Campaign India Team
Jan 16, 2009

Is this a good time to clinch long term deals?

With ad-spends on a tight leash, the jury is out on the rights and wrongs of the issue.  Campaign India reportsIn the current economic environment, where ad spends are being doubly scrutinized and pondered over, marketers and media buyers are in a predictable quandary. Given the obvious lull in the market, should they look at entering long term deals at the present low rates, wait for the market to bottom out further or leverage the economic scenario to cut short term deals that make financial sense at least for the moment?

Is this a good time to clinch long term deals?

With ad-spends on a tight leash, the jury is out on the rights and wrongs of the issue.  Campaign India reports

In the current economic environment, where ad spends are being doubly scrutinized and pondered over, marketers and media buyers are in a predictable quandary. Given the obvious lull in the market, should they look at entering long term deals at the present low rates, wait for the market to bottom out further or leverage the economic scenario to cut short term deals that make financial sense at least for the moment?

Most marketers that we spoke to were of the view that any decision made in that context would have to be mutually beneficial for both the buyer and the seller. Indian Oil Corporation’s N. Srikumar says, “No market can be sustained if you are going to push rates which are not mutually beneficial for both the seller and the buyer. Yes, this is a good time to enter into deals but the fact remains, that no one knows when it bottoms out. It’s like the stock market, you are not sure if there is going to be a situation which is worse than the current one. Good buyers don’t wait for such situations, they want to stay focused on markets and their brands. Tomorrow, if one is not able to stand by those rates and the channels themselves don’t exist, then what good were those buys?” He believes that in the current economic scenario, it would not make sense in deals beyond a one-year horizon.

Lintas Media Group’s Lynn de Souza feels it makes more sense to go with long term deals. She adds, “As far as possible we are looking to book long term deals rather than short term opportunistic ones. In a healthy buoyant market it makes sense to strike when the iron is hot and capitalize quickly on opportunities as they present themselves, since there are also many to choose from. When the market gets more sombre however, it’s good for all parties to take a long term view.”

As for the risk of buying at a higher initial price if the market bottoms out further, de Souza says this can be managed. “It can be avoided by a judicious estimation of the right valuation and pricing to go with based on detailed study and not speculation. Even if one experiences a temporary period of higher cost, the long term benefits of staying in play would even that out,” she adds. Idea Cellular’s Pradeep Shrivastava echoes Srikumar’s views on keeping the interests of both buyers as well as sellers in mind. “We have some long term deals that are already in place, from a year before. Mutually we are honoring such deals. I don’t think timing can be the basis of building relationships with our media agencies.”

Media Direction’s S.Yesudas agrees with de Souza on entering long term deals. He says, “Rather than turning such deals into being merely transactional in nature in terms of buying and selling audiences, it is a great opportunity to look at radical solutions based on clients’ business goals, by defining clear accountability measures for all constituents.”

N.Srikumar, ED (corp comm, branding and planning), Indian Oil

“It has to be a win-win situation for both buyer and seller. No market can be sustained if you are going to push rates that are not mutually beneficial. It is a good time to enter into deals but no one knows when it bottoms out. It’s like the stock market, you are not sure if it can get worse than the current situation. Good buyers don’t wait for such situations, they stay focused on the market and their brands. They will look at buying at optimal costs, which are tenable on both sides and sustainable for the long-term. We don’t do too long deals, most are annual deals. The marketplace is  so dynamic that I can’t imagine what deals one can make beyond a one year horizon.”

Pradeep Shrivastava, chief marketing officer, Idea Cellular

“I don’t think timing can be the basis of building relationships. The timing can be right or wrong, based on business cycles, businesses are about building long term partnerships, rather than by being opportunistic in value extraction when the timing is right or wrong. We want it to be a fair deal for ourselves and for our media houses as well. Our discussions are ongoing, we keep looking at ways of creating alliances, and alignments wherever possible. Obviously, if there is a very visible price drop in the marketplace, then through a process of discussion such advantages are expected to be passed on by the media companies to Idea as well.”

S. Yesudas, CEO, Media Direction
“It is a good time to capitalize on market sentiments and enter into long term deals with clear expectations.  Rather than turning these into merely transactional in nature, it is an  opportunity to look at radical solutions based on clients’ business issues, by defining clear accountability measures. Such deals have to be win-win. The marketers must look at this as an investment in brand equity rather than expenditure. Media specialists must design a robust strategy to exploit the strength of communication channels and must expect to be paid a special remuneration for that. It must be ensured that media channels are not left alone to bleed either.”

Prasad Narasimhan, chief marketing officer, Virgin Mobile

We are a young brand so we are in a phase where we are building the brand up from scratch.
Our cost levels are much lower than that of competition. Both of these factors put together, we should be reasonably optimistic going forward.

It’s not necessarily in our interest at this point of time to look at long term deals, but I guess this is the time when people who can be reasonably sure about their expenditure for the next few months can look at such properties. The view you take on the market is a function of how you want to look at it. My view is that we will seek some calculated properties going forward, which are long term.”

Lynn de Souza, chairman and CEO, Lintas Media Group

“We are looking to book long term deals rather than short term opportunistic ones. In a healthy buoyant market it makes sense to strike when the iron is hot. When the market is sombre, it’s good to take a long term view. Sellers can then build a comfort zone within which they can make investments of the right kind.  Buyers can use the temporary slowdown in prices to build long term consistent value not just monetarily, but also in the relationship with the sellers.

There is always the risk that the market bottoms out further.  This can be avoided by a judicious estimation of the right valuation and pricing to go with, based on detailed study, not speculation.”
 

Source:
Campaign India

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