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Ad agencies in revamp mode

Deepa Krishnan | January 31, 2004

Hasn't the advertising industry been down this road before? Around a decade ago the industry's top gurus decreed that it was time to 'diversify'. The result was a host of -- not always successful -- in-house public relations companies and direct marketing outfits.

This time around, the Rs 7,500 crore (Rs 75 billion) industry is thinking even bigger. It has flagged off another round of diversification -- in entertainment, healthcare and even consulting services.

Why are ad agencies re-jigging their operations? Because conventional methods of reaching the consumer aren't working like they once did. Thousands of products and hundreds of TV channels are jostling for mindspace -- not to mention other new choices like the Internet.

  • Currently, 15 per cent of Leo Burnett's turnover comes from allied activities. It's expected to climb to 40 per cent in five years
  • Rediffusion DY&R has launched Showdiff Worldwide, a joint venture with Ravi Shastri for celebrity endorsements
  • Lintertainment, a division of Lintas, pushes everything from movies and music to amusement parks
  • Bates India will launch its global healthcare communications division Healthworld in India, in early 2004

Says Rajiv Agarwal, managing director, Bates India: "Television is impersonal as it caters to one too many. So the point of sale is changing as clients and advertisers focus on alternative media."

With the growth in ad-spends plummeting by over 40 per cent in the last three to four years, the industry has plateaued. It grew at an appalling 4.3 per cent in 2002. Says Arvind Sharma, chairman and CEO, Leo Burnett, "Clients are evaluating unconventional media like events, movies and sport apart from ground promotions and sponsorships."

See how the Rs 550-crore (Rs 5.5 billion) ad agency Leo Burnett is moving with the times. It has three new divisions trawling for customers. There's Leo Entertainment for entertainment solutions including product placements in films like Baghban and Darna Mana Hai.

Leo Activation conducts sampling and consumer and trade promotions. And Leo Stage will look at live music events. The agency will also launch a public relations subsidiary this year. Currently, 15 per cent of Leo Burnett's turnover comes from allied activities. It's expected to climb to 40 per cent in five years.

It's a similar story at other top agencies. Rediffusion DY&R has grabbed every opportunity to diversify and its ambitious new project is Showdiff Worldwide, a joint venture between Rediffusion and ex-cricketer Ravi Shastri for celebrity endorsements.

It recently tied up with Worldtel to get Sachin Tendulkar to endorse Airtel, and has bagged clients like Leander Paes, Raveena Tandon and Jackie Shroff.

But it's also planning a splash on the entertainment scene. "With the market opening up and a variety of media to choose from, the value for entertainment has increased tremendously. Showdiff is talent and event driven and our main focus ranges from fashion, events, sport and endorsements to literature and art," says Jaiveer Panwar, vice-president marketing, Showdiff Worldwide

Showdiff isn't a one-off. Rediffusion has grabbed every opportunity to diversify in recent years. In early 2002, it launched Outdoor Advertising Professionals. It also brought the global healthcare communications group Sudler & Hennessey. Other divisions include a media solutions company and a direct marketing outfit Wunderman. Also, there's portal Rediff.com.

For the ad world, the spotlight is clearly on entertainment. Lintertainment, launched six months ago, is part of Lintas' Integrated Marketing Action Group, pushing everything that spells entertainment, from movies, and music to amusement parks. Recently, Lintertainment promoted HLL's Active Wheel in Paisa Vasool.

In fact, Lintas which has been doing all of this over the years, spun off IMAG as a division last April. It is now a core group of companies that includes Linterland covering rural advertising; Lintertainment, Aaren Initiative for outdoor advertising, LinOpinion for public relations; Dcell for designs and Lowe Personal for direct marketing.

Says Prem Mehta, vice-chairman and managing director, Lintas India, "Traditional advertising is experiencing a slowdown. After a point, brands lose their differentials and diversifying is a process to create these differentials, but at the same time target existing customers."

Companies like Lintas are, inevitably, turning their attention to rural advertising in a big way and devising innovative ways to reach the rural masses. There's a good reason why they're heading to the villages: The volume growth in sales in rural India is about 10 per cent to 20 per cent, while it is 3 per cent to 5 per cent in urban areas.

Ashish Bhasin, director, IMAG says, "Below-the-line advertising is growing almost 200 per cent faster than traditional advertising." These activities include rural, direct marketing, outdoor, healthcare, events, customer relationship management and public relations.

Today, below-the-line activities account for 25 per cent of Lintas' business and projected to touch 40 per cent in the next three to four years.

The group's healthcare portfolio Lowe Healthcare will also be incorporated into IMAG. Says Bhasin, "With the industry changing and International Property Rights becoming an issue, it is important to have brands and brand building where you need specialists."

Even the Rs 160 crore (Rs 1.6 billion) Bates India plans to launch its global healthcare communications division Healthworld in India, in the first half of 2004. It will also undertake health education.

Says Agarwal, "The communication spend in areas like healthcare and wellness has grown by over 20 per cent last year. Moreover, the growth in non-prescription healthcare products and services and the breakdown in the patent regime by 2005 is driving the market."

Subhash Kamath, chief operating officer, Ambience Publicis opines, "As people's needs are changing, more advertisers want to reach out through non-traditional advertising. This is also the most cost-effective." It plans to launch direct marketing services this year.

And how differently are ad agencies doing it this time? Leo Burnett is customising its business models. "We are focusing on high quality and high potential clients rather than taking up one-off opportunities," says Sharma.

Leo Entertainment and Leo Activation are expecting their activities to contribute 30 per cent to revenue in the next three to four years. Lintas' rural marketing group Linterland has been frenetically expanding operations.

It recently bagged the marketing rights for the Ujjain Kumbh mela to be held in April. It is also increasing its 8,000 strong grassroot level staff to over 12,000.

Linterland's efforts appear to be paying off. Although set up for its main client Hindustan Lever, in the last three months, new customers include Peerless, the Madhya Pradesh government and Nabard. It is also strengthening its subsidiaries in other ways.

LinOpinion has just tied up with Golin Harris, a public relations company from the IPG group stable. Aaren Initiative is pitching for business in malls and multiplexes. It has already bagged the marketing rights of Big Bazaar and R Mall in Mumbai. Says Bhasin, "We will advise them on the aesthetics and the exact locations where they can generate on-premise advertising."

Showdiff is also adding a few international names to its events roster. This month, it will bring singer Bryan Adams to Colombo. Events in Singapore and Malaysia are scheduled for the future.

Bates, meanwhile, is pitching for new clients for Healthworld for pharma and healthcare communication for prescription drugs. Some of its key clients include Pfizer, Dabur and Hindustan Lever. It is sending executives around the world for healthcare seminars and conferences to understand how to run the Indian operations.

It also set up One for One in Kolkata, its merchandising, retail and direct sales promotions arm to handle the ITC account. It will be extended to Mumbai and Delhi shortly.

Bates expects its affiliated activities to contribute to at least 25 per cent to 30 per cent to revenue in the next five years, up from the current 15 per cent.

For agencies, all these are initiatives to hedge against future shocks. Industry players believe that with the economy poised for a gross domestic product growth of over 7 per cent, companies will loosen their purse strings for advertising once again.

However, the shift to allied activities is inevitable. And, whether it's out in the rural areas or on stage, the Indian advertising industry is making sure it gets a piece of the action.


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