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Margin pressures push industry to find solutions to ‘pitch discount’ issue

13-August-2018
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Margin pressures push industry to find solutions to ‘pitch discount’ issue

“In a free market, only demand and supply determine prices,” said the head of a leading agency when asked to respond to the concerns raised by the Indian Broadcasting Foundation (IBF) on ‘pitch discount rates’. Last week, IBF Director Punit Goenka sent an email to all agency heads asking them to abstain from the practice of offering discounts to clients on behalf of broadcasters without prior approval from them.

The mail, a first-of-its-kind initiative by an industry body, intends to put a halt to a practice that has been discouraged vehemently during several IBF meetings in the last one year. Though the practice hurts the agencies that work primarily on commissions, it hurts broadcasters more.

Industry experts unanimously claim that with increasing competition and technology playing a larger role than talent, pricing is the biggest factor driving pitches. Another factor that has worked against the business is the growing role of consultancies.

According to a senior agency head, “Consultants are increasingly putting pressure on clients to cut on advertising margins, which puts further pressure on our pricing. They have also contributed significantly in reducing the trust we shared with our clients. Brands are calling pitches sooner than before. There have been times when we were forced to quote a lesser price than our previous pitch held three years ago, just because we wanted to retain our client.”

While everyone in the industry is concerned about and affected by diminishing profit margins, will a mail, merely asking the agencies to abstain from offering discounts, work as a solution to a larger problem that the industry is grappling with for the last few years?

Raj Nayak, COO -Viacom18, lauded IBF’s initiative but said that it needs two hands to clap. “Broadcasters are equally responsible. We need to find a solution within ourselves too. Just an agreement in letter and spirit among even the top five-six networks, that they will not reduce the rate given to an incumbent agency when the account shifts, itself will solve the problem. At the end of the day, it is broadcasters who are succumbing to pressure because of lack of unity and the advertiser is taking advantage of this.”

“I don’t blame the agencies because they have no skin in the game and they will do anything to retain a client or acquire new business. Having said this, there should also be a stringent punishment which could even mean cancelling the agency’s accreditation if they continue to disregard the IBF guidance on pitching for new business and work in a manner that is against the overall growth of the industry,” Nayak told exchange4media

Ashish Sehgal, COO of Zee Unimedia, however, believes that the problem is much more complex. The industry needs to introspect the need to shift its focus back on quality, he said.

"Media is being commoditised and pitching is not at all focused on strategy to capture relevant target audience thereby right media mix, but only on pricing. From a specialist role, it has moved to the role of procurement where the sole objective is to put more and more pressure on the marketing heads to reduce budgets.”

“However, what needs to be understood is that with the fragmentation and segmentation of the market, creation of content as well as marketing have not only become challenging but also expensive. Hence, it is critical that we get right pricing from the advertisers, else the industry will eventually collapse," he adds.

Agency heads, however, bring the issue back to the principles of economics.

“We are perfectly fine with broadcasters fixing whatever rates they want to, but then there should be unity. If the industry shows a positive growth, we all will benefit from it. At the end of the day, our purpose is to drive the business,” said an agency head.

Another agency head added that the issue needs to be resolved by tripartite discussions among broadcasters, agency heads and marketers. All three need to sit together and form a consensus in the larger interest of the industry.

“We all have our own compulsions driving our decisions. It’s a free market. I have to protect my business and hold my clients back and win new clients. I have every right to get them the lowest price. If not me, someone else will. Therefore, the solution will only come from a discussion among all three verticals of the industry,” said the agency head.

Nayak, meanwhile, added that another area IBF needs to put its foot down is the long-pending issue of CPT. “We have been dragging this for too long. With the universe expanding, the broadcasters are not getting fair value but the content & other input costs are going up. We cannot keep procrastinating this anymore,” he said.

THE PRINT SAGA

The issue of ‘pitch discount rates’ has affected the print industry alike. Hormusji N Cama, Chairman, of Indian Newspaper Society (INS) has already raised the issue with the Advertising Agencies Association of India (AAAI) and would soon be taking it with each agency one on one.

“We jointly took the decision that the agencies would not do it. And in case they do, INS henceforth will take action,” he told exchange4media.

When asked if the action could include something as serious as cancellation of accreditation of agencies, Cama said that in extreme cases, the association may even consider that.

The owner of a leading publishing house also raised his concerns over diminishing margins. “In many cases, we told the agencies to bear the loss on committing a lesser rate on our behalf. Why should I suffer the loss,” said the publisher.

Another publisher complained that agencies are pushing the ads from print to digital where the margins are higher.

“Digital gives a commission ranging from 20-30% whereas print only gives you 2-3%. Therefore, there is an ongoing movement against publishers and towards digital. I am not saying that digital is not growing, but the projections are hyped as compared to print by agencies to get higher margins,” said another leading publisher.

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