Big ideas work better than big budgets: Sam Balsara

“Necessity is the mother of invention, and big ideas work better than big budgets,” said Sam Balsara, Chairman & MD, Madison World as he engaged in a chat with Nawal Ahuja, Co-Founder, exchange4media at the e4m Confluence - Media Investment Summit 2023, about what worked in favour of media agencies that the past two decades have been so encouraging for this space. He also informed that a set of remuneration guidelines has been issued to the AAAI members for the overall good of the industry.

The conversation began with a reflection on the historical perspective of agency compensation. In the early days, agencies earned a substantial 16.67% of what advertisers paid, creating a robust model. However, as competition intensified, clients became discerning in selecting agencies, shifting the power dynamics. Agencies had to adapt to the growing demand for their services, leading to a more competitive environment, shared Balsara

Going back to the 90s, he took the example of FMCG giant Procter & Gamble and shared that back then, the company had four agencies, and each agency was buying their own media for the brands they handle. “It didn’t take too much of a genius to say, shouldn’t one agency buy all,” Balsara said.

“Having done that, obviously the client also wanted to protect the income of the creative agency. In the US, the market was billions of dollars and in India, it was around Rs 10,000 to Rs 15,000 crores. The same percentages that prevailed in the US market, were made applicable to the Indian market and the requirement imposed on the media agency was probably 5 times more than what the erstwhile full-service agency delivered in media,” he further explained.

Speaking about the time when the concept of advertising agencies came into existence, Balsara shared that it started when newspapers began to appear on the scene and to recover their costs, they could sell some space to manufacturers and make some money out of it.

Some manufacturers were ready to utilise that space, but what would appear in that space was what left them confused. “Therefore the newspapers encouraged a bunch of young people with creative ideas to work out creative ads and take them to prospective manufacturers and advertisers so that the newspaper could fill the space,” Balsara mentioned.

This was a service offered by the newspaper to the advertiser for which the newspaper paid the agency a 15% commission of what the advertiser paid the newspaper. “That is why the concept of gross commission came about, which now is sadly dying,” he shared.

Over the years, Balsara continued, the competition increased, agencies’ services became popular and advertisers realised that instead of just using an agent that was fostered on them by the media owner, they had a better ability to evaluate which agency was good for them. “That is when the tables shifted and clients began to appoint advertising agencies,” he said.

With agencies gaining prominence, the discussion touched upon the changing dynamics of agency selection. Unlike the earlier practice where media owners imposed agencies on advertisers, clients now had the autonomy to choose agencies based on their track record and suitability. This shift marked a turning point, with advertisers actively appointing advertising agencies.

The conversation also delved into the impact of cost-cutting measures on the advertising landscape. The emphasis on reducing costs, while a crucial aspect of business, has created challenges for agencies, particularly in acquiring new business. The discussion then shifted to talent acquisition challenges faced by agencies. In the earlier days, agencies could hire from reputable institutes, ensuring a steady influx of skilled professionals. However, the current focus on cost-cutting has led to a decline in the quality of talent, making it difficult for agencies to attract skilled individuals even from second-tier institutes.

He shared that in the first five years of Madison, the agency used to hire from institutes like Bajaj and MICA. “However, since the last 10 years there is not a single student from MICA that an advertising agency can afford,” he added.

Balsara believes that advertisers cannot solve this problem for agencies. Rather, agencies have to put their heads together and solve the problem.

Recognizing the need for collective action, he mentioned the recent collaborative effort within the industry to develop guidelines on remuneration. The aim is to reverse the trend of cost-cutting and ensure fair compensation for agencies. While acknowledging the challenges, the speaker expressed optimism about agencies coming together to implement these guidelines for their collective survival and growth.

“In the last 3-4 months, we have all put our heads together and developed a guideline, which we have issued to members of AAAI saying that look, for our own survival, clients’ survival and for growth of advertising, marketing & media industry, let us have a set of guidelines for remuneration,” he said.

Balsara also feels that media agencies have done an admirable job in the last 20 years. “I think by and large the response of the media agencies has been far better than many other sorts of agencies, especially the creative agencies. So if we continue to be responsive and alert, I think the future of media agencies will be good and strong,” he said.

During the discussion, Balsara also made a comparison between consultancies and advertising agencies. He highlighted the difference in their business models, with consultancies often charging higher premiums for their services. 

The conversation also touched on global trends, such as the growth rates of consultancy firms compared to traditional agency networks. The speaker emphasized the importance of agencies recognizing their position in the knowledge business and their ability to command fair prices for their expertise.

In conclusion, the dialogue shed light on the multifaceted challenges faced by advertising agencies today, from evolving compensation models to talent acquisition hurdles. The call for agency unity and a proactive approach to industry challenges sets the stage for potential transformation and growth in the dynamic world of advertising.