Ravi Kiran: We Are Measured By Our Billing

Starcom MediaVest Group's outgoing CEO, South Asia tells Forbes India that in a margins-driven media industry, the focus is on getting the best rate, not on creativity

Published: Jan 1, 2011
Ravi Kiran: We Are Measured By Our Billing
Image: Alok Brahmbhatt
Ravi Kiran, CEO, South Asia, Starcom MediaVest Group

Ravi Kiran
Age:
44
Designation: Retiring as CEO, South Asia, Starcom MediaVest Group, a media buying and planning agency of the Publicis Groupe
Education: BTech, MBA
Interests: Books on management and marketing, movies, anthropology

How has been the experience of departure from a company where you have worked for last 12 years?
I was quite pleasantly surprised how almost immediately people adjusted to my departure, stopped asking me for decisions, no more mails for sanctions or permissions, etc.

The business of media agencies is now largely margins driven and is being commoditised. This can be damaging in future. Is there a way out?
It’s impossible to deny all that you’ve said. Yes the industry has realized it currently at the intellectual level, but I don’t think they have begun taking concrete action based on that recognition. About 10 agencies today control 80 to 90% of media business. It’s certainly possible for them to come together and decide only on one or two common agenda for each year and make it work. Agencies need to focus only on one question “If we continue this way for next five years and allow things to take their course then what will be the shape of industry ?”

Right now all agencies have a point of view on this issue, and they are dealing with it in their own way, taking their own actions for it. Same thing they thought earlier as well…five years ago and took their own actions. The fact that our business is driven traditionally by scale and by combining scale and hyper-competitiveness anybody could have seen that in future margins will be under pressure.  Some knew that if they drop their price, demand for accountability will be less. So they took a decision early on that since accountability is rather ill defined, the best thing is to offer hyper competitive price. In scale driven business unless you are large you lose the opportunity to protect margins.

The other problem is we are measured by our billing. In other similar businesses like consultancy where too there are only handful players, there is no billing comparison to judge success. In all billing based businesses margins come under pressure over time. And this creates bloodbath.

So how does the industry needs to deal with this?
Buying scale can be dangerous. If for example the average net revenue is 3.5 per cent of a client’s media spend and I have 60 existing clients, then to gain scale if I agree to get 30 new clients at 2.5 % and drop the price… eventually the company does grow in scale but average profitability comes down. Billing does grow but overall it’s not adding significantly to the bottom line as the earlier 60 clients might also want to reduce their margins. And in the long term the lower margins does not give the leverage to add more resources and hence offer better service. And if you try and manage new clients with same resources to keep costs down, quality of work suffers and there is a danger of losing old clients who feel inadequately served. The recent departure of some big accounts such as Coke, Airtel, ITC etc. from advertising agencies who have been handling them for many years is a proof that older clients realize the difference when agencies achieve too big a scale by adding new accounts and thereby lose focus on key accounts. 

Agencies need to continue investing in increasing bandwidth, technology to be able to qualitatively serve new business as well as old ones. Because when old clients threaten to leave and agencies try to retain them by offering further discounts or by cutting margins, it adds to the pressure on the system. So eventually cost structures get inflated, bottom lines come under pressure.

The industry needs to learn to focus much more on current clients than on new ones. The single most glamorous part of our business is acquisition of new business. Even if StarCom Mediavest’s new business record until last two years has been fantastic, I will be the first one to say ‘Do not overrate new business because it has its effects.’ It’s like going after a girl when you have a wife at home. Sooner or later you will put pressure on that relationship. There is no alternative to focusing on existing relationships. Unfortunately acquisition of new business is partly fuelled by our own trade media who glamourise and send out flashes of new accounts acquired by many agencies. They champion it but it’s a self-fulfilling prophecy. Why should billing be the biggest message in all our communication and the barometer of success, why don’t we talk about net margins or even the value agency will add for the client?

The whole glamourisation of new business acquisition has been overdone. Its putting enormous  amount of infrastructural and resource pressure on agencies. But unfortunately in this dog-eat-dog and hypercompetitive world we glamourise to make us look heroes in media and internally amongst our peers. People who get new business get a pat on their back from their bosses and this sets a trend. But we are ignoring some core aspects of our business; existing clients, people, developmental needs of our own staff. 

