate SaaS platform that can compete with the likes of Adobe and Salesforce.
• Click here for more BI Prime stories.

Omnicom is betting that it can help its clients predict big, disruptive cultural changes.

The holding company's 8-year-old cultural consultancy Sparks & Honey is rolling out Q, a new self-service SaaS platform that uses artificial intelligence to turn cultural trends into actionable insights.

The platform scours through millions of cultural signals around a topic from across the internet including articles, patents, academic research and platforms including Reddit, Twitter and YouTube, and puts them into cultural buckets based on Sparks & Honey's proprietary taxonomy of cultural trends that it calls the Elements of Culture. Q is also part of Omni, Omnicom's internal data and information technology hub.

"Q comes from the underpinnings of what we've been working on to make sense of culture for eight years," said Sparks & Honey founder and CEO Terry Young. "The idea was to take what we have created and translate that into a technology platform that will allow us to democratize cultural intelligence, not only across Omnicom but also to the clients that we work with."

Q automates strategists' work

Q essentially automates the process of strategists spending months on laborious and costly research, boiling it down to a few hours. Its aggregates data from across 50 countries and 12 languages and shows the past and present cultural Zeitgeist around a trend, producing insights that can inform campaign strategy and product development, Young said.

Here's how it works: When you search for a topic on the platform, it uses natural language processing to identify associated cultural signals and tags them with the corresponding Sparks & Honey "Elements of Culture."

The platform also comes with features like sentiment scores, summaries, and a feature called "Tree Map" that visualizes all the trends adjacent to the search. A search involving White Claw, for instance, might show that the brand is closely linked to "new sobriety" and "refreshed classics."

"The whole point of having algorithms behind this is that we're measuring the reach of every single one of those signals, and it has to cross a certain threshold before it's even included," said Rob Gaige, managing partner of consulting at Sparks & Honey. "That means that we're only pulling in things that are actually culturally relevant."

The agency also claims Q can predict how a cultural trend will evolve with 85% accuracy.

"For the first time, instead of looking back to say what was happening in culture and then trying to project what we should do, we now have a quantified method of projecting forward  to say this is what it's going to be," said Gaige.

Clients including EA Sports and Dairy Management Inc. are already using Q

Young sees a use case for Q as the cultural component of Omni and as a separate SaaS platform that Sparks & Honey can sell to compete with the likes of Adobe and Salesforce. He said that the platform was already being used by many of Omnicom's biggest Fortune 500 client that use Omni; Sparks & Honey's own clients like EA Sports and Dairy Management; and other Omnicom agencies internally

One such agency is media agency PHD, which has used Q on multiple new business pitches as well as client projects, said Will Wiseman, the agency's chief strategy officer. PHD used Q to build a communication strategy for a technology brand centered on the insight that people were more drawn to brands that humanized technology rather than touting the technology itself.

"Cultural trends are typically fuzzy and rely on the the subjectivity of the interpreter," Wiseman said. "But Sparks & Honey has created an organizational system that allows us to track it, size it, monetize it and bring accountability to the world of creativity."

Q helps keep an eye on trends in food and beverage, said Eve Pollet, SVP of strategic intelligence at Dairy Management. After it called attention to deep personalization, the dairy collective is trying to apply the trend to its own business.

While it remains to be seen if Q will attract new clients beyond Omnicom's existing ones, the platform is an attempt to modernize its offerings, Forrester analyst Jay Pattisall said.

"It's their way to continue to be able to deliver what their clients expect in a more modern and data-driven way," he said. "But the challenge is that no clients have really talked about a desire to pay extra for these kind of insights; they expect these kind of services from their agencies anyway."

SEE ALSO: The ad agency giant Omnicom has created a new AI tool that is poised to completely change how ads get made

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NOW WATCH: A 45-year-long study discovered trends in successful hyper-intelligent children

• Crisis comms experts are staying busy these days as companies and high-profile people hire them to respond to activist investors, #MeToo issues, and now the coronavirus threat.
• Business Insider identified the crisis PR pros who get called on the most to help spin the press, explain big company shifts, and keep businesses on track.
• They worked on some of the biggest crisis assignments of the year, like deflated WeWork, fugitive Carlos Ghosn, and convicted rapist Harvey Weinstein. 
• Visit Business Insider's homepage for more stories.

It's an busy time for people in the world of crisis PR, with clients scrambling to respond to activist investors, #MeToo issues, the coronavirus, and more.

Business Insider identified the crisis PR pros who worked behind the scenes on some of the biggest crisis assignments of the year, like deflated WeWork, fugitive Carlos Ghosn, and convicted rapist Harvey Weinstein.

They include:

• Sydney Ann Neuhaus of WPP-owned Finsbury, which helped Dick's Sporting Goods manage the response to its CEO's pro gun-control stance;
• John Bradbury of Omnicom's Ketchum, who's advised clients on everything from product recalls and data breaches to labor actions and activist campaigns;
• And Jeremy Fielding of Publicis Groupe's Kekst CNC, which had one of the biggest jobs in crisis PR last year when WeWork came calling amid its downfall.

Click here to read the full list on BI Prime: The 18 top public relations executives CEOs scramble to hire in a crisis

Read more of our coverage of public relations coverage here:

How to get a job at PR giant Edelman and what to expect if you land an interview, according to the company's recruiters

SEE ALSO: Coronavirus has threatened to cancel the Tokyo Olympics — here's why the fallout could be terrible for the TV business

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NOW WATCH: Why electric planes haven't taken off yet

• Omnicom asked its employees around the world to work remotely as the coronavirus outbreak spreads.
• The other four major advertising holding companies Publicis, IPG, Dentsu, and WPP made similar policy changes earlier this week.
• Some Omnicom employees expressed frustration with a perceived delay in the company's response to the pandemic.
• Click here for more BI Prime stories.

