By squeezing their agency’s ROI, clients are leading both the profession and their brands down the path of mediocrity
I have been to the promised land. I have lain in greener pastures and felt the cool breeze of deference blow gently on my face. I have tasted the fruit from the garden of success. Today’s generation believes that such a place is only a figment of one’s imagination; that no such land was promised to the children of advertising in Pakistan. What these advertising atheists (as I call them) don’t know is that this place is not only possible, it existed until recently.
I remember when clients used to see us as equals and value our opinions, not because it was required by policy, but because what we did made a difference.
I remember working for a Pakistani agency and we held our half yearly meetings in cities like Istanbul and London.
I remember our CEO being invited by the global marketing head of Pepsi to share our success story with the heads of other global brand teams.
However, somewhere between then and now, the people in advertising lost their vision and faith. So what has changed and why are we seeing so much mediocrity?
Marketing teams today are facing some of the most difficult challenges I have ever seen. The complexity of managing a brand has become a nightmare, yet with the exception of a handful, most agencies are offering the same old solutions, repackaged with scientific sounding jargon. One may well ask why they are not committing, even when clients want them to. The answer in its simplest form is profitability, or to be more precise, the lack thereof. Earning a fraction of the ROI they used to enjoy a few decades ago, agencies are unable to manage the required delivery. This is not necessarily a local issue; I have worked in regional positions and am privy to the fact that agency ROI is the most pressing concern for the industry globally.
It would be quite antiquated to suggest that anything other than people create great advertising, and with retention scales being at their worst, the average agency cannot hold on to good people.
As a result, to expect agencies to deliver good work is about as reasonable as if I were to expect a five star hotel to serve me a decent plate of biryani (as every avid biryani enthusiast knows, the best plates are found not at fancy hotels but at roadside stalls). This then begs the question of whether better work can be found from the smaller agencies. The recent wins by such agencies at the last PAS Awards are evidence of this.
With a fraction of the expenses large agencies have, the small creative shops enjoy better ROIs. They also offer the compensation and the environment that the current generation relates to. If you think I am crazy to suggest this, let me tell you that at the last MNC I worked for, we had a turnover rate of 70%. But that is not the surprising part. What drew my attention was the fact that all those who left went to mid-size or smaller business and yet managed to get anywhere from a 75% to a 100% pay jump. In one instance, one of my juniors had a 125% windfall! I was part of management and no matter how we did the financials, we were unable to meet that kind of compensation to retain people – there simply are not enough margins in the business with the kind of overheads large agencies have.
Clients are not helping either.
I don’t understand what they teach at business schools because clients don’t understand a very simple concept... if you pay peanuts you get monkeys. This is such a basic business concept, yet it completely seems to elude even the most seasoned CMOs.
Brand teams are forcing agencies to think short term. Because of the financial crunch, agencies hire to fill their ranks with people with narrow and short term objectives rather than a long term vision. Ask yourself what is the key differentiation between your agency and any other in Pakistan? And if there is none, this is not because there is a lack of understanding about what differentiation is; these agencies make their living by differentiating brands. A USP comes from a place of vision, perspective and inspiration. Can agency owners not afford to have people able to bring these qualities to the table?
To fix profitability, agencies are trying to diversify their services by offering media planning and digital, when instead, they should be re-evaluating their core business rather than diversifying an already undifferentiated product and spreading it thinner. This is why when brand teams reach out for digital solutions they end up with platform based tactics rather than a campaign. “We will increase the likes of your Facebook page by 10%!” How that is relevant to the brand’s KPIs has apparently become irrelevant now.
The direct impact of lower profitability for an agency is the erosion of intellectual capital. Not only are people hired to fit the pay bracket rather than the skill set required, they are no longer trained to develop these skills. With no budgets, agency training has become an absolute sham. There used to be a time when employees would be sent abroad for workshops and secondments, now when an employee reaches out for help in learning something he is told to Google it.
So it’s a grim picture. At the moment, most clients are willing to pay cheap and get mediocre work; they are not interested in work with impact, because their own internal processes do not hold them accountable for quality when it comes to their KPIs. The average retainer for an agency is a laughable Rs 150,000 a month. It is practically impossible to deliver good ideas on such figures unless you are a small 10 person start-up.
Let’s do the math. The minimum time an agency team should spend on a mid-sized brand is 20% of the overall time allocated to that team by the agency. This is because, unlike advanced markets, we have to do a lot of work ourselves as we do not have easy access to industry analysis or research. As a result, and let me be completely candid about it, your agency is cheating you if they say they can do the work in a shorter timeframe. The due diligence required to dig for meaningful insights and build a concrete communication structure is very time consuming.
The average cost to an agency for a team of seven people (two client service people, a strategy person, a creative director and three creatives) is one million rupees. The minimum overhead cost for a mid-size agency (excluding the above costs but including other talent and back office payroll) is Rs 1.25 million. Therefore with the addition of the team of seven, the total cost comes to Rs 2.25 million, with a 15% profit margin, the agency needs to earn Rs 2.59 million to survive.
To sum up, brand teams need to make a serious call regarding where they draw the line on compensation. They need to ask how important quality creative is. They also need to dwell upon what quality creative actually is, and how it impacts on their brand.
If a brand is willing to buy 20% of the team’s time it will have to pay a minimum of Rs 0.518 million in retainer (20% of Rs 2.59 million). Now, if anyone has a magic solution how it is practically possible to deliver quality when a client is willing to only offering a going rate of Rs 0.15 million for a seven member team, you have my complete interest.
If you don’t have an answer, then here is an honest insight into what you are forcing your agency to give you. Either they will only manage to give you 5.7% of the team’s time, which in my three decades worth of experience will buy you mediocre work, or they will reduce the compensation of the team drastically because they can’t afford to pay good people. Hiring cheaper resources with lesser experience or people with mediocre skills will again impact the quality of work. These figures may vary from agency to agency depending on their size, but they are a sound rule of thumb to do the maths on.
It makes me smile when clients ask why our agencies do not produce work similar to that done for Fevicol or Amul in India and I wonder if they have any idea how much these companies compensate their agencies.
To sum up, brand teams need to make a serious call regarding where they draw the line on compensation. They need to ask how important quality creative is. They also need to dwell upon what quality creative actually is, and how it impacts on their brand. To be fair to the CMOs, yes there are agencies which produce poor work and are incapable of doing anything better. To be honest, they are not structured to deliver insightful and relevant work. I know this because I have worked for some of them.
However, the question is not whether in a country of 188 million people you can find 10 people to do justice to your brand – of course you can. The question is: are you willing to pay those 10 people what they deserve?
Syed Amir Haleem is CEO, KueBall (a New York based digital company).