In a significant move, the Advertising Agencies Association of India (AAAI) has set up a ‘steering committee’ to examine the issues concerning the agency remuneration system in the Indian advertising industry. The committee’s members have been selected from its 16-member executive committee.
According to AAAI president Sam Balsara, extensive inquiries (based on both number and volume) have revealed that the vast majority of business conducted by AAAI members is on a 15 per cent commission basis (creative plus media agency commission). ‘‘Of the 3,000-4,000 advertisers, there may be a handful who for a variety of reasons may be operating on a commission or fee that is lower than 15 per cent, but a few exceptions do not make the rule,’’ he says.
The AAAI step comes in the wake of the Indian Newspapers Society (INS) warning agencies that it will ‘‘carefully scrutinize the operations of accredited agencies as and when required and disaccredit those who violate INS rules and regulations.’’
While admitting that INS had been receiving a number of complaints that several accredited agencies were offering clients discounts in violation of the rules, says INS secretary-general PK Lahiri, ‘‘We have heard of such cases, but I think they are still an exception rather than the rule.’’
Nevertheless, as recently as September 2002, INS had sent a letter to AAAI, requesting agencies to ‘‘strictly adhere to the rules in the interests of all concerned constituents’’ or face disaccreditation. Subsequently circulars were sent by AAAI to its members pointing out the need to ‘strictly adhere’ to the INS stipulations.
According to sources, accreditation rules have so far stood the test of time and served the long-term interests of all the three constituents of the advertising industry. The principle of agency commission has been thoughtfully developed and maintained by the INS in order to ensure the development of professionalism among accredited agencies and also ensure that financial discipline and controls are in place for the benefit of INS members and their advertisers.’
Even though many large and multinational advertisers are reported to be operating on less than 15 per cent commission, an AAAI release says it’s not because of the meltdown of the commission system but because of the nature of global arrangement between multinational advertisers and their club agencies.
As the advertising market grows and evolves, so do advertiser requirements and there could be certain situations where the agency commission is not 15 per cent. Media buying or media planning plus buying are separately paid for. The entire gamut of services in the area of Creative (consumer research/insight, strategy, creative) is not availed of.
The fee system, however, does not always reduce agency commission. In fact, in cases where it is related to the volume of advertising, it may actually be higher than 15 per cent. While in the global marketplace, it is the fee system that is followed, this may not be suitable in India for the majority of small and medium advertisers as arriving at the amount is usually an elaborate and time consuming process.
According to a Mumbai-based analyst, the entire hullabaloo on agency commissions misses a point because agency commissions are paid to agencies by media, not by the client. Clients who wish to prune agency commissions also need to understand that they are trespassing into domains that are not theirs, in the first place.