Omnicom Group joined the other major advertising holding companies — WPP, Publicis, IPG, and Dentsu — in asking most of its employees to work remotely for the immediate future starting March 16 as the coronavirus disrupts businesses and governments around the world.

In an internal memo sent March 15, chairman and CEO John Wren wrote that all those people except "essential staff" should work outside Omnicom offices, which will remain open.

The full memo is below.

The move came days or hours after the other major advertising holding companies made similar announcements. 

Omnicom is the second biggest ad holding company by revenue and employs about 70,000 worldwide.

Omnicom employees described internal frustration as the outbreak  spread

Three Omnicom employees who are known to Business Insider but spoke on condition of anonymity to protect their jobs expressed frustration with a perceived delay by the company in reacting to the virus.

On Friday, various Omnicom agencies advised employees to stagger commute times to avoid rush hour and adjust schedules so that no more than 50% of staff would be in an office at any given time.

But one employee said this led to some tension between company leadership and heads of local offices. A petition on Change.org, purportedly written by an Omnicom Media Group employee, called on the company to mandate office closings, sick days, and an overall travel ban.

A second employee at another Omnicom agency called the company's response "too incrementally slow."

Other major holding companies have told employees to work remotely

All five major holding companies have now told the majority of their employees to work remotely if possible to minimize the risk of coronavirus infection.

According to an internal memo obtained by Business Insider, Publicis Groupe told all staff in North America to come into the office only when absolutely necessary starting Thursday morning; a spokesperson said that policy applied globally. IPG sent out a similar memo on Friday, and WPP did the same on Saturday afternoon.

A senior executive at Dentsu who spoke to Business Insider on condition of anonymity because they are not authorized to discuss the matter confirmed that all employees were told on March 13 to begin working remotely. A spokesperson did not immediately respond to a request for comment. 

John Wren's full memo is below.

A Message from John Wren

March 15, 2020

COVID-19

These are uncertain times and we want to do our part to help limit or slow the transmission of COVID-19 while maintaining business continuity and helping our clients navigate this challenging environment.

At this stage, we feel a work from home policy is the right approach for our people. Starting March 16^th, we are asking for the support of our agency leaders to make certain our people work remotely and only essential staff go into the office. If you have not done so already, please ensure in the next day or so that you collect what you need to work from home. In addition, we are encouraging all of you to follow the guidance of national, local and city regulatory authorities.

For those that do go into an office, please maintain the recommended social distance.  We are also working with facilities management to add enhanced cleaning in our offices.

We want to reiterate - please do not come into the office if you are sick or have flu-like symptoms or if a family member you live with or roommate is sick or has symptoms. Also, please do not come into the office if you or someone you live with has a higher risk of becoming very sick from COVID-19. Lastly, if you are an essential employee and don't feel comfortable coming into the office, please speak with your supervisor. We have instructed them to accommodate your needs. And we will continue to keep all travel restrictions in place.

We are very pleased to see marked improvements in China and Singapore with our teams starting to get back to business as usual. Our people there did a great job in keeping their businesses functioning during the past couple of months. I want to thank them and all of you for your efforts now and what we know you will do in the weeks to come.

Most important, please take the necessary precautions to keep yourself, family, friends, and clients healthy and safe.

We will continue to update you on our measures as events evolve in order to support you in every way we can.

John

SEE ALSO: Leaked document: Top ad agency predicts that cancelled NBA and NCAA events will cost TV networks up to a 25% drop in viewership

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NOW WATCH: Pathologists debunk 13 coronavirus myths

• Stocks of the five biggest ad holding companies have dropped 20% to 35% as the coronavirus rattles markets around the world.
• Analysts said the largest and most heavily leveraged companies, like WPP and Publicis, and those most exposed in Asia, like Dentsu, are most at risk if advertisers cut spending.
• JPMorgan Chase said IPG could fare better because of its data and healthcare business.
• Click here for more BI Prime stories.

Top analysts said the coronavirus could further dent the five biggest ad holding companies, already struggling to overcome headwinds to their businesses.

The five companies that represent most of the $600 billion-plus global ad business were already on unsteady financial ground before the virus led to office closures, postponed events and cancelled ad campaigns.

The largest and the most leveraged, WPP and Publicis, and Dentsu, which relies heavily on the Asian market, may face the greatest risks. WPP has a bigger presence in China than any of its rivals except Tokyo-based Dentsu.

JPMorgan Chase said the smallest of the five, IPG, could be more resilient on the strength of its data business, Acxiom, and healthcare clients, which provide 27% of its revenue.

Spokespeople for the holding companies wouldn't elaborate on previously reported statements from leadership or did not respond to related requests.

The holding companies' stock prices have been pummeled by coronavirus fears

These companies' stock prices have dropped 20% to 35% as the coronavirus rattles markets around the world.

Fiona Orford-Williams, senior media analyst at Edison Investment Research, said the stock drops reflect the belief that big advertisers will cut spending until consumers start shopping again.

"We're planning on the basis of two scenarios," Orford-Williams told Business Insider. "The first is that things start picking back up in late May or June, and the second is scorched Earth. For the next 10 months, nobody wants to go anywhere or meet anybody."

While Orford-Williams called the second scenario unlikely, several holding companies have already closed offices due to confirmed or suspected cases of COVID-19 and are testing plans for people to work remotely. 

Plus, IPG and Omnicom are coming off a year of single-digit growth while WPP, Dentsu, and Publicis saw negative organic growth, and they're ill-positioned to weather the coronavirus impact, Forrester principal analyst Jay Pattisal said.

