India should have been the seat of the best media work in the world, but it is not. A look at why media buying is still a miniscule business here and what stymies its growth
The corporate world is abuzz about its services, and the business is growing at a breakneck speed, yet, in India, media buying is a nascent business. India's ad expenditure to GDP ratio is one of the lowest in the world. Compared to China's $25 billion, and the world's $337 billion pie, India's $2.2 billion ad market is miniscule. The expected double-digit GDP growth - when it happens - should push ad spends northwards. Meanwhile, despite room for growth, the industry continues to wrestle with several issues.
One of the biggest problems the media buying industry faces is a talent crunch. The attrition rate is a high 20-28 per cent. The reason? The squeeze on fees. In the good old days of advertising, agencies would get commissions of 15 per cent. With ad agencies getting divided into creative and media agencies, the fees were sliced to 11:4 respectively. Competition has shrunk the media commission to mere 4 per cent which often dips to as low as 2.5 per cent. Adding to its woes, in the past four to five years, the industry has not shown any significant growth.
What's worse, media buying agencies now have to do a lot more for the 2.5 per cent than they did for 4 per cent earlier. Besides the traditional media planning and buying, they agencies have offer range of other solutions, including client servicing and research. Client expectations have risen, and costs related to research, people, and other overheads have spiralled.
Poaching agency resources and offering outrageous salaries has become routine. The squeeze in margins has forced agencies to keep their salaries down - and that affects their ability to get the best people for the job, especially at the junior and middle levels. Poaching of their best resources by other industries that are willing to pay outrageous salaries makes life even more difficult. If the agency suffers, so do clients.
Undercutting and payments
In the rat race for survival, media agencies have been building volumes at the cost of margins. Some agencies resort to undercutting to get business - and clients, who otherwise value stability and consistency, are tempted to move accounts to agencies that offer their services at lower rates. The scene is so dire that even for a Rs1-crore account, five agencies pitch for the business and are willing to accept rates between 0.5 and 2.5 per cent.
Meanwhile, the clients are on a roll.
Moving to a fee structure from the current commission structure might help. HLL has moved most of its brands to a fee structure. Agencies would love to work for a fee and clients would get a better deal too. At present, both currencies are in the market - but commissions still hold a bigger share of the pie.
As Manish Porwal, executive director, India-west, Starcom says, "Clients are realising that where the agency gets a fee-based remuneration, the pressure to bill is far less; hence the agency is more likely to provide a media-neutral solution rather than ramp up media spending to collect more commissions."
Pradeep Iyengar, vice president (west and south), Carat, reveals another angle, "For an agency like ours, which has no creative back-up, the fee-based remuneration would be welcome."
Pitching and procurement
Whether agencies like it or not, making pitches have become a routine for them. Though there is always a valid reason for a client to call a pitch, the numbers have increased disproportionately in the past one or two years. Apparently, it works well for the advertisers as they end up spending less on the media agency. On their part, the agencies are hardly in a position to decline a pitch. They make an effort even if there is no relationship with the prospect and even if they do not hold a chance.
The pitching process involves using sophisticated tools, techniques and models and requires investments that are a drain on the abysmally low revenues of the agencies. Besides, precious media time which should have been spent on research and data analysis is spent on pitching and procurement process instead.
Consolidation and clout
As happens with most businesses, the bigger the company, the bigger the clout. In fact, media buying mostly works on clout. Since agencies buy in huge volumes, they have the bargaining power.
Worldwide, directly as a result of consolidation, there are only four communication groups: WPP, Publicis, Omnicom and Aegis, each operating two to three global media networks.
In India, consolidations began in 2002, reducing the industry to a handful of major players who now dominate the media buying business. The top six - though not necessarily in order of importance - are Madison Media, GroupM, Starcom, Carat, Lodestar and Initiative Media.
The consolidation game is best exemplified by GroupM which is not strictly a brand but a holding company. All this while, GroupM bagged prestigious accounts into one of its three agencies, Mindshare, Maxus and Fulcrum, depending on the nature of the assignment. Now, it has further upped its bargaining power by acquiring a fourth agency, Mediaedge:cia.
The multinational affiliations of the big guns provide access to the latest tools and techniques. Armed with data, they can easily bargain for better rates and discounts from publications and TV channels. Indian offshoots of international groups have another added advantage: trickling down of business from clients of the foreign associates.
In comparison, the revenue base of media independents is too small to afford the required high investments in tools, techniques and research. They also cannot reap the benefits of buying co-operation across regions, which the big multinational communication groups do. Survival thus is a problem.
The entry of these big networks is gradually shifting focus from acquiring the cheapest deal to effectiveness of the campaigns and return on investments.
also see : Media
agencies come of age
of media vehicles