Choosing agencies merely on pricing is a disservice to the industry, says Wavemaker's Kartik Sharma

Investments in adtech, martech, understanding the consumer purchase journey and setting up of a specialised content team for brands would be among the key focus areas for Wavemaker in 2018.

Kartik Sharma, the MD of Wavemaker (the newly formed agency post the merger of Maxus and MEC), said they are expecting to grow at a rate similar to that of the market. He said pick up in sectors such as FMCG, e-commerce, BFSI and government advertising would push adex in 2018.

Though profitability of agencies is under stress, Sharma said lowering prices and commission to retain or get more business doesn't make a good business move. "If the agency has to deliver for clients, it needs to invest in talent and technology. It can't be done without decent margins," he said.

Sharma said that clients were doing a big disservice to the industry by choosing agencies merely on the basis of price.

"The industry has to have the maturity that it’s not only about prices. An agency brings in a lot of things like the knowledge, category expertise, ability to execute complex campaigns, understanding consumers and many other things.

Unfortunately most of the pitch decisions these days end up being decided purely on prices," he said.

Excerpts:

January 2018 was to be the official rollout time for Wavemaker. How has been the journey of the company, which started operations about four months ago?

2017 was an extremely important and challenging year for us. Important because of the launch of Wavemaker. Challenging, as the year saw a lot of retention pitches. We saw unprecedented amount of existing clients going on a pitch. We also got lot of opportunities as we won new businesses, some really big ones like ITC.

While it is always important to keep growing by winning new business, retentions are even more important. When you are a part of a group that has got a disproportionate share of media, it is very important to retain current clients. Retention also reflects that you are continuously doing what is right for the client’s business.

What will be your focus areas for investments in 2018?

In 2018 we will focus on three things – media, content and technology. This is in line with our global proposition and focus. As an industry, we are witnessing tectonic changes in the media landscape. A new challenge is, are we considering the whole customer journey from the view of a single customer? It’s also critical to understand how to balance between brand and response-driven communications. And last but not the least, make sense of content.

To address all of this, we will invest heavily in understanding consumer purchase journey through our proprietary research momentum, the world’s largest purchase journey study to date. We are also creating a robust team to address content needs with purposeful storytelling at the heart of what we do for brands. We are also investing heavily in technology, both adtech and martech. We have already rolled out some cool products in the area of marketing ROI using AI and social media. More launches are planned during the course of the year in this area.

In a lot of markets, we have seen digital has now come on a par with television or has overtaken TV too. Do you think 2018 can be that year for India?

My personal sense is no, for multiple reasons. While it’s easy to say that everything can be measured in digital, there are lot of challenges. For example, there is enough debate and views around viewability/ad fraud which brands have encountered in the last 12-18 months. These are serious concerns for any marketer and those must be addressed on priority. Having said this, while globally, many developed markets have exhibited a disproportionate share of digital, several ROI studies demonstrate the power of some of the legacy media like TV, print etc.

In my view, it's all finally about various media coming together and helping the brands grow, while delivering the RoI. Clearly, all studies demonstrate that when you combine more than one media, your RoI improves and therefore getting the right mix is the key for greater RoI. Simply put, think of the media mix as a palate of food. It is not healthy to eat just one type of food, e.g. a dessert, because it’s very tasty. A balanced food intake is critical for healthy living.

For India, the role of legacy media is still important in building brands. Digital and other forms of new media do have a role to play, but the full combination is very important. It’s not an ‘OR’ situation, it is an ‘AND’ situation.

As you said, major challenges have cropped up in digital in last 12-18 months. It might be because digital is still new and evolving. As we go further, the problems in terms of measurability and accountability may only increase from here.

Yes. Any media will have those issues. The format of the medium increases or decreases the strategic issues. One of the things with digital is that each person will consume it very differently. If there is a TV screen, there can be only one channel at a time, while we all may like/ not like that channel. All the choice that you have there is of changing channels and that’s about it.

Digital as a medium has unique properties. It allows doing multiple things at the same time. You might be checking your mail while listening to music at the background. Also navigating from one need like social media to e-commerce is a click away and in some instances embedded within the platform. That’s the power of digital and is very difficult to do that in other media.

Margins on traditional media have been decreasing for some time now and 2017 has seen a new low. How difficult it is to really maintain the profitability of the agency?

Yes that’s true. All our clients’ business and even our own business is under lot of pressure.

In these pressures, the most obvious solution seems to be to control costs. If cost becomes the only variable to either retain or choose an agency, it is a dangerous situation, because it is a short-term goal. Consider a brand that is gaining market share because of the price that it offers and if nothing else matters, which means, lower the price you get more sales. The moment you increase prices, sales decrease – this is a dangerous situation to be in. The brand will eventually see a decline over a period of time if not managed well as it will not be profitable and shareholder value will be diminished.

Similarly, if lower price is the only criteria to choose the agency then I think clients are doing a big disservice to themselves. The situation gets complicated when many audit agencies advise clients on how they can get lower prices without giving thought to quality of thinking, team capability, integrated thinking, and sophisticated tool deployment for clients’ benefits, etc. When clients fall prey to short termism, this is bound to happen. It takes one to two years to realise the mistake and then the process gets repeated like calling for a pitch and new promises being made by a new set of agencies.

Most clients I would believe want good teams to work on their business. This means the agency has to invest in people, system and technology. If agency revenues keep falling then there is no sustainable way by which investments can happen. As much as our clients should be profitable – I believe – we are also commercial enterprises and we should also be profitable. If one partner in this system is only making profit and other is not, it is not a sustainable model. Compromises will end sooner or later. So, the industry has to have the maturity that it’s not only about prices. An agency brings in a lot of things like the knowledge, category expertise, ability to execute complex campaigns, understanding consumers and many other things.

