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Special
Media Issue
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Strategic
choices of an advertising agency
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Dr.
Ranjan Das
Professor of Strategic & International Management, Indian
Institute of Management Calcutta, and Consulting Editor,
Strategic Marketing. |
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This
is the best of times and worst of times for Indian advertising
agencies. On the one hand, there are ample opportunities
for growth not only in existing areas of activity, but
also in new fields that are opening up thanks to liberalization
and globalisation, technological progresses and changing
lifestyles. At the other end of the spectrum, risks are
looming large on the horizon of agencies that are not
able to identify the critical competencies they need to
stay on course and decide how they should build and deploy
these competencies, given their current scope and resources.
The risk of getting stuck in the middle is now very real
for many agencies, and the time has come for such agencies
as well as others — operating at the top and bottom rung
— to revisit their strategies including scope, scale and
competitive advantages. |
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Changing Environment of the Advertising World
The performance
of the Indian advertising industry since the middle
of the nineties can be termed as healthy. The current
growth rate of 18-20 per cent, though below the 49.5
per cent achieved during 1995, is still above many industries
in India. The Rs 10000-crore industry is becoming globally
competitive and presently accounts for 33 per cent of
total industry profit in the Asia-Pacific region and
ranks seventh highest in terms of contribution to global
profit. Global agencies are increasingly getting attracted
to the Indian market and now have a share of about 47
per cent of total Indian advertising.
In spite of
this healthy state of the industry during the mid- and
late 1990s, the uncertainty of the future remains a
cause of concern for all agencies, big, medium or small.
Developments in the last five to 10 years have changed
(or are changing) the rules of the industry dramatically.
Let’s take a look at some of these developments to identify
the opportunities and vulnerabilities of Indian advertising
agencies: l Clients are increasingly looking for a one-stop
communication solution, including direct marketing,
event management and public relations.
*Emergence
of Internet and other new media such as ATM, WAP devices
and interactive TV are both exciting and threatening
— exciting for fast and first movers in building capabilities
and early advantages and threatening for laggards and
those basking in past glory.
*Interactive
divisions of many agencies are now offering online consulting,
web branding, web designing and offline advertising
strategies.
* Concentration
in the industry is clearly visible, with the top 15
agencies accounting for 80 per cent of the billing and
the balance 20 per cent being shared by a 100-odd agencies.
* Opportunities
for growth appear substantial — total billing is expected
to grow to Rs. 20,000 crore by 2005 with two to three
agencies billing more than Rs 3000 crore. Some of the
opportunity areas will be healthcare, insurance, financial
services, dot.com, Internet and special communications.
* Online
advertising will be on the rise and will reach Rs. 300
crore by 2005. However, it will change the rules of
advertising and will help advertisers to shift focus
from broadcasting to narrow casting.
* With
media planning and media buying becoming highly specialized
thanks to the emergence of new media and need for better
relating media characteristics with brand and consumer
profile, there is a possibility that these two activities
will move out of the range of services provided by a
traditional advertising agency, implying splitting of
the commission presently being earned. It is bad news
for full service agencies who will have to establish
how they can add value in such areas as speed, coordination
and optimum media plans.
* Clients
will be looking for more comprehensive and also better
services with greater speed in delivery and applications
across geographically dispersed markets. They will also
be increasingly demanding a different remuneration structure
(either fixed fee-based or performance-linked) to ensure
accountability.
* Media
planning has become far more complex than before — there
are a 100-odd channels, 400 publications and a plethora
of new media that keep popping up every other day. With
the rising cost of media and its ever-growing fragmentation,
the efficiency and effectiveness of adspend are now
being examined critically more than ever before.
* Online
and offline media-buying companies will be fully integrated
and automated. In general, technology will drive initiatives
in devising better ways to reach consumers.
* Faced
with increasing media cost and intense competition,
many agencies are now trying to scale up quickly to
become one-stop solution providers and reduce cost.
In fact, the industry has already started witnessing
a number of M&As and strategic alliances. .
