The New Year continues with its share of old worries. The economic slowdown has impacted just about anything that it has touched – some look at it as correction and opportunity, while some have felt the pinch and made no pretence in hiding it. Now, many advertising agencies are dreading the contract renewal time. Whether it is December or March, depending on various companies, clients have expressed to a few agencies their desires to renegotiate on agency commissions given the backdrop of the troubled financial times.
While media agencies don’t seem to feel any pressure from clients yet, many senior officials from various creative agencies have been caught in conversations with clients on commission. The tough times for some have begun already. However, for now, neither the clients nor the agencies are comfortable discussing anything on the commission subject. Most of the agencies and clients that exchange4media spoke to have stated that so far the panic button has not been hit. At the same time, they are quick to add that they are prepared for the first half of 2009, which most agency officials believe to be tougher than anything seen recently.
Commissions cannot crash further, but work has slowed
Agencies are not remotely pleased with even the thought of agency commission coming under the scanner. R Balki, Chairman and NCD, Lowe Lintas India, stated, “If any agency agreed to work on commission rates that are any lower than what they are today, it only implies that the agency does not respect its own brains, and this applies to the clients as well.”
The fact that many clients have put their campaigns on hold is common knowledge. Arvind Sharma, Chairman, Leo Burnett India, drew attention to this part of the clientele, and its impact on an agency. He said, “There is a set of clients who have stopped advertising completely for now. These include anything related to stocks, airlines, real estate, private equity funded projects and ventures. In that case, there are no discussions any ways.”
Contract Advertising’s CEO Umesh Shrikhande, too, pointed out that wherever clients had cut down on their activities, there was an automatic impact on the overall remuneration. He said, “In cases where a particular industry or company is affected, clients will inevitably reduce their marketing scope, scale and effort. And only in such cases the agency remuneration is likely to get rationalised.” However, Shrikhande voices the Balki school of thought that “sound, mature client partners would not expect the agency to do the same for less”.
One point that Sharma raises is that for every client that has stopped a campaign, there are those who are keen to increase their share of voice. He said, “The environment has made everyone cautious. There are two key aspects to consider here. But then, there are those categories also where clients need to communicate more to increase their sales. These clients are looking for stronger marketing campaigns today, and that is drawing a balance. At least in the case of our agency, we have a larger share of the latter.”
Is the fee structure a better bet?
HDFC Standard Life is working on a fee-based structure. When asked on whether they were looking at revisiting their remuneration structure, Sanjay Tripathy, the Marketing Head and Vice President of the company, replied, “Not exactly. We are working on a fixed fee structure that is in any case dependant on aspects like the resources of the agency, the time spent on a project, and the kind of work that we need from the agency. We look at those factors and then finalise the fee. There are no changes made in the course of the year. At the end of the year, the discussion comes to the table, and it is linked on how well the agency has performed and the kind cost structure that they are working in.”
There are many agencies that have a good number of their clients working on the fee-based structure. While there are agency heads who have said that the structure has its own benefits, there are others who still think that the commission structure works better. Arvind Sharma elaborated on the latter and said, “In a country like India, for every one year of recession, there are 10 years of growth. So, for every bad year on the commission structure, there are 10 very good years. I am a great supporter of commission.”
Commission or fee, the reputed clients have made no qualms in stating that they would keep their end of the deal this year. Reliance Communications’ Brand Head, Sanjay Behl, said, “We are very busy with many activities given our DTH and GSM launch, and we would definitely honour every single commitment made.” The worry really is for the months ahead.