Time to rebuild trust between brands and agencies

Last week, the Indian Society of Advertisers (ISA) released a charter, seeking more transparency in the way agencies worked. It was backed by the biggest brands in India like HUL, Dabur and Marico with representatives discussing the need to implement fair practices to improve the working relationships with agencies.

A large section of the CMOs who attended the event shared stories about how the trust between clients and agencies had depleted in the last few decades. “Do the sum total of the money a client pays to an agency, and match it with their revenue numbers. You will see a huge gap. This in itself confirms that our money is being used by agencies to make huge profits without sharing the rebate with us. All we are seeking is more transparency in the way our money is being spent by agencies,” shared a CMO.

Another complained about how breaches are rampant during advertising campaigns. FCaps (Frequency Caps) are breached, resulting in the same ad being shown to a small group of consumers at a much higher frequency than intended. The advertisers had set specific frequency limits to ensure that the ad reaches a diverse audience and doesn't overwhelm any particular segment of consumers. However, due to this breach, a select group of users is being exposed to the ad multiple times beyond the planned threshold. This has also resulted in an inflated bill that marketers have to pay for an ad. “This has become a rampant practice in digital media. Hence, we need to intervene and demand more accountability of our money,” another CMO emphasised.

On the other hand, agencies say their biggest pain point is the low fee at which they are made to work. Most claim they were left with no option but to find ways to make the business profitable as clients have significantly reduced the commission paid to agencies over the years due to increasing competition.
 
“For decades, we have been working at about one or two per cent commission. Look at the inflation over the years but our commission has not increased. Their demands for better services have gone up many folds over the years. Earlier, if three people worked on an account, we now have 10 people doing the same. Of course, the account sizes have increased but so have our expenses and services.”

Moreover, every time agencies raise their concerns, they are threatened with a pitch. “Pitches have become far more frequent now than ever. Some clients have started calling it annually. It is nothing but a way to extract more and more out of an agency without improving the remuneration,” says an agency veteran.

The issue of participating in a pitch itself remains a point of contention within the industry. While larger agencies with substantial resources can afford to participate in multiple pitches, it becomes a financial burden for mid-sized and smaller agencies. There have been calls in the Indian market for introducing a pitch fee to at least offset the basic costs involved in participating. This demand stems from the understanding that compensating agencies for their efforts will level the playing field and make the pitching process more equitable for all participants.

Contracts pose another challenging aspect for agencies and clients to navigate. Although agencies primarily interact with the marketing teams, it's the commercial teams’ responsibility to draft the contracts. Their primary focus is on negotiating deals, driving revenue generation and ensuring the company's financial viability. Consequently, they tend to emphasize immediate financial gains and short-term objectives in their contract drafting process. This discrepancy sometimes creates tension between the agencies and the commercial teams as the latter's approach may not always align with the long-term creative and marketing goals of the agencies.

Industry veterans believe things weren’t the same a few decades ago. There was more trust between the clients and the agencies. “Those were also less complicated days as we only had traditional media planning. Auditing accounts was simpler and more straightforward. The industry size was much smaller. We have thousands of brands now and digital has completely disrupted the ecosystem,” an industry veteran shared.
 
Perhaps it’s time for both parties to rebuild the trust. A joint committee comprising members of the Advertising Agencies Association of India (AAAI) and the ISA perhaps can together find solutions to the growing concerns. This committee can serve as a platform for an open dialogue and collaboration to address the various issues and foster a renewed sense of trust and understanding between the two entities.

The committee can identify root causes and address concerns like fair remuneration for agencies, the need for a pitch fee, and revisiting or updating existing agreements, contracts and communication protocols to ensure that expectations are aligned and clearly understood by all parties. Additionally, instead of one body drafting the best practices for the other, the committee could develop guidelines for best practices in advertising and media management to ensure ethical conduct and adherence to industry standards.

Ultimately, the success of the joint committee's efforts hinges on genuine willingness from both parties to engage constructively and collaboratively.