WPP and Dentsu have the most to lose in Asia 

The companies most affected will be those with a heavy presence in China and Western Europe and those that rely on travel and events planning, JPMorgan managing director Alexia Quadrani wrote in a March 10 report. The economic uncertainty will increasingly affect the US, where Publicis and WPP were particularly weak last year.

As for China, WPP is more exposed than most other holding companies. China represents about $700 million, or 4% of WPP's 2019 revenue, CEO Mark Read said on a February 27 earnings call.

China is less than 2% of Omnicom and IPG's revenue, those companies recently told analysts. Publicis CEO Arthur Sadoun didn't elaborate on a February call.

Dentsu's stock has taken the biggest hit so far. It also took the dramatic step of closing its Tokyo headquarters after two employees tested positive for the virus and telling 5,000 employees to work remotely.

As the largest of the holding companies at 130,000 employees, WPP will most likely have the biggest shifts in terms of staff cuts and remote working arrangements. This week, the company began letting employees work from home.

Analysts say the pandemic may help the holding companies get more efficient

Despite all this, analysts predicted most advertisers would keep spending to maintain brand awareness.

JPMorgan's Quadrani said some advertisers might tap the breaks but would otherwise maintain their 2020 ad budgets. She wrote that she still predicted 2% to 3% 2020 organic revenue growth at Omnicom and IPG.

Analysts also pointed out that agencies are resilient because they can reduce staff quickly or turn to temp workers for some assignments, and Pattisal predicted that, notwithstanding the human cost, having to shift to remote work might help agencies develop a more efficient model in the long-term.

SEE ALSO: Meet the 25 power players who are trying to turn around WPP, the world's biggest ad holding company

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NOW WATCH: Why thoroughbred horse semen is the world's most expensive liquid

• Companies and high-profile people always seem to be facing new crises, whether due to activist investors, #MeToo issues, bankruptcies, or now, the coronavirus.
• Bad news travels fast, and employees and consumers demand more of companies and public figures, who in turn call on experts to control the damage.
• These 18 crisis PR executives identified by Business Insider handled the most cases and most controversial assignments of the past year.
• They're the people sought out by CEOs and high-profile people seeking help spinning the press, keeping them on message, and running their businesses smoothly.
• Click here for more BI Prime stories.

Companies and high-profile people had a raft of financial and reputational trouble last year, and now, the coronavirus is forcing firms to reckon with a disruptive pandemic.

Activist investors turned up the heat on company boards in new and creative ways. Companies reckoned with #MeToo and societal hot-button issues like gun control. Once high-flying startups like WeWork ran into financial troubles and ousted their founders.

Bad news travels fast, and employees and consumers demand more of companies and public figures. 

For people like Sydney Ann Neuhaus at Finsbury, Jeremy Fielding of Kekst, and Juda Engelmayer of HeraldPR that are hired to manage the fallout, it's been a busy and lucrative time.

Business Insider identified the crisis PR pros who handled the biggest volume and most high-profile and controversial assignments of the past year.

We drew from nominations and our own reporting and we defined crisis comms broadly. Some of those on the list are known for handling financial-related issues like bankruptcies, shareholder activism, and corporate issues. Others are known for mopping up the messes of big-name individuals. Our list includes boutique shops, large independents, and ones owned by giant ad holding companies with sizeable crisis practices.

Scroll down to see who made the cut of the top crisis PR pros of 2019, listed alphabetically by last name.

SEE ALSO: Harvey Weinstein's PR guru charges up to $30,000 a month. He talks about how he threw out the playbook when representing the disgraced mogul.

Brandy Bergman, Reevemark

Just two years after CEO Brandy Bergman and four other former Sard Verbinnen managing directors started Reevemark in 2018, they've built an impressive client list among law firms, corporations, and high-profile people facing all sorts of dicey situations.

This past year, Bergman — who worked as a criminal prosecutor before joining Sard — and her firm worked to help former NY State Attorney General Eric Schneiderman rehab his reputation after sexual misconduct accusations, guided retailer Payless ShoeSource through a bankruptcy, and worked to spin the narrative of self-driving car engineer Anthony Levandowski, who was accused of stealing trade secrets while at Google.

John Bradbury, Ketchum

As the No. 5 PR firm in terms of revenue, Omnicom-owned Ketchum has a big and growing crisis practice. The practice is led by partner John Bradbury, a 19-year vet of Ketchum who's known for counseling clients on everything from product recalls and data breaches to labor actions and activist campaigns.

He's expanded the practice in recent years to sports issues management for clients facing sports-related situations and reputation management for trade associations and nonprofits.

Ketchum keeps mum about most of its clients, but in the past it counseled Malaysia Airlines following the disappearance of flight MH370, and helped Puerto Rico's tourism get back on its feet after Hurricane Maria with a campaign called #CoverTheProgress that urged people to focus on the recovery.

Jamie Diaferia, Infinite Global

Jamie Diaferia, who pivoted from law school to a PR career, started his own shop Infinite Global just after September 11, 2001, and despite being a small firm, he's worked behind the scenes on some of the biggest stories in the news, including the collapse of Enron, the Penn State scandal and several high-profile civil and criminal prosecutions — making him a top pick for crisis and PR among lawyers polled by the National Law Journal in 2019.

His big case last year was Scott Hapgood, an investment banker accused of manslaughter in Anguilla, for whom he mounted what The New York Times called"a formidable public relations campaign, winning sympathy and support from various American politicians," including President Trump himself. 

Juda Engelmayer, HeraldPR

Juda Engelmayer has had a 30-year career in crisis PR, but his biggest client last year was perhaps his most challenging ever, managing Harvey Weinstein's image as the now-convicted rapist headed to trial.

Read Business Insider's profile of Engelmayer here: Meet Juda Engelmayer, the man in charge of crisis PR for Harvey Weinstein who charges clients up to $30,000 per month.

