afaqs!

Advertising in recession: Countering the pinch - Part II

By , agencyfaqs! | In | September 04, 2001
The recession is bound to lead to a shakeout. While the weak, as always, will fall by the wayside, some of the others will ride the downturn on the back of mergers and alliances


(Continued from yesterday)

Industry observers, however, have different takes on how the downturn will affect agencies.

An HTA executive feels that it is the mid-sized agencies that feel the pinch the most, not the small or the big ones. "The small ones will survive," he says. "They have one/two dedicated clients and they are happy. They will service the client even at two in the morning. The big ones have many clients to fall back on and they will manage too. But the in-between ones cannot pander to the whims of the clients always, and they do not have the strong media connections to fulfil their clients wishes."

Nikhil Nehru, president, McCann-Erickson, is more specific. "The agencies that are overtly dependent on one or two big clients are the worst affected by recession. Cases in point are HTA, Lintas and O&M, since HLL, one of the biggest spenders, has cut down its ad spends substantially. The other agencies that have also got a big blow are those who were courting dotcom clients through the year 2000. Most of these dotcoms have just stopped spending in 2001."

Shivjeet Kullar, creative director, J&A Partnership, believes that it's the mid-sized agencies that are getting hit the worst. "On a rough sea, the heavy ships cut through the waves and make it," he says. "The small ones, by virtue of their lightness, ride the waves. But the mid-sized ones are not light enough nor are they heavy enough to make it, so they sink. Similarly, the big agencies have deep pockets to cut through the recession, and the small ones will not feel the pinch because their investments were low. The mid-sized ones should watch out."

In contrast, Vivek Srivastava, vice-president of Triton Communications (ranked No 16 in the Eleventh A&M Agency Report), thinks mid-sized agencies are not as vulnerable to recession as the big and small ones. "The stakes are higher for the big agencies because they have a name to live up to," he says. "And at the other end, the small agencies have to find ways from being chewed out. The mid-sized ones have the advantage of flexibility. We are willing to put aside our ego and work. While the big guys get stuck in brand vision, we guys give tactical strategies and get the ball rolling."

Okay, so the recession is going to swallow everyone but me. At least that's the impression most agencies would like to portray. Yet, almost every agency seems to have a potent solution to help ride the recession. One of them being, striking strategic alliances based on size. "Agencies are already in action," says Nehru. "The small and mid-sized agencies are looking at equity participation or strategic alliances with big agencies to ensure that their growth is guaranteed, and for more professional deliveries."

Yes, alliances (and rumours of alliances) are happening all over the place. In fact, according to information available with agencyfaqs!, O&M is apparently talking to Mumbai-based small agency Tandem, which handles the Everest Masala account, for a possible tie-up. Also, in the past, Publicis India was on the hunt for a small agency, and was in talks with Chennai-based Fountainhead and Delhi-based Capital Advertising, though nothing appears to have come of it. In fact, if the grapevine is to be believed, Fountainhead is again being courted, this time by TBWAAnthem.

For the big agency, the advantage with striking such alliances is that it paves the way for a potential takeover sometime in the indeterminate future. And the immediate gains are in terms of new business (so what if it's through smallish accounts). For the small or mid-sized agency, the alliance gives it a much-needed security - there are less chances of some big agency attempting to snatch the Everest Masala account from Tandem when it has an alliance with O&M.

Of course, alliances are more long-term solutions. Fire fighting has to happen on a day-to-day basis, and for that, all the good old nostrums have to be pulled out of the cabinet. One is to go aggressive on collections. Another is to keep overheads low, which means doing away with the nice things like increments, bonuses etc and put a cap on travel expenses, on-the-house lunches etc. And most importantly, going whole hog on new business acquisitions - at any cost.

As Kullar puts it, "Get aggressive on the business front. When this happens, the 'minimum business' clause becomes irrelevant. Then agencies discount commissions and give value-added services. Then backward and forward integration - that is, offering services such as PR and direct marketing - becomes important to entice the client. That is what the big agencies are doing to take away business from the other agencies."

© 2001 agencyfaqs!