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A
critical issue is how big the size of an agency should
be. Size will matter if new capabilities are to be built,
more value-added services are to be provided and cost
to the client is to be reduced. also, the industry is
getting concentrated, and unless an agency figures in
the top ten, it is unlikely to make reasonable money.
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Areas
of Repositioning
Given the changes
mentioned above, the strategies that worked in the past
will need to be revisited to check their relevance in
the new environment. Some of the areas where fresh views
are needed are:
Segmentation
The choice of
segments to be served in the emerging future is the first
aspect to be revisited in order to reposition an advertising
agency in the new competitive environment. It is now clear
that no organization can be ‘all things to all people’.
The need to divide existing and prospective clients into
a number of homogeneous segments and then select the few
where the agency wishes to focus in the coming years will
be a key task since it will help the agency to have clarity,
consistency and commitment in development of strategy,
allocation of resources and identification of critical
skills. The choice of segments to be targeted must take
into account such aspects as scale of future operations,
new opportunity areas (e.g. relative emphasis on non-traditional
media and choice of segments such as retailing, dot.com,
health care, insurance etc.) and underlying capabilities
to serve such areas, competitors’ existing and future
offerings, agency’s present strengths and vulnerabilities
and its agenda for building specific capabilities in the
future.
Scope
An agency should
examine if it should become a full service agency or focus
on one or two specialized areas. There will increasingly
be a sharp distinction between ‘pure’ players in select
areas and full-fledged communication practitioners.
Scale
A critical issue
to be addressed is how big the size of an agency should
be. Size will undoubtedly matter if new capabilities are
to be built, more value-added services are to be provided
and cost to the client is to be reduced. It is also a
fact that the industry is getting concentrated, and unless
an agency figures in the top ten, it is unlikely to make
reasonable money.
Capability Building
One key issue
that needs to be revisited is what kind of future capabilities
an agency should build so that it can have competitive
advantages to offer value that is better than its other
direct competitors as well as niche players. The list
of capabilities has to be developed keeping in view the
need for micro-segmentation, requirement of faster delivery,
emergence of e-business, new technological possibilities
in IT and telecom, and development of non-traditional
media such as Internet, ATM, WAP devices, interactive
TV etc. Care must be taken not to build capabilities in
all possible areas (for example, the agency need not build
capabilities in software required to support its online
initiatives). Needless to say, the more the number of
areas where apabilities need to be built, the more will
be the investment that will be required in technology,
creative people and associated training and development.
Two additional considerations, while deciding on future
capabilities, will be:
* Applicability
of newly developed capabilities across different geographical
markets around the world
* Breadths
of sectors to be covered (e.g. retailing, distribution,
promotions, merchandising, sampling etc.)
Value proposition
The decisions
taken to reposition the agency in four specific areas
of segmentation, scope, scale and capabilities will determine
the value proposition that the agency intends to offer
to its clients. The uniqueness and sustainability of such
value proposition and the ability to deliver such values
at a competitive cost will be a critical aspect of an
agency’s plan to reposition itself. The key thing to figure
out will be what specific values clients in each segment
targeted will be looking for (which may not always be
articulated by the clients). While value expectations
will differ from one segment to another, some common aspects
are clear:
* Providing
research and intellectual inputs to clients in three key
areas, viz understanding changes in consumer behaviour,
developing business insights (including making available
frameworks for formulating strategic options) and crystallizing
the brand vision. Agencies have not paid sufficient attention
to supporting clients in the last mentioned two areas,
namely business insights and brand vision. They will need
to involve themselves in these upstream areas to not only
assist the clients in their strategic brand management
function but also to ensure excellence in downstream activities.
Interestingly, an agency need not build all the capabilities
needed to excel in these areas. Strategic alliances and
networking with individuals and specialist organizations
(such as industry experts, strategy consultants, research
companies etc.) can provide the required concepts and
best practices.
* Development
of a range of options, so far as choice of media — both
online and offline — is concerned, given the content of
the message and the profile of target consumer or customer
group. Providing value — cost leveraging of each of these
options and ranking them on a ‘neutral’ basis through
relating each option to the specific context such as business
strategy being adopted, short- and long-term goals and
brand vision of the client — will be a critical component
of the value proposed to be created. Specifically, clients
will like to know how effective various traditional and
new media options (remember 80 per cent of the cost of
a campaign is the media-related cost) for a particular
product or service will be, given the overall business
and brand strategy and short- and medium-term marketing
objectives.