Engelmayer came up in the gritty world of New York government, paving the way for a career in crisis PR. He started his own shop three years ago after stints at Rubenstein and 5W Public Relations and is known to take cases other firms turn up their noses at. Last year he represented two kids whose parents were embroiled in the college admissions scandal. 

Working for a controversial client like Weinstein can make some PR pros toxic to other clients, but there always seems to be a need for crisis experts like Engelmayer.

Carter Eskew, founder, Glover Park Group

DC-based Glover Park Group was founded in 2001 by former Clinton White House insiders Carter Eskew, Mike Feldman, Joel Johnson, and Chip Smith. Today, the firm is part of ad holding company giant WPP with 180 people in New York and DC. Run by Eskew, Feldman, and Johnson, the firm plays to its political roots, citing its White House along with finance and journalism experience.

Notable projects have included AstraZeneca during the Pfizer takeover attempt, Livestrong, SeaWorld, and the Takata airbag recall. Most recently, it did work for Carlos Ghosn, the former Nissan boss facing charges of financial wrongdoing, before he fled Japan.

Jeremy Fielding, Kekst

Kekst CNC, which formed from the merger of Publicis Groupe agencies, had one of the biggest jobs in crisis PR last year when WeWork came calling amid its downfall. Publicis reportedly was paid a hefty $500,000 a month, mostly for crisis PR services.

Leading the practice is co-CEO and partner Jeremy Fielding, a 20-year vet of Kekst who has been a go-to for senior management, boards, and communications teams for global companies for communications help in managing their businesses or protecting their reputations.

Other recent crisis clients include United Technologies (including Carrier), Intuit, Citrix, Cardinal Health, Volkswagen, DuPont. Shareholder activism has also kept Kekst busy last year; in the past three years it's helped companies with a combined market cap of about $1 trillion prepare for or fight activism, including Legg Mason and Nielsen.

Kekst has bolstered its crisis bench recently, bringing on Chris Giglio, formerly president of HL Strategic Solutions; Sherri Toub from Finsbury as co-head of the Bankruptcy & Restructuring group; and Sir Robbie Gibb, Theresa May's former comms director.

Joele Frank, founder, Joele Frank

Activist investors have been turning up the heat on company boards, which is good for firm founder and managing partner Joele Frank, whose speciality is defending companies against shareholder activism — she claims to have defended firms more than 40 times against Starboard, just to name one.

The firm was named the top shareholder activism defense IR advisor by Bloomberg's 2019 Global Activism Market Review for a year when it advised companies like Magellan Health and Akamai in spats against active activists like Elliott and Starboard. 

And for the third time in a row, Joele Frank was named Communications Firm of the Year by The M&A Advisor for its restructuring and reorganization work, reflecting its work for firms like bankrupt Barneys. The firm led by its namesake founder, also helped companies like L Brands through the sale of Victoria's Secret Beauty; and Penn National Gaming in its investment in Barstool Sports.

Davidson Goldin, Goldin Solutions

Broadcaster-turned PR pro Davidson Goldin marked his firm's 10th year in 2019 with new clients and revenue growth, as its growing reputation for crisis management has made it a go-to for business, media, and entertainment clients in sticky situations.

Over the years Goldin helped Duke Energy while it was investigated after its merger with Progress Inc.; Steven Rattner, who faced an SEC kickbacks probe; and "Barefoot Contessa" Ina Garten in her lawsuit against a copycat frozen dinner line. Other clients have been Gawker Media during its legal battle with Peter Thiel-backed Hulk Hogan; Mets owners Fred Wilpon and Saul Katz in their litigation with the Madoff trustee; and the family of hedge fund billionaire Glenn Dubin, whose wife once dated Jeffrey Epstein.

New clients include the Lung Health Institute and Away, the online luggage startup that was the subject of an expose by The Verge over the CEO's Slack messages to employees.

Matthew Hiltzik, Hiltzik Strategies

Matthew Hiltzik is known for representing celebrities like Katie Couric, Brad Pitt, and Drake, but his clients also span the worlds of sports (the Jets, the Mets), education, tech, and finance.

After helping build British-based Freud Communications in the US, in 2008 he started his own firm, which springboarded Hope Hicks and Josh Raffel into the Trump White House inner circle.

Fierce and multifaceted, Hiltzik is a lawyer who's heavily involved in Jewish, Democratic, and other causes (but not so ideological as to prevent him from once working for and befriending Glenn Beck), work that helps bring him a range of clients. He's also a documentary producer — his credits include the Emmy-winning "Paper Clips."

The firm has expanded its consulting practice in the past several years to help clients fix operational issues to prevent future crises. Says Hiltzik: "The more context, information, you have about how a business is operating, the more effective you can be in advising them."

Declan Kelly, Teneo

Nine-year-old Teneo keeps a low profile despite its Clinton roots (chairman and chair and CEO Declan Kelly was a Hillary Clinton-appointed envoy and president Douglas Band was a Bill Clinton aide) and its growth into an 800-person global company with crisis one of four key businesses.

Led by Irish-born Kelly, who's also known as a big Clinton fundraiser and is a former EVP of the giant FTI Consulting, Teneo bills itself as the "global CEO advisory firm" with "a significant number of the Fortune 100 and FTSE 100, as well as other global corporations" as clients. They've included the CEOs of Dow, Coca-Cola, and IBM, and it's known for its retainers averaging $250,000. Ousted Uber CEO Travis Kalanick turned to it in 2017 to rehab his reputation.

It's recently bolstered its expertise in this area with the return of Jimmy Asci, a longtime crisis pro who left the firm in 2019 to help WeWork; and hires of crisis pros Radina Russell and Simon Buckby.