Has staff training been a casualty in the chase of new business acquisition?
Yes, many agencies have given up the entire need for training for new recruits. The norm is unless a person has spent three to five years in the company he/she shall not be trained, for they might quit later and efforts are lost. But this has an effect because as a result we are gradually reducing the overall quality of people in the industry. Training could rather be used as a retention tool. People will certainly leave agencies if they are not cared for. If I do not train a fresh graduate then I am rather giving him a reason to go away. We should be intensively training young people in our companies rather than saying training is a gift to be given to only employees who have spent enough time in the company.

I admit I might have been a culprit of this as well. Because this has to come from top, and we at senior level drive new business acquisition focus more. But sometimes I wish the acquisition pressure was lower on seniors, they would be able to concentrate on training needs, old client relationships, technology upgradation etc.

Clients choose agencies because of the people they meet and feel comfortable with in an agency. The trend today is that seniors get the business and pass it on to juniors while they go and chase new clients. I will be the first one to admit that in our industry senior people don’t spend enough quality time with clients as well as with their own internal people.

Unfortunately the negative impact of this is not visible immediately so your mind plays a trick on you and you feel it’s all great at the moment. For eg. If you stop watering a plant and taking good care of it, it won’t die in a day but gradually it will succumb and wilt. In our business you don’t see any such signs, because one fine day the client will decide to move on and you would be under tremendous pressure forcing you to cut costs and offer further discount which again is harmful.

What are the ill-effects of consolidation in the media industry?
This is a fundamental and tragic area you’ve touched upon. I think if we over consolidate the immediate implication will be disintermediation. Media owners will find a reason to step out of the big players, they may start becoming agencies themselves. Because if consolidation leads to establishment and practice of brute power then let me tell you media owners are not weak. They are also consolidating, in media also five to six top players get 70 to 80 per cent of advertising market share. And this could pose a challenge. 

Any imbalance in consolidation within media agencies might lead to media owners connecting directly with the clients. There may be technology led solutions that enable them doing it. It has been attempted in markets abroad. Google has done that. It puts the last 500 rupee advertising client directly in touch with the media owner. Google does not say agencies are enemies, but it also gets in touch with client directly. In this technology enabled world media agencies can no longer be the gatekeepers for those who want to advertise.

It’s sad that with globalization our focus on quarter and on bottom and topline has made the short term look very glamourous. I am not saying it’s not important but it’s been made overly glamorous. Being practical seems to be a fancy thing today and anything long term initiative might be discarded as being philosophical or utopian. What is wrong about committing yourself to a philosophy and then moulding your behaviour around that. Rather than do what you need to do to survive and then build a quasi philosophy around it.

Why has the focus on research by advertising and media agencies gone down?
Research is another casualty of obsession with the trivial. To me awards are trivial for example. And this is not just due to the lack of effort or focus by agencies. I think even marketers today are grossly undertrained on brands, marketing and communication that changes human behavior. I meet brand and marketing managers all the time and they take so much interest in media negotiations that it worries me. Because all their energy is consumed on getting the best rate and negotiation than on the creative side. Many brand managers make the shoddiest brief, if at all they write. They don’t know the difference between brand and a product. Because nobody trained them. They were hired from some institute and pushed into a job called ‘brand management’ and asked to deal with the agency. And dealing with an agency today means negotiation, getting the best rates. That’s it. Who is training them? So the rot is at both ends and we all have to do our own little thing to improve the standards of marketing and communications and lay emphasis on research and training to understand the consumer.

Do you believe that the spurt in Indian economic growth is leading to fast execution challenges for media planners, taking attention away from ROI and leading to wasteful spending?
You’ve hit the nail on the head. It’s true. Marketers and agencies are already keeping aside 20 to 30 percent of the money spent as wastage and it is accepted due to the sudden growth. And growth is like a drug that gets you often to do things that are not right. That’s what happened in the US earlier. Over excessive and unmanaged growth becomes its own enemy. And when growth declines, all hell breaks loose. Recession will eventually force everyone to focus on Return on Investment (ROI) and count each penny. All marketing people will be held responsible to their stakeholders. Lately, in companies abroad all procurement and finance colleagues oversee marketing to correct wasteful spends.

(This story appears in the 14 January, 2011 issue of Forbes India. You can buy our tablet version from Magzter.com. To visit our Archives, click here.)

