Can Indian adland battle the prolonged economic downturn?
Agencies could lose not just revenue but also talent if the slowdown extends, say industry observers
Just when everyone thought that the worst slowdown to hit the economy was behind us, global credit rating agency Moody's Investor Services lowered India’s GDP growth rate estimate for 2020 to 5.4 per cent as against the 6.7 per cent estimated earlier.
The agency further said that with a weak economy and depressed credit growth reinforcing each other, it is difficult to envision a quick turnaround of either, even if economic deceleration may have troughed. It is an oft-quoted truism that the first reaction of managers to a business slowdown is to cut expenses and advertising is the first to feel the axe. The question that begs to be answered remains: Does the ad agency business seem positioned to weather the prolonged downturn?
The pain points
The pressure to keep costs under control and maintain liquidity during a credit crunch make marketing and communication budgets look like a dispensable luxury that should be jettisoned without a debate.
According to Jigar Fernandes, Founder & Creative Head, tiqui-taka, it's a vicious cycle we're caught in at the moment and signs of recovery seem bleak. “News of our terrible economy is driving down consumer confidence who is now not spending at all. Companies are feeling the heat. Agencies are in turn amongst the first to be told the bad news. Not a pretty time to be in. And there are no signs of a recovery.”
In a first, the Pitch Madison Advertising Outlook Report 2019 downgraded its advertising expenditure forecast for the year from 16.4 per cent to 13.4 per cent. As per the report, the chaos in the television industry resulted in degrowth of 5 per cent in television adex for the first time in many quarters.
A senior agency hand said agencies could lose 3 per cent to 30 per cent of their revenue if brands continue shifting to more project work. “There’s likely to be a greater squeeze as we move forward,” he warned.
From minor cutbacks to major losses
As if plunging margins after advertisers chose to be frugal post the slowdown wasn’t enough, companies are increasingly opting for in-house expertise. A creative director from a leading agency on the condition of anonymity shares that a couple of campaigns have in fact been withdrawn by a major BFSE client which is otherwise a big spender on advertising.
“In-housing is a crisis that the agency business is dealing with today, more than ever. Additionally, agencies are compelled to do more in less and there has been a lot of stressing on workflow efficiency,” he remarks.
Meanwhile, Sumanto Chattopadhyay, Chairman and CCO, 82.5 Communications, says client budget cutbacks have been costing agencies in a big way as the client saves costs in the short run, but both the advertising and marketing industries lose in the long run. “Agencies are being squeezed due to client cutbacks and have no choice but to freeze hiring. This results in the loss of talent to sectors like OTT and Bollywood where they see better prospects. In fact from a marketing perspective some of the greatest brands have been built during recessions. When its competitor decides to cut back during a major recession, Kellogg’s decided to go all out and spend. You can see the iconic brand they managed to build with that decision, leaving its competitor far behind. People want instant solutions and in-housing does work for hygiene stuff but ultimately it is not equipped to deliver meaningful brand-building solutions.”
We shall overcome...
In 2016 and 2017 as well, demonetisation and the implementation of the GST regime led companies to clamp down on ad spend. The industry saw a revival in 2018 after two consecutive years of low growth, achieving 14.6 per cent growth and witnessing a total ad spend of around Rs 60,908 crore.
Anand Bhadkamkar, CEO, Dentsu Aegis Network (DAN) India, feels the situation should stabilise over time. “From an advertising perspective, when we released our DAN digital report earlier this year, we had predicted that Indian advertising would grow at 10.9 per cent. Nonetheless, the Coronavirus issue has been a headwind to businesses as international travel has slowed down and if this continues for a long time, supply chains for businesses may get affected. Overall, it is not a negative sentiment though growth at present is not as much as it could have been. However, growth is expected and things should be picking up as compared to the last year."
According to Heather Gupta, Group HR Director, MullenLowe Lintas Group: “It is true that the advertising business is going through tough times, but we at MullenLowe Lintas Group do not believe in taking hasty, knee-jerk decisions. We are still hiring. We believe in investing in talent with an eye to the future. To that end we are aggressively upskilling to ensure that we remain relevant.”
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