Scott Lindlaw, Sard Verbinnen

Crisis is a mainstay of Sard Verbinnen & Co.'s business, and last year was no exception.

Scott Lindlaw, a managing director and senior member of the firm's crisis team, was called in to help Capital One through one of the year's biggest data breaches, when more than 100 million people's data were compromised. Using his journalism background (he was a White House reporter before becoming a lawyer), he pushed to mitigate negative press coverage and get the media focused on an arrest made in the case.

Other big cases include advising PG&E's board on its financial troubles stemming from California wildfires in the prior years, and Intel's fallout from processor bugs known as Spectre and Meltdown.

Kerri Lyon, SKDKnickerbocker

Crisis is at the heart of SKDKnickerbocker, a public affairs and political consulting firm that's known for its work for Democratic Party and progressive causes. 

Partner Kerri Lyon, a former TV reporter and comms director for the New York City Department of Education, knows how to spin a story and get support for complex policy issues. She along with partners Mike Morey and Jill Zuckman put that background to work helping Memorial Sloan Kettering when it faced reports over conflicts of interest and lack of disclosure, working with New Orleans when it removed Confederate monuments from city property, and aiding the United Auto Workers in its battle with General Motors.

SKDKnickerbocker also was one of the firms that got involved in the Carlos Ghosn fugitive case, and controversially did work for spyware company NSO Group.

Part of former Clinton aide Mark Penn's Stagwell Group, the firm sees 2019 as a year of expansion with acquisitions and new hires.

Andy Merrill, Prosek Partners

#MeToo, firearms and opioid businesses, and active shooters cases contributed to a busy year for Prosek, where crisis, or "Special Situations," as Prosek calls it, is a growing part of the independent firm's practice.

Leading the practice are partner Andy Merrill — who joined in 2015 after stints at big crisis PR shops Teneo and Finsbury and is known for helping UBS with its rogue trader scandal — along with partner Mickey Mandelbaum and managing director Brian Schaffer.

The firm reported average revenue growth of 16% the past three years with Special Situations up 20% year-over-year and increasing at a 5-year compound annual rate of 40% as the firm takes on M&A, shareholder activism, sexual harassment, and natural disasters. 

Sydney Neuhaus, Finsbury

Corporations, high-profile people and organizations call Finsbury's Sydney Ann Neuhaus when disaster strikes. 

The UK-founded firm that's part of ad holding company giant WPP touts itself as having "managed some of the most complex communications challenges of the last three decades," and Neuhaus, managing partner and the firm's first female partner in the US as well as a vet of FleishmanHillard and Edelman, leads the crisis practice, which accounts for 40% of the firm's business.

Over the years, it's worked with Volkswagen during its emissions crisis, the Kushner family's real estate company when it was facing scrutiny over its dealings; and Citigroup and Barclays in the wake of the financial meltdown.

It recently helped Adidas on a variety of issues and Dick's Sporting Goods when its CEO took a pro gun-control stance. 

Sometimes its work is closer to home: In 2016, Finsbury helped sibling WPP agency JWT after its CEO Gustavo Martinez left amid a discrimination lawsuit.

Hugh Taggart, Edelman

As the world's biggest PR firm, Edelman has one of the biggest crisis practices, which it's lately strengthened in areas like litigation, dispute communications, and predictive analysis.

That practice is led by global practice chair Hugh Taggart, who also leads the London corporate practice and whose advice is sought by leaders of companies like Starbucks, Sky, and Ikea. Before joining Edelman in 2017, he was a partner and managing director at Bell Pottinger, the UK PR firm known for working for dictators and repressive regimes.

Last year Edelman dropped as a client Geo Group, a company that runs immigration detention centers for the government, as it faced a potential PR crisis of its own. But it prefers to be known for less controversial cases, like the World Health Organization and World Economic Forum that it's helping on initiatives including a program to help companies communicate and combat misinformation in the case of an outbreak.

Ryan Toohey, FTI Consulting

FTI Consulting keeps a low profile, although its clients are anything but. Recently it's advised Jeff Bezos in the alleged Saudi phone hacking case, and investigated the Steele dossier on potential Russian interference in the 2016 US election.

Senior managing director Ryan Toohey, a onetime pollster and campaign manager for Eliot Spitzer, leads the crisis practice, which lately has supported McClatchy in its bankruptcy and the Boy Scouts of America to deal with its bankruptcy stemming from sexual abuse allegations. No wonder its stock has nearly tripled in the past two years.

Founded in 1982 as Forensic Technologies International, FTI has exploded through acquisitions to become a $2.4 billion-a-year company that provides expertise on corporate litigation, forensic accounting, restructuring, bankruptcies and regulatory matters.

Revenue grew 16% last year across all areas, and Toohey sees FTI well positioned to benefit.

"We're at this unique moment where issues management that leads to litigation that leads to restructuring is already a fruitful avenue of business, but it's also a market force, and we in particular are well suited to manage that," Toohey said.

Ronn Torossian, 5W Public Relations

Ronn Torossian, founder and CEO, has been described as"perhaps the most prominent practitioner of a brass-knuckled form of public relations." He has longstanding Trump ties that had him defending the Eric Trump Foundation, and is known for embracing clients at the center of charged news stories and stunts like a dubious poll about Corona beer and the coronavirus.

Recently he went to bat for Sinclair Broadcasting when it was accused of pushing a partisan agenda; the Institute for Reproductive Medicine and Science, which was sued when a white couple gave birth to an Asian baby; and Newcastle Realty Services, where a property manager was charged with rent control manipulation.

Then there are the articles you don't see: Said one longtime client, Torossian "has helped us avoid countless stories and get ahead of many other media stories."

