[petercooper]

Be honest with this potential client. Don't act or sound bitter or jealous at all. Totally accept their decision but just point out that if they need you at all in the future, you're just at the end of the phone.

If your competitor is as inferior as you say, those agencies might come back to you for advice on how to "fix" the problem caused by the competitor. Then you can charge more and still look helpful.

This happens a lot in other industries and I have personally benefited from it myself. You get to look good, charge more, and providing service to a customer that was previously shafted is easier than one demanding perfection from day one.