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The Meltdown: Are clients looking at mid-sized agencies during economic slowdown?

The Meltdown: Are clients looking at mid-sized agencies during economic slowdown?

Author | Pallavi Goorha | Wednesday, Nov 19,2008 7:08 AM

The Meltdown: Are clients looking at mid-sized agencies during economic slowdown?

At this time of economic slowdown, where various sectors facing a standstill of sorts, a new debate is emerging in the advertising fraternity. Are clients looking at leaving the huge commissions and expenses that come with a large agency and move their businesses to mid-sized agencies? Even as many may be thinking on those lines, exchange4media finds out from industry experts that the switch is not already happening on ground.

Economic slowdown does impact budgets

Vivek Srivastava, Joint Managing Director, Innocean Worldwide India, said, “The clients who shift to mid-sized agencies are genuinely constrained by lack of budgetary support in terms of engaging an agency from the leading pack. I think it is important to sift out the issues. Some genuinely seek a compact team with lower financial outgo in keeping with their real needs. Also, there is a tendency these days to look at advertising services through the filter of procurement process and its principles. Obviously then, organisations see it as items purchased and a value assigned to them thereof. Then they are unable to put a value to the ‘idea’ aspect of the business and its business enhancing impact.”

“In my view, economic slowdown does impact budgets. But it is more prudent to stick with the agency and benefit from their experience and extract better synergies and ideas to tackle it. Some clients do tend to use it as a broom to bring in new agencies without really intending to achieve cost savings. The bigger bucks are on the media outlays, in comparison, strategy and creative outlays are relatively lower and don’t yield much quantitatively in terms of savings,” Srivastava added.

Sameer Gangahar, Executive Director, Leo Burnett Delhi, said, “We’ve really not witnessed a trend of accounts shifting to mid-sized agencies. There may have been a few isolated cases, but that always keeps happening in shifts both ways in any given year. As regards an economic slowdown fuelling such a shift, I believe the jury is still out on theories of whether or not there is an impact of the slowdown in India as yet, if and when it does happen, what will be its impact, how long will it last, etc.? I also believe that most mature marketers realise that India is on a growth trajectory and even in the face of a slowdown, their decisions at this point in time should not hamper the mid-to-long term growth potential. To my mind, in an eventuality of an economic slowdown what clients realise is critical to combat the slowdown is innovation, creativity and expertise. More often than not, the larger agencies are better equipped to deliver in such scenarios in comparison to small and mid-sized agencies.”

Ranjan Bargotra, President, Crayons Advertising, felt it was too early to say that accounts were shifting to mid-sized agencies. “It is not fair as the budgets are fixed from the client’s side at the beginning of every year. We can’t link that with the economic slowdown,” he added.

Tapas Gupta, MD, BEI Confluence, observed, “I always believe, and I think it is important to mention, basically this will be an inspirational point for agencies of our size. We don’t belong to the top 20 global multinational agencies, nor are we the small shops that have one single agency. I think we are very strategically poised in terms of our size, infrastructure and network. We have four offices with 80-90 people working for us, we are a 100-plus agency and not a 150-plus agency. What is happening that agencies like us are very strategically formed – we have the full infrastructure, we are fighting as competitors and we provide equal value, therefore, larger clients can look at us where they don’t get the brand name of a multinational agency, yet they get a full value at a price that is probably a couple of notches lower. They get the complete support of the agency, management and the kind of servicing.”

Gupta further said, “I think this is an opportunity for agencies that belong to the genre of 100-150 size agencies that are poised in the middle, clients who are developing or businesses that are developing and have been working with smaller agencies move up to us. Even in times of an economic slowdown, this can be looked as an opportunity for mid-size agencies.”

According to CD Mitra, President, Mudra Max, “There could be different reasons for such shifts to mid-sized agencies. Some are, individual attention of top-level/ senior managers from mid-sized agencies, past relationships or personal reputations of agency heads, apprehension of mid- or small-sized clients of getting the best from large agencies, etc. Also, entrepreneurial clients often feel comfortable working with owner-managed mid-sized agencies due to better cultural fit. I am not aware of any shift to a mid-sized agency happening due to the economic slowdown. But it is possible that a client whose budgets have significantly reduced may be more comfortable working with a mid-sized agency.”

Anita Nayyar, CEO, MPG India, too, said, “I am not aware of any such shift happening. If there is a possibility, the clients would look at lower pay outs. That could mean compromise in terms of quality versus the payout. The economic slowdown is going to impact everything. Even the visibility of ads is getting reduced, but that could be related to the GECs and not necessarily due to the economic slowdown.”

Giving the client’s perspective, Sunil Dutt, Country Head, Samsung Telecom Business, said, “As long as an agency is delivering value to a client, be it a medium-sized or a large agency, I do not see a client shifting business only on account of tough economic conditions or a slowdown situation. In tough times, an agency that has partnered with the client and understands the client, can deliver better value strategically. Having said that, I would like to add that the retainer fee for the agency is arrived at on the basis of the ‘quantum of work’ and manpower commitment. Thus, as long as a client is getting value for that agreed upon retainer, I expect the companies to continue working with their existing agencies.”

What advantages do mid-sized agencies offer?

Srivastava pointed out, “Mid-size agencies traditionally came in with the advantage of lower overheads. But the overall industry emphasis on lean structure has mitigated that edge. I guess it would still be largely a greater degree of attention and a wee bit better response time. It is my considered view that between the two, the client doesn’t really get a business saving advantage these days. It is largely a myopic financial gain, that too quite often symbolic in value and nature.”

According to Mitra, “The advantages are personal supervision of top management, more cost-effective services, lower minimum billing/ revenue requirement, etc.”

Gangahar observed, “There may have been a few shifts, but I don’t think there are any concerted efforts that clients are making to shift to mid-sized agencies. In fact, we have in many cases seen just the reverse in India. Many global brands as well are looking at consolidating their businesses across the world with the larger agencies instead of working with different agencies in different geographies.”

He further said, “Apart from a few sectors, the economic slowdown is something that in reality is more discussed, debated and anticipated. If and when the true impact of an economic slowdown is felt, my opinion is that the larger agencies would actually have an advantage. Apart from having a wealth of global learnings and experience, some of the best minds and talent are housed in the larger agencies. They are also in a position to leverage best practices and on ground learnings across geographies with speed, keeping their clients ahead on the experiential learning curve that becomes so important in uncertain times.”

Bargotra noted, “The frills are less because infrastructure cost is much less. We at Crayons are pretty good in terms of resources and in terms of creative side and client servicing. We are fairly competitive, but don’t cost a bomb. Our response time is much faster.”

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