James Wright, Red Havas

Wright is global CEO of Red Havas, formerly known as Havas PR, and is a part of French-owned Havas Group's Havas PR Global Collective. Crisis is about 10% of the collective's $200 million annual revenue and growing, with clients like Toyota turning to Wright for advice on the Takata airbag recall in 2019 and others seeking help figuring out responses to the coronavirus.

UK-born Wright came to PR early and was one of the youngest people to be inducted as a Fellow of the Public Relations Institute of Australia. He's had high-profile gigs advising Jaguar Land Rover on its role in climate change; Mondelez and Coca Cola on obesity and recycling; and Malaysia Airlines over crashes. He's also helped blue-chip clients like BT Group, Lexus, and HSBC.

• Analysts say the worst is yet to come for the ad holding companies like WPP, IPG, and Publicis as they brace for COVID-19's full impact, with revenues predicted to fall as much as 15%.
• JPMorgan predicted that the third quarter would be the most dramatic, with advertisers cutting TV and digital spending.
• Pivotal Research Group senior analyst Michael Levine said the pandemic recovery would be more challenging for the holding companies than the last recession because these companies already face significant headwinds.
• The holding companies have variously pulled their earnings estimates for 2020, frozen hiring, and instituted pay cuts.
• Click here for more BI Prime stories.

The coronavirus pandemic has already reshaped the advertising industry— and its most dramatic effects are still months away.

That is the primary takeaway from JPMorgan and other top financial firms and analysts and all five of the largest ad agency holding companies as they look to reassure investors.

IPG, WPP, and Publicis all withdrew their annual earnings estimates in light of the pandemic; WPP and Publicis announced global hiring freezes. WPP, IPG, and Omnicom took additional steps to improve their liquidity while Tokyo-based Dentsu said it would revise its financial forecast when more information becomes available.

Spokespeople for all five companies declined to comment beyond their announcements to investors.

Some analysts said the coronavirus downturn would be longer and more pronounced than the last recession

This recovery will be a lot more challenging than in the 2008-2009 recession, when the holding companies didn't face such significant headwinds and had more ways to cut costs, said Michael Levine, senior analyst at Pivotal Research Group focusing on the internet and media.

Even before the pandemic hit, most analysts saw the best-performing holding companies, like Omnicom and IPG, having only 2% or 3% organic revenue growth this year.

Levine foresaw overall ad budgets being cut by 20% to 25%, citing slowdowns in ad revenue at Facebook, Google, and Twitter, with agency fees reduced by at least 10% to 15% in turn.

But Levine emphasized that agencies will still be getting work as brands need help adjusting their messages.

"You can see it visibly on TV; creative is getting re-deployed with a more coronavirus-appropriate message," he said.

JPMorgan predicts that COVID-19's worst effects will hit the ad industry in Q3 2020

JPMorgan was slightly more upbeat than Pivotal but still predicted agency revenues would dip around 6% this year on average.

Managing Director Alexia Quadrani put out a report Friday predicting Omnicom and IPG would post Q2, Q3, and Q4 organic revenue growth of -5%, -6.5%, and -2.0%, respectively.

The report stated that peak losses would probably be around half what they were at the deepest point of the last recession in November 2009, when Omnicom and IPG saw -11% and -14% growth, respectively, in the US. But Quadrani still anticipated that earnings per share would be down between 16% and 20% year-over-year for the two companies.

JPMorgan said advertisers could shift spending to digital platforms, mitigating the effects of a COVID-19 downturn, but another forecast, from UBS, predicted total digital spend would decrease by at least 10% to 15%.

JPMorgan also cautioned that its outlook might be too optimistic, especially if the US takes a turn for the worse and short-term demand for premium PR and rebranding services dries up.

The holding companies have taken steps to strengthen their balance sheets

Omnicom alerted investors that the pandemic could adversely affect the company, then announced that it would sell $600 million in senior notes to shore up its finances.

IPG withdrew its financial guidance for 2020, citing limited visibility into the market changes wrought by COVID-19. The company then followed Omnicom in offering $650 million in senior notes and set up a $500 million yearlong revolving credit to further strengthen its balance sheet.

Publicis Groupe also said it would pull its guidance and issued a hiring freeze.

On March 31, WPP pulled its guidance, froze hiring, suspended buybacks and final 2019 dividends for shareholders, and cut pay by 20% for its board and executive leadership committee for the next three months.

Morgan Stanley wrote that the hiring freeze was most significant because WPP has more than 100,000 employees and an annual turnover rate greater than 25%, so its hiring and retention expenses are greater than those of its rivals. The holding company hopes to save up to $1 billion for the rest of 2020.

Smaller ad holding companies have also taken steps to improve their finances. 

Executives at MDC Partners including CEO Mark Penn purchased tens of thousands of shares over the past week-plus, according to SEC filings, as its stock price recovered slightly from an all-time low of $1.02 on March 20.

An MDC Partners spokesperson did not respond to a request for comment.

Got more information about this story or another ad industry tip? Contact Patrick Coffee on Signal at (347) 563-7289, email at pcoffee@businessinsider.com or patrickcoffee@protonmail.com, or via Twitter DM @PatrickCoffee. You can also contact Business Insider securely via SecureDrop.

SEE ALSO: LinkedIn pauses new hires over coronavirus uncertainty — read the leaked internal memo

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• Omnicom, the second-largest advertising holding company, confirmed in a memo from CEO John Wren that it would furlough and lay off staff because of the economic effects of the coronavirus pandemic.
• In the memo, Wren thanked employees but wrote that Omnicom had to "respond quickly to the reality of the moment." He also outlined other cost-cutting steps.
• Omnicom's rival holding company Dentsu instituted furloughs and pay cuts earlier this month.
• During the last economic downturn in 2018, the company laid off an estimated 5% of its global workforce, or about 3,500 people.
• Click here for more BI Prime stories.

