Aurora Magazine

Promoting excellence in advertising

The Art of Appointing Great Agencies

Published in Mar-Apr 2023

By squeezing an agency’s ROI, clients are leading both their brands and the profession down the garden path of mediocrity.

This article is part of our cover story <strong>Future Imperfect?</strong>
This article is part of our cover story Future Imperfect?

 Sabene Saigol, CEO, RED Publicis is comparing notes with her COO, Hammad Hasan. Red Publicis was established in 1996 and was initially called RED Communications. - Photo: Arif Mahmood/White Star
Sabene Saigol, CEO, RED Publicis is comparing notes with her COO, Hammad Hasan. Red Publicis was established in 1996 and was initially called RED Communications. - Photo: Arif Mahmood/White Star

I remember a time when clients used to see agencies 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 PepsiCo 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 a few exceptions, most agencies are offering the same old solutions, repackaged with scientific-sounding jargon – and one may well ask, why? The answer 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 – and this is not necessarily a local issue.

It would be foolish 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 by 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 businesses 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 they don’t seem to understand a 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 a short-term objective 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 afford not to hire 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.

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 not 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.

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.

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-sized agency (excluding the above costs but including other talent and back office payroll) is Rs 1.25 million. Therefore, with the addition of a 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. 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 for how it is practically possible to deliver quality when a client is willing to only offer 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 sound rules of thumb to do the math 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 on 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 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?

First published in The Dawn of Advertising in Pakistan (1947-2017) on March 31, 2018.

At that time, Syed Amir Haleem was CEO, KueBall. He is now CEO,
Skale Interactive.