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Who is the real brand custodian?

Prasad Sangameshwaran | May 24, 2005

Late last month, a telegram landed at the desk of marketing correspondents across newspapers in Mumbai. It stated morosely that an ad agency was ill.

That was soon followed by a death certificate announcing the demise of a 59-year-old ad agency, Everest Integrated Communications. Within days, though, the ad agency was reborn, as Everest Brand Solutions.

That may sound like a happy ending, but it's not. Indian advertising is in a state of flux, and it's not only the bit players who're being affected. Everest had billings of close to Rs 150 crore, and worked on memorable campaigns such as Parle Frooti and Tortoise mosquito coils. Then billings started "plummeting", says company president Mahesh Chauhan.

The situation Everest faced is one that more ad agencies could be up against -- being downgraded from a partner in brand communication to a supplier of TV commercial scripts and ad layouts for clients.

At the Mumbai office of JWT (previously Hindustan Thompson Associates), senior vice president and general manager Tarun Rai is brooding. "Who is the real brand custodian? The creative agency, the whole host of specialist communication units or the media buying house?" he asks. The question is rhetorical, but it has a larger implication.

Advertising agencies are discovering that the strategies they implemented with such elan just a few years ago are coming apart at the seams. They gave a little more importance to the media buying function. But over time, it's grown and like the Arab and the camel in the folktale, is now dangerously close to edging the creative division out into the cold.

The doyens of the ad industry agree. "The agency needs to reinvent itself with newer skill-sets, revenue models and newer indispensabilities. Adding divisions, as is the current practice, is only adding to the mess," says A G Krishnamurthy, chairman AGK Brand Consulting.

Krishnamurthy is in a position to know -- he helped set up Mudra Communications as well as the Mudra Institute of Communications, Ahmedabad.

He isn't alone in his view. Agencies face two problems, believes Roda Mehta, former media director at Ogilvy & Mather, and present chairman of the technical committee at the Media Research Users Council. "The first one is client induced and the second agencies bring upon themselves."

B-ad recall

What are these problems? The first is the bifurcation of the media and creative duties that many agencies initiated about five years ago, hoping that decentralisation would lead to specialisation.

Till the 1990s, ad agencies in India followed the model of a full service agency offering creative, media planning and media buying. Then they switched to the international model of splitting across functions.

In the new set-up, agencies like Ogilvy & Mather, JWT and Lowe (formerly Lintas) retained their creative function (creating ads and devising brand strategy) while the media functions were hived off as separate profit centres.

One of the biggest such restructuring was when the WPP group -- which controls Ogilvy & Mather, JWT and Contract among other Indian ad agencies -- merged the media buying operations of all three agencies into a separate media buying entity, now called Group M.

How did this set-up work? The media specialists bought space in bulk from the media houses and then distributed it among their clients. There were several advantages. First, it saved the agency from negotiating space for every new campaign. Instead, the media buyer signed quarterly or annual contracts with the media houses, for which it could negotiate hefty concessions. Now, even small clients could get lower rates.

There was another, unlooked-for advantage. Since the media buying division operated as a separate profit centre, it could pitch even for business that was not handled by its creative partners. Clients, too, would be tempted, since they would get better deals.

"The creative use of media across categories has leapfrogged," agrees D Shivakumar, executive director, consumer electronics, Philips India.

The division of revenue in such cases was simple. Typically, in the case of a full commission client (one that pays 15 per cent commission on the value of an ad), the media agency would get a 2.5 per cent commission of the total value of the released ads, while the creative agency (technically, the "agency of record") got 12.5 per cent.

The trouble was, while mushrooming of the media function helped agencies rake in the greenbacks, the creative function lost out in the process.

Earlier, point out advertising veterans, creative and media worked in tandem. Each needed the other to survive and thrive. "Today, there is a divide and that results in a dilution of the brand message," points out JWT's Rai.

As the creative and media functions operate independently, in many cases, they've lost sight of each other's requirements and goals. The creative agency lacks an in-depth understanding of the media offerings, while the media agency does not understand the finer points of creative execution.

Even the clients are realising that lacuna. "The agencies have pushed themselves to a corner. They have become known as the 30-second specialists," says Shivakumar of Philips.

He's referring to the tendency of most creative agencies to blindly push clients towards TV commercials, without considering other options. The numbers bear that out: according to the Initiative-BBC World Ad Avoidance Study 2004, an average TV viewer sees 438 ads every week, a 70.4 per cent increase from 2002-03.

