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As Kerala tries to battle the fury of the floods, an upheaval of sorts has shaken up the media and advertising domain too. The issue of discounts being offered by media agencies to advertisers during pitches in order to bring down rates and win the business has been taken up by the Indian Broadcasting Foundation (IBF). Last week, in a first-of-its-kind step, IBF Director Punit Goenka sent out an e-mail (see box on right) to all agency heads asking them to abstain from the practice of offering discounts to advertisers on behalf of broadcasters without prior approval from them. The Indian Newspaper Society (INS) too has been talking about the same issue in the Print domain for a long time now.

The issue has been brewing in media circles for a very long time but there are three reasons why it has come up now:
• Increasing number of media pitches with pricing and cost-cutting as the driving factor
• Media companies have finally started feeling the pinch of loss of revenue and spiralling media costs
• Media agencies themselves face revenue loss as they have to lower rates in order to retain or win business

Giving discounts to clients is not unfair, but giving it without the consent of the media owner and not leaving any room for negotiation is the issue which is being addressed by this letter sent out by IBF. The INS has reportedly taken up this issue with the Advertising Agencies Association of India (AAAI) and would soon be taking it up with each agency one on one.

It always takes two to tango and here too, both the parties are liable - broadcasters and agencies. With intense competition and the increasing penetration of digital media, certain broadcasters sell out their residual inventory to a few media agencies at wholesale or discounted rates. Also, during the pitch process, agencies commit a much improved yield with lower media costs and go back to put pressure on the media houses to reduce rates to sell their inventory. There have also been instances where agencies shift the entire media mix of a particular advertiser towards those channels or media from where they have received lower rates, bringing down the overall media cost, which eventually brings them the advertiser’s business.

While the advertiser’s procurement team goes back saving cost, not knowing the impact of the change in media plan, it is the agency and media owners who have got themselves into a deal that is detrimental to their business growth. “The problem is that agencies in order to retain business or win new business go ahead and commit a much improved yield to their clients without even consulting the affected parties. While there are some media houses that refuse to succumb to rate pressures by agencies, there always are some that give in to their demands and this turns unpleasant for the guys who say let’s play clean,” says Joy Chakraborty, President, Revenue, TV18.

When asked whether the growing role of pitch consultants is working against the business in terms of driving media costs/ rates down, Vineet Sodhani, CEO, Spatial Access says, “At least Spatial Access believes that the role of a pitch consultant is to drive value for the client and that could be done in many ways.”

“I never used to give rates. Until some years ago, as a strict policy, Madison never used to offer any rates or even give an indication of the rates to a client, because I knew that it was not the correct thing to do. In any way, I don’t want to win a business just on a lower rate. It has to be so much more than that.”

Chairman, Madison World

‘Price is a function of supply and demand; that is best left between buyer and seller’

Chairman, Indian Society of Advertisers (ISA) CEO - India and SAARC, Godrej Consumer Products Ltd

Q] Recently, the Indian Broadcasting Foundation (IBF) sent an email to all agency heads asking them to abstain from the practice of offering discounts to advertisers on behalf of broadcasters. These discounts are behind advertisers trying to pick the agency giving them the best offer, leading to frequent movements in accounts. Is it making the brand building process very transactional?
I don’t think any advertiser who is meaningfully committed to brandbuilding will look at this only from a pitch transaction point of view because frequently changing agencies for pitch is not healthy. Media plays a big role in brand building. Finally, all your strategies get delivered through strong media executions; otherwise all the money being spent will be wasted. So nobody would do this just for the transactional change or money.

Having said that, at the same time, India is one country where media is one of the most expensive pieces. Media inflation is crazy. Even in the toughest of economic phases in the last two-three years, media inflation hasn’t really come down. While we understand that inflation is finally the outcome of demand and supply, it’s a fact that everybody is looking at maximizing their return on investments and this is the largest investment that any FMCG company or any advertiser in any industry does. So it can’t be only seen as a transactional piece. It needs to be looked at as a combination of an agency that brings value to your brand-building through media buys and also gets it at the right value for money or the right ROI. In that, both have to be seen together. The ROI that is coming on the table from the media cost, at the same time, see the value that is coming from the agency.

Q] What is your advice to media agencies in such a scenario?
My advice would be, obviously, if you are going to make media a commodity, that battle will be fought only in terms of rates. Then you cannot blame the advertisers alone on this. I think the key is, what is the value you are creating beyond a cost, because if it’s going to be a cost game, one can directly go to broadcasters and print media and directly negotiate. And we have heard of some advertisers doing that too. So for media agencies, the key piece is for them to realize that their role is not limited to arbitrage in between, but it’s about value addition.

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