John Wren, the chairman and CEO of Omnicom, sent a memo to all employees on Tuesday saying that the second-largest ad holding company would furlough and lay off staff across its global agency network because of the economic effects of the coronavirus.

Its rival holding company Dentsu confirmed earlier this week that it had instituted pay cuts and furloughs across agencies, and sources told Business Insider that some had been laid off.

The full memo from Wren, which is included below, thanked employees for their work but said the company had "to respond quickly to the reality of the moment" by reducing expenses in ways that would affect Omnicom's 70,000-plus employees worldwide. Wren also wrote that he would waive 100% of his own salary through the end of September.

An Omnicom spokesperson declined to comment. 

A source who is known to Business Insider but spoke on condition of anonymity because they are not authorized to comment said furloughs at the company, which includes agencies such as BBDO, OMD, and TBWA\Chiat\Day, were expected to begin this week.

The scale of the changes is unclear. During the last economic downturn in 2008, Omnicom laid off at least 5% of its global workforce, which amounted to 3,500 people or more. Analysts told Business Insider that the current recovery would most likely be longer and more challenging for the ad industry.

Read the full memo below:

A message from John Wren

As the impact of COVID-19 continues to evolve, we are focused on protecting the safety and well-being of our people, continuing to serve our clients and preserving the strength of our business.

I have personally heard from clients around the globe just how much they value the work you are doing in their time of need. Thank you for everything you are doing, despite all the challenges. 

Unfortunately, COVID-19 has had a profound impact on the economy, on our clients' businesses, and in turn, on ours. While we hope for a swift recovery, we have to respond quickly to the reality of the moment, to ensure the sustainability of our business and our ability to continue to provide our clients with outstanding service.

Since my last note to you, we have solidified some of the internal measures to adjust our business to meet the changing needs of our clients. Regrettably, this will include furloughs and staff reductions across many of our agencies. We are doing everything we can to limit staff reductions, and to take care of those who are affected.

• Where possible, our agencies will use furloughs rather than permanent reductions, so we can bring people back if, and when, conditions improve and client demand recovers.
• Our agencies will participate in government subsidy programs around the world to reduce the number of permanent staff reductions we need to make.
• We have expanded coverage in our U.S. health benefit plans for those affected by COVID-19.
• We are actively looking to move people into areas of our business that are growing, such as Omnicom Health Group.
• Omnicom's executive leadership team, including our Network and Practice Area CEOs, are reducing their salaries by a third, and I am waiving 100% of my salary, through the end of September.
• With few exceptions, we have stopped all new hires, frozen salaries, and reduced the number of freelancers we use.
• We are eliminating discretionary costs and capital expenditures, wherever possible, including participation in award shows and industry events.
• Lastly, we have suspended our share repurchase program, have strengthened our liquidity position through new financings, and are conserving cash wherever possible.

You are the heart of our business and that makes these actions extremely difficult. We have survived crises before. Our people and our company have shown tremendous grit and resilience and we will come out of this stronger.  

Thank you for your hard work and commitment during this difficult time. 

Stay home. Stay safe.

John

Got more information about this story or another ad industry tip? Contact Patrick Coffee on Signal at (347) 563-7289, email at pcoffee@businessinsider.com or patrickcoffee@protonmail.com, or via Twitter DM @PatrickCoffee. You can also contact Business Insider securely via SecureDrop.

SEE ALSO: Ad holding company Dentsu implements 10% pay cuts, furloughs, and layoffs across the US amid coronavirus pandemic

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• Furloughs and layoffs have begun to hit all the major ad holding companies as the coronavirus pandemic has ground the economy to a halt and led advertisers to cut spending.
• MDC Partners' CPB, Omnicom's DDB, and WPP's Grey were among agencies affected this week.
• Omnicom CEO John Wren earlier this week predicted furloughs and staff reductions across many of its agencies.
• Executives at WPP, IPG, Publicis, and Omnicom also said they would take pay cuts.
• Click here for more BI Prime stories.

Layoffs and furloughs began to hit the ad industry's major holding companies due to the economic effects of the coronavirus pandemic.

MDC Partners' CPB, Omnicom's DDB, and WPP's Grey are among the agencies affected.

Other reports and recent comments from the leaders of these companies indicated that cost-cutting moves will affect nearly every agency in their networks.

CPB, whose clients include Domino's Pizza, had to furlough and lay off staff

Two people with direct knowledge of the matter, who are known to Business Insider but requested anonymity, said the changes hit CPB late yesterday.

These people said more than 30 employees were affected, with most placed on furlough but around a dozen laid off. One also said non-billable employees, or those whose hours are not billed directly to clients, were moved to part-time work, and that many took pay cuts.

CPB declined to confirm specifics.

"Like everyone across the industry, we've been affected by the global pandemic. We have made the difficult yet unavoidable decision to furlough a portion of our staff, and layoff a small group," CPB global CEO Erik Sollenberg said. "Our people are our most valuable asset and we feel for them as well as everyone affected by this situation around the world."

CPB's largest client is Domino's Pizza, but both people said the agency has struggled to win new business over the past year.

Omnicom and WPP have also begun to make staffing changes

Omnicom's DDB also went through an unspecified number of layoffs today, according to two people with knowledge of the matter.

Omnicom CEO John Wren told all staff yesterday there would be furloughs and staff reductions across many of its agencies. Spokespeople for Omnicom and DDB declined to comment.

WPP-owned Grey, best known for its controversial Gillette ads, also instituted hiring freezes and senior-level pay cuts and placed more than 3% of New York staff on furlough this week to avoid layoffs, according to a person with knowledge of the matter who is known to Business Insider but spoke on condition of anonymity because they are not authorized to discuss it.

A spokesman declined to comment.

