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Controversy surrounds Indian advertising industry

When an advertising giant arm-twists agencies to do business their way, there is shock, disbelief and displeasure at large. But is there a solution in sight? BE investigates.

, ET Bureau|
Jul 07, 2010, 12.50 AM IST
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Controversy surrounds Indian advertising industry
Controversy is the middle name of Indian advertising. While the hoopla around rigging results at Goafest got buried in the sun n’ sand at Cannes, another controversy has reared its head. Reckitt Benckiser asking media agencies to pay for participating in the pitch for their business has been a hot topic for discussion around water coolers, the internet and everywhere Indian ad folk converge. Reckitt Benckiser is allegedly demanding Rs 4 lakh from agencies who want to participate in the pitch besides a cut of 2.5% of the money made by agencies on buying media for their business.

What has caught the attention of people at large though, is the credentials of the marketer behind the move. Such a move would be unexpected but come as less of a surprise had it been masterminded by an entrepreneurial bottomline driven Indian client. Reckitt Benckiser is among the last companies from whom such a move is expected. With control of over Rs 200 crore of advertising revenues, it is among the top FMCG advertisers in India, home to brands like Dettol, Harpic and Vanish among others.

Some say it is stupid, some say it is arrogance and the jury is still out debating the audacity of the demand. “If you are a large client, you will know enough about the advertising scenario and whom to shortlist; you will know what to ask for in a pitch and you will know how to judge. By resorting to methods like asking for a fee, you are just displaying your ignorance. It is either that they are being naive or ignorant or both,” says MG Parameswaran, ED and CEO, Draftfcb Ulka. MPG India, the incumbent agency handling the Reckitt account has decided not to give in to the advertisers demand and stay away from the pitch. Anita Nayyar, CEO, MPG India has gone on record blaming the media industry for its downfall: “We provide almost free services. Why can’t the industry put its foot down and refuse to work below a certain threshold fee? Today if an agency resigns a business there will be loads of agencies waiting to pick them up irrespective of the reason.”

While relatively cushioned from the more gruelling impacts of the recession, the Indian marketing communications industry is still grappling with age old issues like the talent crunch and inadequate fees. With no solution in sight for any of those issues, this new problem has everyone worried. In a response to our queries, Reckitt Benckiser issued this statement: “Our evaluation criteria and conditions based on which we may award the mandate to the successful media agency, is an integral part of the process of identifying a suitable partner. We have not and would not violate any law. We follow a transparent and fair policy, with the best interests of the media partner, the advertising mediums and the company in mind.”

There are some however who support the marketer’s move. Meenakshi Madhvani, managing partner, Spatial Access says, “This announcement from Reckitt is like a bolt from the blue for Indian advertising, it is a wake up call for the industry. The industry has by and large resisted change and has a snail mentality — crawling into its shell and hoping the troubles would disappear. Unfortunately it is a very myopic way of reacting. If Reckitt has raised this issue, there is some reason for it,” she asserts.

However there are enough clients who do not subscribe to this point of view. Harsh Agarwal, joint chairman, Emami Group thinks it is not a healthy move. “Any client-agency relationship has to be mutually beneficial. One party cannot try to take advantage of the other. If a company is being unreasonable in its demands then it harms the relationship,” he says. Ajay Kakar, CMO – financial services, Aditya Birla Group subscribes to the view that an agency that pitches puts in extraordinary effort to showcase thinking on a specific brand and should in fact be compensated for their time. “A client-agency relationship is that of equals. This is only possible if we have a mutually rewarding relationship. Therefore it is critical for us to remember that if we throw peanuts, we will only get monkeys. And only we are to be blamed for such an eventuality. Let’s not squeeze an agency so much, ever, that there is no passion or energy left,” he reasons.

Because of Reckitt’s silence on the issue, it is not clear what prompted them to take such a step, giving rise to speculations. Madhvani feels it could be a way to weed out the agencies that randomly turn up for a pitch, “There are instances of all types of agencies desperate to get into a pitch despite being inappropriate for the task at hand. So I guess this move will help weed out those agencies who want to join the circus despite not fitting the criteria laid down by clients,” she says. But Madhvani’s reasoning does not fit with the demand for the 2.5% commission. Shashi Sinha, CEO, Lodestar Universal thinks the move is terrible, and will affect the ecosystem in the long run. “I don’t think too many people turn up for pitches. Besides, how does weeding out account for this 2.5% thing I hear about? In a ways it is saying that the industry is corrupt and the money should come back to us,” he says.

Industry buzz indicates that Zenith Optimedia(ZO) is already in the pitch and a final meeting between ZO and Reckitt is expected to happen the next week. ZO is globally aligned with Reckitt Benckiser’s business and the association could be carried forward in India too. In all fairness to Reckitt, the move to demand a fee is probably a first in Indian advertising. But there have been demands for money from clients in another form. PSUs have frequently asked that an earnest money deposit be paid by agencies pitching for their business. The PSU returns the money once the pitch process is over, but nevertheless most PSUs still follow the routine. “Today PSUs are becoming more professional, by treating agencies as a strategic partner, so it is disappointing that one of the leading advertisers in the world is going the other side,” rues Parameswaran. Besides PSUs, the Tata Group for some of its businesses has a policy of asking the agencies pitching to give a bank guarantee. This route of making money has been in existence for sometime. A media agency head who prefers to remain anonymous says, “Why do we have to pay any earnest money or bank guarantee? We are the service providers and we take the risk, so why does the question arise of us giving the client a guarantee? Besides what is the logic behind charging Rs 1 lakh for a tender document, what is that money for?,” he questions.

Is collecting money from the agency a source of revenue for a company? If yes, then why does a company like Reckitt Benckiser which is flush with funds need to do it? What is the reason it has called for a media pitch, a mere six months after giving MPG India the business? Is this a decision taken by Reckitt Benckiser only in India, or is this a new global policy? Reckitt’s silence on the issue is not helping matters.

Advertising Agencies Association of India (AAAI), the body representing the industry had issued a mandate a few years ago restricting agencies from pitching to clients who invite them for speculative presentations. But this is seldom, if ever, followed. Sam Balsara, chairman, Madison Communications was reluctant to discuss the issue, but said, “The need of the hour is to build pride in the profession and to look upon advertising as a profession, rather than a business.”

While the discussion on this topic continues, what is becoming increasingly clear is the need for the industry to re-evaluate their business model, and if need be, take clients into confidence. “I don’t think we as an industry are united enough and hence have no control. We are all running after fast growth irrespective of the means to get there,” says Nayyar of MPG, and it is probably this rush to get to the pot of gold that has landed the agencies in such a situation. The Indian advertising industry has been growing at 15% annually and India still remains one of the cheapest markets in terms of media. “To reach a 1,000 viewers takes only a $1 in India, compared to $3 in Malaysia and $22 in the US,” says Parameswaran. These costs are only going to go up, he says. Media like mobile and digital promise to bring in the next wave of advertising revolution in the country, but such issues could very well derail the revolution, if a permanent solution is not arrived at.
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