By Deepak Ajwani| Jan 1, 2011
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
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.