The Hindu Business Line : Slowdown has ad agencies revisiting strategy

As the economy slows down further, the discretionary categories of FMCGs will be hit and purchase will slow down, affecting ad budgets, and thereby revenues of ad agencies.

Divya Trivedi

Ahmedabad, Oct. 20 As companies cut their marketing and promotion budgets on the face of a global economic slowdown, advertising agencies will have to rethink their strategies, revisit their budgets and re-deploy staff, say industry insiders.

“As budgets of clients go down, the first move they make to curb expense is by cutting their marketing and promotion budgets. As a result, our revenues will not flow in and we will have to reset our targets,” said Mr Amit Desai, Partner and Member, Corporate Leadership Team, Hanmer MS & L. The total employee cost for an agency can go as high as 65 per cent of the revenues, he said.

As targets become lower, agencies will have to curtail their expansion plans and redeploy staff. His agency is trying to “increase productivity per person by replacing deadwood with efficient people.” Though the company will not retrench staff, it will definitely try and get in smarter people, and maintain status quo, he said. It will not hire people through the mass media but head-hunt in placement agencies, which themselves are not doing too well. Expanding at the junior level might still be feasible as every agency needs hands to run around, but hiring at the middle and senior levels will definitely be hit, according to him.

Slower growth

While Leo Burnett will not replace any of its 350 employees, Mr Arvind Sharma, Chairman, India sub-continent, said ad agencies should be cautious as they are likely to see slower growth in the coming months.

“As the economy slows down further, the discretionary categories of FMCGs will be hit and purchase will slow down, affecting ad budgets, and thereby revenues of ad agencies. But clarity will emerge in the coming few months,” he said. Meanwhile, agencies need to act aggressively and explore new growth opportunities. Leo Burnett has recruited from institutions such as MICA, Symbiosis, Narsee Monjee Institute of Management Studies and IIM Bangalore in the past and, as of now, does not have any plans of skipping recruitments this time.

Mr Ambi M.G. Parameswaran, Executive Director & CEO, Draftfcb + Ulka, says Indian advertising spends are correlated with economic growth and market sentiment, more than anything else. The Sensex has no real effect except for the dampening on the sentiment. If we expect the economy to grow at over 6.5 per cent next year, there is no reason why ad spends should not grow by about 9 per cent. However, the warning signs of inflation, perception of wealth destruction vis-À-vis the Sensex, rising interest rates and dollar value will affect real estate, financial services, automobiles and high-end durables, sectors which might review ad spends. Sectors such as FMCG, insurance, gold, apparel and telecom should not see a big correction. The danger is some of the sectors may see consumers downgrading or cutting back.

“Some diversion of advertising budget to tactical and promotional spends may happen, but in a vast, spread-out country such as India, and for mass marketed brands, there is nothing to beat press and TV. So those media will continue to hog the limelight. In fact, marketers may even shy away from niche media,” he says.

Opportunity for some

Echoing Mr Sharma’s view, Mr Amitabh Chatterjee, Creative Team Head with the 50- people strong agency Saints & Warriors in Mumbai, said, “Agencies will have to be more creative, rethink on ways of getting commensurate returns and act smart in this vicious circle.” According to him, the traditional media might be stretched and agencies will have to think of others platforms such as the new media. Innovation will be the key. Arjun Dutta, writer from the same agency which boasts of clients such as Pantaloons, Frankfinn Institute and Amul Macho, said that this might create opportunities for some people. “The other way to look at this is that if a client is big, and suffers then their competition can make use of that.” Meaning, small yet innovative agencies can try and grab a bigger piece of the cake. (With reports from Sravanthi Challapalli)