* Speed
in delivering error-free, quality output and responsiveness
as well as the flexibility to change the package of offering
at short notice will help agencies reduce customers’ anxieties
to get an advantage over competition.
*Subjecting
the agency’s remuneration structure, on a proactive basis,
to certain accountability format. This will communicate
seriousness, professionalism and sensitivity to a client’s
needs and help greatly in building a strong goodwill in
favour of the agency.
*Building
a track record of measurable success in all aspects of
the agency’s operation and services — creative, media
planning, media buying, production and account servicing.
A track record of superior performance builds reputation
and equity in the minds of the client.
* Expertise
and professionalism of the agency’s staff, at both the
front and back office, reduce customers’ anxieties to
a great extent and are thus sources of value.
* A well-developed,
well-communicated, and well-delivered value proposition
that I s meaningful and relevant to the target client
groups will help the agency ‘position’ itself clearly
and uniquely in the minds of the clients vis-à-vis competition.
Performance Criteria
As with any
other organization, an agency will need to define a few
critical parameters against which it will measure its
short- and long-term performance, given the industry’s
standards and clients’ expectations. Such parameters should
be chosen to reflect the importance of both client satisfaction
and internal efficiency. Against the backdrop of the increasing
propensity of clients to shift from a commission or fee-based
remuneration structure to a system based on ‘payment by
result’, it is obvious that an agency will need to incorporate
in its list of key success factors such parameters as
the advertiser’s business performance (e.g. sales, volume
etc.), the performance of advertising (e.g. level of awareness
created, enhancement of brand image etc.) and performance
of the agency vis-a-vis clients’ expectations and service
standards set in delivering the service (e.g. task competencies,
service delivery-quality, timeliness and professionalism).
These three areas, in addition to other items that measure
internal efficiency, must be fine-tuned, quantified and
benchmarked to make sure that both clients and employees
of the agency understand and evaluate the kind of value
the agency proposes to deliver and how the agency ensures
high-quality execution of the same.
Organising for the future
Against the
background of changing environment and the repositioning
required to deliver the new value proposition discussed
above, a key issue the agencies will face is how to organize
their activities in future to implement the new direction.
While traditional thinking will probably indicate the
need to possess all required capabilities and infrastructure
in-house, the guiding principle should be to include only
those few core activities where the agency has established
capabilities (or has plans to develop such capabilities);
any other activity, however unconventional it may sound,
must be subjected to critical scrutiny and be considered
for outsourcing (without, however, losing control over
the same). In the 21st century, the resources that will
be critical for ensuring the success of any organization
are essentially creative people, ideas, information and
network; there will be less and less emphasis on physical
infrastructure and layers of bureaucracy to deliver the
value desired by customers — and advertising agencies
will not be any exception. The real challenge for agencies
will be how to keep the core activities to the minimum
and how to establish a collaborative relationship with
a large number of individuals and organizations who will
provide specialized and standard services, depending on
each individual’s and organization’s intrinsic strengths,
in a seamless manner. Such individuals and organizations
will be legally separate but must work along with the
agency in an operationally synchronized manner. Advancement
of information and communication technology can help an
agency to have control over activities of such satellite
units by establishing contractual control on digital information.
Conclusion
The need of
the agencies of tomorrow to reposition themselves in the
fast-changing business and advertising world cannot be
overemphasized. The areas that should be revisited by
the agencies have been identified in this article and
these require urgent review. A fresh prospective is necessary
in each of these areas to reposition the agency in the
new scenario. Obviously there will be a number of alternatives
under each of these areas, and the final choice will essentially
depend on how the managers of each concerned agency perceive
the dynamics of the new environment, including the opportunities
that are opening up and the competencies they need to
develop. Also important will be the aspirations these
managers have to dominate the nature and pace of the future
evolution of the advertising industry. |
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