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  • Upali Nag

    Hi Ravi, I totally agree with you. We spend way too little time and resource on training, research and improving the quality of our "product" for our existing clients. Its very easy and comfortable to let things just go on the way its going with old clients, even though the output is mediocre. Having said that, new business is also very important - what is important though is to be discerning about it. Chasing every new business is surely not the key to growth. Very often I have seen that way too much resource goes into chasing new business which doesn't have enough returns even financially, forget intangible things like how it improves our professional levels. I think that before we allocate time and resource to new business, we need to seriously reflect on what the particular account means for us as an organization - both in tangible and intangible terms. As far as advertisers are concerned, I think some of the onus lies on us agencies also to train them. If concentrated and continuous effort is made on this front, results surely will manifest themselves. Very often we too do not put in that effort for lack of time, resource, felt need etc etc. If a spirit of true partnership with a lot of mutual respect and learning can be established with clients, that's what will drive our success.

    on Jan 6, 2011
  • Deepak Gandhi

    Having worked on both the agency and now client's side of the business I tend to agree with a few points above but the main problem is the way a lot of the agencies & clients operate. Maybe I'm oversimplifying a complex issue but its a chicken and egg story - clients want the agency to sweat for their fee and the agencies are falling over themselves to hook the big clients. Somewhere in this wonderful agency client dance we are sacrificing quality, research, ROI etc. In the quest for more awards and better recognition rather than the key job itself I.e. Selling product I guess this is one of those relationships that will only get better with efforts from both sides a lot of training and looking beyond the medals tally Those were just thought starters on what I feel could be a topic for a month long event :) All the best Deepak

    on Jan 3, 2011
    • Ravi Kiran

      Deepak, agree with you 100%. The problem often is that in the name of expedience and practicality, we do the very things we should not be doing. I feel the day we stop blaming each other and recognise that Marketing will get worse every day we lose sight of the bigger picture, we will start improving. Cheers.

      on Jan 3, 2011
  • Rahul

    Probably one of the bravest interviews by a senior manager in the media and marketing services industry. Ravi, hat's off to your candor and the courage. While one would agree with your thoughts about the perils of chasing growth at all costs, nevertheless I do believe that an expansion of an agency's client portfolio is justified if the new business matches the agency's abilities and response capabilities, ergo it's differentiated position in the market - if the agency has one. It's just that we haven't the requisite skills to integrate vertically with our clients' business. It would be interesting to hear your views on how our industry can free itself of its institutionalized inefficiencies and on how it could invest those savings to add value to a client's business.

    on Jan 2, 2011
    • Ravi Kiran

      Rahul, your point is valid. I just feel that 'the agency adding value to the client's business' has been a bit overdone. I feel it cuts both ways - clients have to understand that agencies are in the business of, well, business and they cant build the clients' business by being bad businessmen themselves. Talking of agencies, I am all for growth and increasing the portfolio, as long as it's in line with some sort of strategic vision of the agency, other than billing growth. Thanks for calling me brave, often I feel I am not able to be brave enough.

      on Jan 3, 2011
      • Rahul Thappa

        Ravi, I am not in any manner absolving the advertisers of their share of the blame in this mess, for they too began cutting back on talent acquisition and training (possibly to cut costs, I can think of no other reason) hoping that their agency would be able to assume the full-time role of thinking for the brand. The day an organization outsources "thinking" is when the erosion of intellectual capital begins. While waiting for clients to spend ahead of the curve on talent - which doesn't happen anymore - we don't invest in our own talent and then the client figures out that the service levels they're presently enjoying deserve to be priced lower than they are. And then they are. And we cut back on talent further. Would I pay for the institutionalized inefficiencies of manual buying and implementation operations in this day and age of automation? I think not. As agents seeking out business, it is our responsibility to get 'lean' first. I would be honestly surprised and pleased to be proven wrong if an agency were to show us proof of a concrete long-term HR policy that speaks of hiring the best talent there is in the broader market. As for strategic vision, it is something that trickles down from Head Quarters - which for most lies on or around the vicinity of the Prime Meridian - devised by folk who believe talent in Asia are as homogeneously trained and motivated (or not!) as they are in London or New York. Inexpedient and inconvenient realities such as "it's our time under the sun and we want to be trained well AND paid more for working hard." Vertical integration along the value chain, Ravi? We haven't even mastered out own little silo of "Marketing and Sales" yet. And yet there is talk of taking on the likes of Bane, McKinsey and their likes who've spent years mastering a large part of the value chain of a few clients before making a play for "every client with a value chain". There is valid reason for them being where they are. Though they too seem to be "running out of road" at present. Vertical integration is now a distant way-point, we first have to make up ground we lost in our own field. And it is your stance on transparency and accountability that earned you the moniker 'brave'. No thanks due sir. Cheers.

        on Jan 4, 2011
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