Rational growth: The new industry paradigm...

In an industry that has spent the last two-and-a-half years in the slipstream of a downturn, optimism appears to be the latest casualty. Right from the beginning of the year till up to the end of the second quarter, industry professionals were buoyed by the hope of a recovery - from somewhere, anywhere. But that was not to be. Enron, WorldCom, saber rattling by India and Pakistan… and now the delayed monsoon and drought. Slowly, the realization is sinking in, and optimism is giving in…

"I do not think there has been a recovery," says Swapan Seth, co-CEO & chief creative officer, Equus Red Cell. "Instead, I think with an abysmal monsoon and a suppressed economy, things have actually worsened." (JS) Mani, senior vice-president & general manager, Bates India, shares this view. "The mood is still very subdued and clients are weighing every penny they are putting in."

For his part, Anil Nair, vice-president, Quadrant Communications, believes that nothing will happen to change things dramatically. "If you wish for external aspects to bail you out, you're mistaken. Clients are not going to increase spends suddenly, and whatever growth happens will be gradual and natural. Yes, an upswing is being expected on account of the ICC Trophy, followed by the festive season, which will be followed by the World Cup. After that…? I think we are looking at a scenario where single-digit or low double-digit growth is a reality."

Looking at it, it is the searching-for-a-horse-in-a-dung-heap kind of optimism that is succumbing. Which is, perhaps, a healthy sign. The first indication that the industry might finally be coming to terms with a new agency reality - rational growth, as opposed to the boom-time growth of the mid-nineties (which was hugely inflated and thoroughly unsustainable anyway).

"Rational growth rates is the new growth paradigm and agencies have to accept this reality," says Mani. "Why do we have such a problem facing this industry? After all, ours is not the only industry that has had to live with a slowdown. Today, even an Infosys talks of a mere 30-per cent growth, which is nowhere compared to the figures it once flashed."

A new paradigm it might be, but are agencies seeing it for what it is worth? Seth doesn't think so. "I still think that most people see the current trend to be a mirage - that actually isn't. For an agency of our size, I very much hope that the situation never reverts to the complacency that this business has bred. For far too long, we have shortchanged our clients, and to this day, we continue to shortchange them." Mani, on the other hand, feels that agencies are already appreciating the situation. "The agency has no option but to react to this positively. The sooner you do it, the better."

The thought of single-digit growth becoming a standard can be nightmarish. But with some of the big clients cutting down their ad spends and with the squeeze on margins, it's something agencies have to quickly get used to. Naturally, there has to be a fallout, both internal and in terms of the deliverables to the client.

The knee-jerk reaction is to cut costs, though not everyone finds the idea all that appealing. "You can't look at this business purely from the numbers point," argues Nair. "How much cost can you cut when this business is about people and talent? I think we have to be realistic about our profits." Easier said than done, considering most big agencies are accountable to New York or London, where revenue-minus-profit-equals-cost is the catchphrase.

Almost everyone admits that cutting costs alone won't help. In fact, cost cutting is at best a means of "coping with the situation - not dealing with it", as a vice-president with a Top 5 agency (who did not want to be quoted) put it. "The business itself has to be re-oriented in a way that you grow the topline, while managing the bottomline," he says. "It's not as if clients are spending less across the board. There are clients, especially the market leaders, who are spending. In a depressed economy even marketers are looking at innovative ways of doing things, so if you can bring a clearly differentiated and perceived value-add to the table, you can grow. Commissions are going down, but consultants are charging a premium on their recommendations. It's all a question of whether you're prepared to seize the opportunity."

"I think the days of the conventional advertising agency are quite over," says Seth. "Agencies will have to seek fresher mandates from within the client organization. We are today providing market consultancy to some of our clients; to others, we provide counsel on distribution. No client is any longer interested in an agency that merely provides communication solutions. Clients are aware that agencies are under pressure. So they are putting further pressure on the agency. I think it is a wonderful time to stand up and be counted." © 2002 agencyfaqs!