The full effects of the virus on the holding companies will not be clear for months

In internal memos and interviews, WPP CEO Mark Read and IPG CEO Michael Roth would not rule out layoffs and said executives would take pay cuts, with WPP's executive committee foregoing 20% of its pay during the second quarter.

Adweek previously reported layoffs and furloughs at IPG agencies MullenLowe and Deutsch.

Publicis, which released an early Q1 earnings report on April 13, said CEO Arthur Sadoun and other members of its advisory board would take a 30% pay cut.

Wren wrote in his memo that he would waive 100% of his own salary, with Omnicom agency network CEOs cutting their pay by one-third.

Dentsu implemented pay cuts averaging about 10% across its Dentsu Aegis Network agencies in the US, according to employees who spoke to Business Insider. The company confirmed furloughs and reductions but did not go into detail.

MDC Partners declined to comment for this story.

Each of the holding company CEOs earns the vast majority of his annual compensation from bonuses and stock rather than salary. In 2010, a prominent New York money manager that owned 1% of Omnicom at the time criticized the company for granting 22 million stock options to executives during the last economic downturn.

Got more information about this story or another ad industry tip? Contact Patrick Coffee on Signal at (347) 563-7289, email at pcoffee@businessinsider.com or patrickcoffee@protonmail.com, or via Twitter DM @PatrickCoffee. You can also contact Business Insider securely via SecureDrop.

SEE ALSO: Platforms for ad creatives are thriving in the pandemic, and their rise could further erode advertising agencies

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• The coronavirus pandemic is upending the advertising business, along with other swaths of the economy.
• Here is a breakdown of how the pandemic is impacting advertising, from layoffs and furloughs to events cancellations to softening sales for startups.
• Visit Business Insider's homepage for more stories.

The advertising business has been upended by the coronavirus, along with other sectors of the global economy. Advertisers have hit the breaks in spending as sales plummet, audiences for live sports have fallen, and layoffs rip through media and advertising agencies.

Read more here: Layoffs and furloughs hit holding companies WPP, Omnicom, and MDC Partners as advertisers slash spending 

Amazon experts and sellers say that brands that sell essential goods are advertising more on the e-commerce platform while brands that sell discretionary items like clothing are struggling for sales.

Get the details here: 'It's a total bloodbath:' 5 Amazon sellers and experts share stories of turbulent sales amid the coronavirus outbreak

The number of major cancelled sporting events continues to grow, causing a headache for TV networks who are betting big on live sports for ad revenue and advertisers who have to find those audiences elsewhere. According to ad-buying agency Magna Global, the networks that were planned to air live sports can expect to take a drastic viewership hit.

Read more: Leaked document: Top ad agency predicts that cancelled NBA and NCAA events will cost TV networks up to a 25% drop in viewership

Here: TV sports viewing will 'go from bad to abysmal' in the coming months, but analysts say NBCUniversal and Fox are best poised to weather the coronavirus

And here: This year was supposed to be a banner year for sports TV. Now advertisers are scrambling to figure out where to put their money as live events get scrapped or postponed.

JPMorgan Chase analysts said the largest and most heavily leveraged companies, like WPP and Publicis, and those most exposed in Asia, like Dentsu, are most at risk from advertisers cutting spending, while IPG could fare better because of its data and healthcare business.

See the breakdown on how holding companies could be impacted: Analysts lay out the effects of the pandemic on the ad holding companies, with advertisers slashing TV and digital spending

Live events have been particularly devastated by the coronavirus as in-person gatherings have been cancelled to prevent the spread of the pandemic, forcing related businesses to pivot.

Read how one is working through the crisis: How an events agency that has worked with Hilton and Barack Obama is safeguarding its business as the coronavirus wreaks havoc on live events

Advertising hasn't completely stopped, but marketers are scrambling to make sure all their messaging is right for the moment, even pulling entire campaigns in some cases. Media buyers are trying to keep up with all the disruptions, and agencies are figuring out how to win new business through remote pitching.

Read further: The coronavirus is upending advertising. Top marketers at Toyota, Burger King, and Hippo reveal how they're changing their ad strategies to keep up.

And: Cancelled ad campaigns and 60% cuts in spending: Media buyers are scrambling to manage disruptions to their businesses amid the coronavirus crisis

See what advice agencies are getting: Top consultants issue coronavirus guidelines for ad agencies as they pivot to remote pitches

The pandemic has stirred up debate about advertisers' practice of avoiding hard news, which is making it hard for news publishers to monetize big readership gains. Meanwhile, investors offer advice for media companies on how to make it through the downturn. 

Go deeper here: Media companies have never had more readership, but a group of adtech companies are making it tough to monetize

And here: Ad agencies are calling on advertisers to get comfortable with coronavirus news

And here: Digital media companies are facing the worst downturn in a generation. Investors in Axios and The Athletic say what CEOs should do to survive.

Some buzzy Silicon Valley startups that were modeled on explosive growth are seen as particularly vulnerable as people hunker down and stop spending. Some from men's health startup Ro to new parent-aimed Frida are finding ways to try to stay foremost on consumers' minds.

Read more: How Silicon Valley's direct-to-consumer startups are navigating the coronavirus crisis, as consumer demand crashes

We've also been looking ahead to the coronavirus's lasting impact on these industries. It will not only deal a severe financial blow to the ad industry in the near term but materially transform advertising in the long run, and strengthen the tech giants, said industry insiders.

See more on the virus' long-term impact here: 'It will fundamentally reshape the advertising industry': Ad insiders from Burger King, Freshly, McCann, and Vita Coco say the coronavirus will radically change the business

And here: Facebook and Google might get walloped by the thousands of small businesses impacted by the coronavirus, but their massive ad businesses will come out stronger in the end

Join the conversation about this story »

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