Facing up to performance in 2020

These are dark days for the business of advertising. In the last year, Pakistan’s economy and the fortunes of the advertising and media industries have taken a turn for the worse. When asked why the industry remains mired in a deep malaise, the majority of agency executives placed the blame squarely on “the economic recession that has forced clients to slash media budgets and ad spends.”

Taken at face value, the statement implies that since the economic downturn has squeezed profits, once the economy rebounds, everything else staying constant, so will the ad industry.

However, there is sufficient statistical evidence to prove this argument fallacious. In the November-December 2018 issue of Aurora, agencies claimed that they had been in a financial crunch for some time despite increasing media ad spend; in FY 2015-16 the increase was 14% and in FY 2016-17, it was 15% over the previous fiscal year (source: Aurora Fact File). Although there is no denying that the macroeconomic recessionary and inflationary pressures have indeed made life hard for all businesses (not just advertising), the woes of the ad industry had started long before then.

This raises the question that if Pakistan’s economic crisis is not the only culprit, what are the factors contributing to this downward spiral and what can agencies do to reverse it?

To answer this question, Aurora spoke to a legacy agency, a specialist digital agency and a start-up agency that has grown and evolved from a creative hotshop to a sizeable operation within the last decade; namely IAL Saatchi & Saatchi, Digitz and Ishtehari. The reason for this selection is that at a time when most of the 250 or so accredited agencies in Pakistan have been complaining of declining profits, shrinking margins and volumes, these three players have continued to grow and reinvest, and have a surprisingly different take on the “perceived crisis engulfing the ad industry.”

The answer to the question posed earlier, according to them, is to implement a two-pronged approach. Firstly, move away from the legacy business model because it is no longer working, and secondly, understand, invest in and leverage the power of digital.

1. Changing client expectations

Traditional agency wisdom dictated that size mattered. This is because larger agencies able to offer a suite of services had a leg up on the smaller players, because they were in a position to bundle buying, planning, technological and creative offerings, and offer clients a better deal in an increasingly competitive landscape. In exchange, agencies able to guarantee this kind of service muscle were able to command premium retainers. However, even as the ad business continued to boom, a mindset of complacency set in whereby most agencies, instead of generating and executing groundbreaking ideas to deliver the brand’s message to the intended audience, began to focus almost entirely on delivering a fixed set of variables – a print campaign, TV spots and hoardings and billboards at multiple sites across the country. As Imtisal Abbasi, Managing Partner, IAL Saatchi & Saatchi points out, “there was an overreliance on locking in retainers without putting any thought in the creative process or any intent to measure campaign outcomes.” Invariably, as technology began disrupting both the ad industry and consumer lifestyles, brands found themselves competing for eyeballs and engagement like never before in an increasingly fragmented media landscape. It did not take long for savvy brand managers to realise the problems inherent in the age-old retainer model; it had downgraded the agency-client relationship from one of collaborative partnership to a transactional exchange, which was expensive, inefficient and did not add any value to the brand.

Given this state of affairs, it should not have come as a surprise when a few years ago, an increasing number of forward thinking clients decided to move away from the retainer model. Instead, they opted to go shopping for new agencies on a project-to-project basis and proved to be surprisingly open to awarding campaigns and projects purely on the basis of innovative and relevant ideas. While this massive strategic shift in the way business was done was taking place at the client end, the majority of the ad agencies either failed to take notice or decided that this was yet another fad which accounted for such a small portion of the revenue pie that any internal examination of the legacy business models they were straddled with was not needed – clearly an error in judgement. In Abbasi’s view, the agencies that are struggling are those that are still geared towards generating a vast chunk of their revenue from retainers. “Clients are asking more questions about budget utilisation and, with good reason, are expecting specific campaign outcomes. The retainer model, although not entirely obsolete, is definitely not serving clients or giving them the value it did some years ago.”

It is clear then that much of the agencies’ profitability issues stem from their inability to move towards pricing mechanisms that are in line with the changing client-agency dynamic, by factoring in measurable KPIs.

2. ROI is the name of the game

While most agency executives agree that the traditional approach of relying on retainers is no longer working, there is still no consensus on the kind of compensation model they should move towards. What is clear is the realisation that the new model would have to incorporate client expectations on the one hand, while ensuring that agencies are rewarded fairly for the creative ideas they bring to the table.