The media agency's lack of understanding manifests itself in different ways. Creative directors point to instances when 30-second commercials are cropped to 15-second spots to optimise spends, or a colour print ad appears as black and white.

Divide and rule The problem was bad enough when media buying was restricted to television spots, column cm and hoardings. But after ad agencies became 360-degree communications outfits, it's exacerbated.

With the emergence of newer media options such as Internet advertising and mall promotions, the need to offer clients 360-degree communications choices was growing.

According to industry estimates, the spend on alternative avenues of advertising has climbed from 10 per cent of the total marketing budget a few years ago to about 25 per cent now.

To get these services, clients started looking at direct marketing specialists and event marketing companies.

"As the circle of influence of an ad agency grew smaller and smaller, the agencies decided to launch their own divisions for direct marketing, public relations and events," explains Deepali Naair, a marketing consultant who has worked both as an ad executive in FCB-Ulka and as a brand manager in Marico.

Soon, every agency worth its salt -- from Lowe and Ogilvy & Mather to Rediffusion and Leo Burnett -- floated specialist divisions that targeted direct marketing, health care advertising, events and so on.

With this move, the ad agencies created different touchpoints for client interaction, since these new divisions, like the media buying houses, were independent profit centres. Now, very often, a client would meet several people from the same agency, but working in different departments -- direct marketing, events, promotions and so on.

Again, these were new revenue sources for the agencies, but the balance of power shifted from the agency -- which earlier decided the style, depth and tenor of an entire campaign -- to the client, who could now choose to distribute his business among different independent divisions.

"The orchestration of the brand shifted to the client," agrees Everest's Chauhan. According to him, these are classic examples of strategy gone wrong. The mistake ad agencies made was in offering divisions that were dependent on media.

As a result, they lost the high ground they had gained as consultants for the brand. Instead, they began to be looked upon as consultants for a particular service. "The ad agency structure has unknowingly lost the high-end role of a brand partner," says Chauhan.

Besides, there are some inherent dangers in establishing independent profit centres. There's a very strong risk of cannibalisation. After all, the client has a fixed budget that he will divide between functions.

And with each division out to maximise its revenues, undercutting each other and edging out associates as rivals is becoming all too common. Clients, too, no longer entrust all marketing and promotion activity to one agency.

"The full service agency (something like a family doctor who acts as a friend, philosopher and guide) has given way to a whole array of specialists, each doing a bit of a job," points out Krishnamurthy.

In the process, the full service agency has lost its shape, character and most importantly its lifeline -- the revenue model of the 15 per cent agency commission. At present, say industry sources, agency commissions start at a measly 1 per cent and move up.

It's not as if only the agency suffers. With their bottomlines being squeezed, ad agencies find it difficult to attract the best talent --and that affects the quality of work it offers clients.

Sam Balsara, chairman and managing director, Madison Communications says, "If advertisers push down agency commissions, they must be intelligent enough to know that an agency will and can cut the coat only according to the cloth it gets."

Krishnamurthy agrees. "How can an agency afford to recruit front-ranking professionals and graduates from the IITs and IIMs? Or nurture existing high-calibre talent?" he asks.

According to him, advertising agencies need to reinvent themselves yet again. And this time round, they should stick to their core competency --producing great creative work.

"If they cannot offer the best creative and marketing solutions, how on earth can they offer additional services on par with the best-of-the-breed?"

Repositioning

Agencies are finally realising the need to stick to their knitting. Last month, Lowe India set up a separate unit for strategic planning. The 27-employee team will work on "elevating the quality of strategic thinking behind a brand," says agency president and COO Pranesh Misra. The division is also expected to strengthen the media channel strategy of the creative agency, but essentially Misra agrees that the creative side of advertising needs to be more insightful. "Advertising is the last leg of consulting," he declares.

Others are also working on reinstituting the focus on brand communication.

"We need to ensure that advertising is not an assembly line scenario but an integrated solution," says Piyush Pandey, executive chairman and creative partner, Ogilvy & Mather India. The agency is in the process of creating brand team leaders who will work across disciplines (media, creative and so on) to protect the brand's interest.

However, the senior executive of India's top ad agency admits that Ogilvy is not yet 100 per cent there. Like Chauhan says, "We wanted to revive Everest. Little did we realise that advertising itself will have to be revived."



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