Publicis-Omnicom merger

As an ex-Publicis ( well, and ex-WPP before that) employee I felt compelled to write a bit about this topic.

First, size notwithstanding it makes sense. Speaking very generally and from a less than fully informed position … Publicis feel strong in advertising and PR, and made numerous Digital acquisitions but are beyond weak on credible brand strategy/branding agencies. Omnicom is strong in brand , analytics and advertising in particular. So that makes sense.

Second, Richard Pinder’s comments seem informed and reasonable.

Third, let’s not forget the “rule of three and four” when it comes to consolidation in any sector.  The classic BCG article is here and makes a strong case for the right balance of market share among big sector players.  In summary (from the BCG site):

A stable competitive market never has more than three significant competitors, the largest of which has no more than four times the market share of the smallest.

The conditions which create this rule are:

  • A ratio of 2 to 1 in market share between any two competitors seems to be the equilibrium point at which it is neither practical nor advantageous for either competitor to increase or decrease share. This is an empirical observation.
  • Any competitor with less than one quarter the share of the largest competitor cannot be an effective competitor. This too is empirical but is predictable from experience curve relationships.

Characteristically, this should eventually lead to a market share ranking of each competitor one half that of the next larger competitor with the smallest no less than one quarter the largest. Mathematically, it is impossible to meet both conditions with more than three competitors.

The Rule of Three and Four is a hypothesis. It is not subject to rigorous proof. It does seem to match well observable facts in fields as diverse as steam turbines, automobiles, baby food, soft drinks and airplanes. If even approximately true, the implications are important.

The underlying logic is straightforward. Cost is a function of market share as a result of the experience curve effect.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s