Campaign India Team
Jan 14, 2013

Live Issue: Will cost matter more in choice of ad agencies in 2013?

With declining margins agency compensation will depend even more on value additions, finds Rishi Vora

Image used for representation purposes only
Image used for representation purposes only

Agency compensation, for many years, has been a topic of discussion among advertisers and agency heads; and continues to be so even today as several brands face declining margins, thanks to the slowdown and rise in input costs. So, will cost be an even bigger driver in choosing agency partners in 2013?  Stakeholders believe it’s more about the value addition an agency can provide, which determines the cost.

Divya Gupta, chief operating officer, Dentsu Media, explains, “Cost, undoubtedly, is a critical component for clients in choosing agencies. But, discerning clients know that cost is just one factor in their ROIs, and that quality of service also plays an equally important role.”

She adds, “Sometimes large marketers may leverage their size to extract a lower price for agency services; and they often succeed in doing so. But, on an overall basis, agencies do get the right value for the work they produce.”

Kamal Basu, marketing head, Skoda, opined that at the end of the day, marketers are responsible for boosting the brand’s performance in the market. “Agency compensation boils down to the value an agency adds to a client’s business. That really is the deciding factor. At Skoda, we look at the overall value that the agency is able to add to our business. The kind of talent if offers, ideas and solutions; whether they’ve contributed in bringing about a positive result on consumer’s mind (in the way they perceive our brand), and does that reflect in term of actual sales? At the end of the day, if the agency is doing a good job, why would you, as a client, not compensate (the agency) well enough?”

Ravi Rao, leader, South Asia, Mindshare, is of the view that smarter clients know what talent they want and they often succeed in getting the job done at a lower cost. “Several clients turn a deaf ear to agencies who keep asking for a better compensation. The agencies, however, are forced to produce results for clients at abysmally lower prices. That’s an unfortunate part of our business.”

Ajay Kakar, chief marketing officer – financial services, Aditya Birla Group, is a firm believer that an advertising agency can play the role of an invaluable contributor to building and nurturing clients’ brands. “It’s only when the agency and client come together as true partners that real magic happens. What helps this magic become a reality is if the relationship is that of equals. And it’s a win-win for both sides,” he notes.

Sanjay Thapar, chief executive officer, Bates Asia, observes, “It is true that the global economic situation has forced everyone to be more prudent and practical in terms of costs that they incur. This definitely puts pressure on compensation, but at the same time, it’s up to agencies to demonstrate value and get compensated accordingly.”

On whether he expects to see a lot of undercutting (by advertising agencies), he says, “Some people find ways to run their business more efficiently and hence price their products cheaper. Is this undercutting? If yes, then sure undercutting will happen.”

“The supplier has the right to price his product; the consumer to choose. Similarly agencies have the right to price their services; and marketers the right to discern and choose,” adds Gupta.
Kakar surmises, “It is regrettable if a marketer only evaluates an agency basis cost. Or, an agency demands its fee or hike only basis their effort. I do believe that this should be a sukh-dukh ka relationship and not that of a fair-weather friend. We must not look at agency remuneration in isolation. If it is linked to the deliverables that a marketer is measured by within his company, then we should be delighted if our success is reflected in the enhanced remuneration of the agency.”

 

  

Marketer

Kamal Basu, marketing head, Skoda

“Agency compensation boils down to the value an agency adds to a client’s business. That really is the deciding factor. At Skoda, we look at the overall value that the agency is able to add to our business. The kind of talent if offers, ideas and solutions; whether they’ve contributed in bringing about a positive result on consumer’s mind (in the way they perceive our brand), and does that reflect in term of actual sales? At the end of the day, if the agency is doing a good job, why would you, as a client, not compensate (the agency) well enough?”

 

  

Media

Ravi Rao, leader, South Asia, Mindshare 

“Smarter clients know what talent they want and they often succeed in getting the job done at a lower cost. “Several clients turn a deaf ear to agencies who keep asking for a better compensation. The agencies, however, are forced to produce results for clients at abysmally lower prices. That’s an unfortunate part of our business.”

 

  

Media

Divya Gupta, chief executive officer, Dentsu Media

“Cost, undoubtedly, is a critical component for clients in choosing agencies. But, discerning clients know that cost is just one factor in their ROIs, and that quality of service also plays an equally important role. At the end of the day, the supplier has the right to price his product; the consumer to choose. Similarly agencies have the right to price their services; and marketers the right to discern and choose”

 

  

Creative

Sanjay Thapar, chief executive officer, Bates Asia

“It is true that the global economic situation has forced everyone to be more prudent and practical in terms of costs that they incur. This definitely puts pressure on compensation, but at the same time, it’s up to agencies to demonstrate value and get compensated accordingly.”

 

  

Marketer

Ajay Kakar, chief marketing officer - financial services, Aditya Birla Group

“An advertising agency can play the role of an invaluable contributor to building and nurturing clients’ brands. “It’s only when the agency and client come together as true partners that real magic happens. What helps this magic become a reality is if the relationship is that of equals. And it’s a win-win for both sides. It is regrettable if a marketer only evaluates an agency basis cost. Or, an agency demands its fee or hike only basis their effort. I do believe that this should be a sukh-dukh ka relationship and not that of a fair-weather friend”

Source:
Campaign India