According to Azam Jalal Khan, Managing Partner, Digitz, although his agency still works on retainers, a lot of their new clients in the last few years have come on board on a ‘pay for performance’ contract. This implies that clients have a specific business problem/objective and their expectation is that the agency will be able to conceptualise and deliver a time-bound, innovative solution/idea that not only resolves/accomplishes it, but stays true to the brand narrative. “The level of creative autonomy, experimentation and risk-taking that a pay for performance contract allows is unmatched; it is rewarding professionally, creatively and financially. Although having your clients pay you a retainer may seem like the safe option, it can actually stifle your growth and prevent you from scaling.”

Khan is not alone in this view. Umair Kazi, Partner, Ishtehari, shares that revenue projections for the agency have three equally important components: creative retainers, digital retainers and projects. In fact, he says, that of late, both digital retainers and projects have become viable sources of revenue, which is probably why Ishtehari has moved to a larger office space and hired more people (the volume of their work continues to grow).

At this point, I will admit that this is not what I was expecting to hear. While there had been plenty of talk about the need to adopt alternate pricing models to stay relevant and profitable, little had changed in reality, at least at the more established agencies. Still sceptical about whether this change would actually work for a traditional legacy agency (at the end of the day, Digitz is a specialist digital agency while Ishtehari, despite their growth, qualifies as a medium-sized player at best) my focus shifted back to Abbasi to find out more about the revenue models IAL Saatchi & Saatchi are working on. After all, in addition to being one of the oldest and largest agencies, they boast an international affiliation and an impressive roster of clients that have stayed with the agency for years.

Abbasi’s response was surprising indeed. Saatchi entered into its first pay for performance contract in 2002, at a time when the agency was struggling and one of their biggest clients put forth demands the agency was in no position to deliver against the retainer. It was at this time that an honest conversation about exploring other methods of compensation that would be acceptable to the client (and yet not burden the agency) yielded the first of its kind, pay for performance agreement. Abbasi adds that since then, almost 90% of their client contracts are some variation of pay for performance. His rationale is that when clients are assured that the agency will deliver pre-decided outcomes of projects and campaigns, they not only stay loyal; they are also willing to sign a larger cheque.

Evidently, agencies that can show a demonstrable return on investment to clients consistently are more likely to grow and optimise profits, regardless of the macroeconomic situation.

3. Crossing the digital frontier

Any discussion of reversing the fortunes of the industry cannot be complete without taking into account the disruptive impact of digital. While the talk of a digital revolution taking over the industry has been doing the rounds for some years now, the criticism to date has been that the buzz has not translated into actual ad spends in Pakistan. For context, in FY 2017-18, digital accounted for a mere 10% of the total pie, with TV and print still controlling the lion’s share (source: Aurora Fact File 2017-18). However, there is another side to the ad spend figures that deserves to be looked at. Digital is the only medium to have registered a steady year-on-year increase in the last three years, even as the shares of other media have either stagnated or declined. Between FY 2016-17 and FY 2017-18, digital recorded a four percent increase, the highest of any other medium in terms of share, and despite the overall decrease in the media spend in FY 2018-19, digital has grown by a staggering 31% (source: Aurora Fact File FY 2017-18 and FY 2018-19).

In Khan’s view, one of the major reasons for the increase has been driven by clients’ growing interest in performance marketing. Until a few years ago, the client approach towards digital was restricted to social media, with the number of followers and likes serving as the only metrics worth focusing upon. However, Abbasi, Kazi and Khan share the view that as clients have begun to understand the potential of digital in terms of increasing awareness, reaching the target audience as well as the importance of conversions (turning visitors to online stores into customers), there has been a willingness to experiment and spend on digital, beyond expanding their social media footprint. A case in point is Ishtehari piloting Trendfather, a subscription-based digital tool. While spotting trending topics on social media is simple enough, what makes the service unique is that a dedicated team at the agency will take a trending subject and develop a narrative linking it to the brand’s message and deliver customised social media posts to clients. When done in a timely manner and if the message is brand relevant and catchy, it has the potential to go viral and deliver exponential reach, visibility and engagement in a very short time. Digitz on the other hand, has been focusing on providing content development, e-commerce tracking and digital video services (these are the areas their clients are keen to spend on). This is particularly the case for start-ups, that typically do not have big marketing budgets, and nor do they expect to reach a massive audience.

As Kazi puts it, “We have worked for start-up clients who were only interested in our help to transform their core business idea into an engaging narrative or understand how to market a new app or software to convince venture capitalists to fund them.” Given that the start-up culture in Pakistan is still at a nascent stage, Kazi and Khan are optimistic that once more start-ups become viable businesses, this source of project-based digital revenue will increase.

As far as more advanced digital tools like programmatic are concerned, Khan cautions that it may be a while before they take off in Pakistan because the country is lacking in certain key elements. Firstly, an end-to-end digital infrastructure is required that can track a customer’s journey from the point of exposure to a brand message to the actual purchase. Secondly, digitisation of data is crucial, because only then can a software or app track customer behaviour trends and yield insights about the target audience. It is, however, hoped that with technology-based service offerings (Careem, Foodpanda and Uber) changing the way we travel and eat, not to mention FinTech (Easypaisa and Jazz Cash) revolutionising how Pakistanis shop and make payments, it will be a matter of time before digital disruption becomes a part of the ad business in a big way.

4. The way forward

Although no one is denying that the economic slowdown has affected the industry, what seems to be lacking is an acceptance that the issues are structural and not cyclical. The industry is at an inflection point where clients are demanding a better understanding of customer journeys and agencies are expected to design and deliver end-to-end customer experiences regardless of the medium. In addition to this fundamental acceptance, agencies will need to be ready to deploy data, insight, creativity and personalisation-at-scale capabilities, all of which require an immediate investment of both time and resources. Yet, this is a small price to pay to stay profitable at a time when regardless of the size or reputation of an agency, the quality of creative, the way it is delivered and the speed of audience responses are the main factors commanding premiums with clients. Abbasi neatly sums up what needs to happen if the industry is to rebound and reclaim its glory days. “It is time to rethink how the ad business works. It is time to question the business models developed decades ago and which are not working anymore. We have to look in the mirror, be honest with ourselves and ask: how committed are we to changing how we do business?”

Editorial

After a gap of 30 years, Pakistan’s advertising industry is poised to host AdAsia 2019, Asia Pacific’s most prestigious Advertising Congress. Held every two years, the Congress is in its 31st edition. AdAsia was first held in 1958 in Tokyo and organised by the Japan International Advertising Association. In 1978, when the Asian Federation of Advertising Associations (AFAA) was formed, AdAsia was thereafter held under the Federation’s umbrella.

What started off as a modest enterprise has gone from strength to strength and it goes to the credit of Asia’s advertising fraternity and their associations that the Congress remains as relevant today as it was in 1958, despite the massive changes and multiple disruptions the advertising industry has been challenged with globally, regionally and locally.

For the hosting country, holding such a prestigious and globally recognised international event is a big honour and in this respect all praise must go to the members of AdAsia’s Working Committee for having worked relentlessly to make this happen again after 30 years. All the more so because it has also meant battling against the tide of the usual (unfortunate) misperceptions about Pakistan and what we have to offer. Winning the bid in Bali was in itself a tremendous step, putting the show together was an equally tremendous undertaking, and now all that remains to be seen is the culmination of the achievement in Lahore.

For the people who attended AdAsia ’89, the event turned out to be magical. It was the first time ever that the industry was hosting this event and there was much trepidation about the outcome. Even in 1989, perceptions about Pakistan were negative and although security was not an issue, the absence of nightlife in terms of bars and nightclubs was a major deterrent to delegates for whom part of the fun of going to AdAsia was to ‘party the night away’. Yet at the end of it all, everyone was bowled over. Pakistani hospitality opened its embrace to the fullest, the programme was more excellent than not, the entire industry was engulfed by a single-minded determination to make this work, the government cooperated, and so did the weather! As Javed Jabbar puts it in his interview in this issue: “It was like magic; everyone worked hard and it was marvellous.”

Will this spirit prevail at AdAsia 2019? Predictions are always risky, but as the enthusiasm among the advertising community ratchets up, there is every reason for optimism. The Working Committee is in capable and experienced hands, the content in terms of programme, speakers and social events is up to par and Lahore can be counted on once more to weave its magic.

Whatever the outcome, one thing is certain. AdAsia 2019 will be another milestone in the annals of our industry and a huge learning opportunity for our younger practitioners. Not only in terms of knowledge acquisition, but in terms of the exposure such international events bring. It is hoped that the industry in general and the advertising agencies in particular will make all out efforts to send as many of their young people as possible to Lahore. Yes, we are in a time of economic slowdown, but the cost of flying to Lahore, hotel accommodation and sundries, really, really, pales in relation to the quantum of benefits attendance will bring, if only (and there is so much more) in terms of enthusiasm and ideation, be it strategic or creative. As our cover story highlights, advertising agencies – if they are to keep pace with their clients’ changing perceptions about what they can do for their business – will need to rethink their business models and their offerings. And in this respect, this is not a matter of crying wolf; the wolf is at their door, banging. Here. Now. In Pakistan.

Inspiration and innovation. Agility and aptitude. Energy and enthusiasm. All are required. This is a big moment for Pakistan’s advertising industry.

Mariam Ali Baig

Ayesha Shaikh is a freelance writer. ayeshasamadshaikh@gmail com