Unfortunately most of the pitch decisions these days end up being decided purely on prices. Only a few clients have the maturity to look beyond and decide partners. I have witnessed that such clients in the long run benefit far more in the partnership over clients deciding purely on price.

But if one player is reducing the rates left, right and centre, the market gets spoiled. What do you do then to ensure that you win the business?

True. It is for each of the agency leaderships to decide what is right for them. For Wavemaker, we have also had situations in the past where we had to let go of clients only due to commercial reasons. It is sad, but it is true, because if it is not commercially viable for us, the relationship will head in a different direction. From running a business point of view, all business leaders have a role to play in being profitable. If that's not going to happen and it is only going downhill, then the industry will suffer collectively.

Do you think this competitive pricing is costing a lot?

The agencies that are picking up business on price alone, with the mindset that somehow they have to get the client, are bound to suffer. How will you make reasonable profits? How will you invest in training for people? How will invest in technology? There are no shortcuts and agencies doing such practices in the long run will always suffer.

Haven’t you done this ever before?

We are always competitive. There are many agencies whom in certain situations may quote much lower than what we have. I don't know how they do it, but whatever we do will always be in a very credible fashion, and only what we can deliver the client.

So is it that if a price is not sustainable, you won’t lower it further, no matter what?

Why should I quote the price that is not sustainable to me? We have a reputation and doing this will harm the reputation. As a leader, why would we want to do that?

What are your growth targets for 2018, in terms of billings/ revenues?

While I cannot disclose any numbers what I can tell you is that we have a growth mindset and that will not change. We will also look at growth in line with the industry and sectorally how different clients are. Because different clients grow at different rates. Overall aggregated, it is a growth year and we will have growth-oriented targets.

What is the strategy to achieve these targets? How different will be your 2018 strategy than all the previous years?

Our strategy is based on three pillars. We have to strictly deliver on the promise of media, content and technology. Our motto is “Everyday excellence”.

First of all, we have internally realigned our team, making it more nimble and agile. It's a regular process done every few years.

Second, we will work even more closely with GroupM and WPP partners. Horizontality will be a key mantra for us in 2018.

The third and the most important pillar is to bring in new products and services that are relevant to our clients and will bring value to them.

These three pillars will work along with our global framework of rapid growth planning (RGP). RGP is rooted in the purchase journey of the consumers, right from the trigger stage to actual purchase.

Momentum is our proprietary framework which fuels the RGP process. We are in the process of conducting several momentum studies for our clients. Additionally we have several proprietary tools which help in choosing the right media and optimise it. They are all based on cutting-edge thinking and technology.

Since client needs are varied we have also built in customised products, because it’s not one solution fits all. Several products in the area of business strategy, analytics and insights, ecommerce, content and technology are being built and will be launched soon.

As mentioned earlier, huge investments have been already made in areas like AI. Some of the products are internally rolled out and will continue for the next couple of months. Team Wavemaker will undergo regular massive training – upskilling and leadership training.

A huge part of our business is about how we attract, retain and manage talent. We are attracting talent from diverse backgrounds in line with our values on PACED - Passionate, Agile, Collaborative, Entrepreneurial, Diversity. Some more of this diversified talent will join soon in the next couple of weeks and months, both at mid and senior levels. It is equally important to ensure that the existing teams are constantly upgraded, both on the skills and leadership quotient. It’s not either of them. There is a robust training that we have put in place. That will accelerate what we want to do.

What will be the drivers of growth for the industry in 2018?

I expect FMCG sector to bounce back. The telecom space has seen a lot of consolidation and we can expect some action in this sector. The handset category is also hotting up in the last two years. We are continuously going to see a lot of action in these key sectors. E-commerce will also see much more growth. It went up and came down slightly, but I think India is now, poised for bigger growth. There are early indicators that some key brands in that sector may start becoming even more aggressive.

Some sectors within BFSI, for example banking, will start growing. Auto also has a lot of launches to come. New companies are setting up plants in India. That might also help, depending on how quickly they roll out their products. Some of the biggest will be education across many players. No surprise the government will be the largest contributor to the adex.

Technology consultants are taking larger interest in media. Will they be a threat or a competition?

Fundamentally, what consulting companies do and what media companies do, is very different. While there are broad common areas like strategy, the business models are different. The problems that each of us are trying to solve is very different. Most consulting companies are solving business issues, while a media agency (by definition) is doing a part of the client’s function, which is media. Secondly, in media agency business, we get paid for executing, while consulting is about strategizing. There are other nuances between these two businesses.

I don't think we should lose sleep over it. We are in a very different world, where everyone is a competitor. You will be competing with tech/ analytics/ content companies and this challenge is growing in the last four to five years. It’s not sprung up now. What value you are giving to your client is more valuable and that will decide the future of any business.

Creative agencies are also getting into media businesses. How do you see that?

We are seeing a case of full circle in certain cases. Can they do it? I don't know. But if you see the ad agency 20-22 years ago, many of us had started our careers at that time. We were part of creative agency networks handling media while some others were in creative. We know the creative process. If there is legitimate interest, the market will decide, more than the agencies deciding. If clients see that the solutions are actually helping grow their business, then it's a very fair argument for the agencies to start going that path. It is too nascent at this stage. Right now, we are seeing so much scope for specialisation and fewer agencies trying for integration. Of course, integrated thinking also has to come. But it’s all about the proof of the pudding and if we can make it happen. If we can, clients will ask for it.

If clients do ask for it, do you think Wavemaker will be ready to pick it up soon?

Absolutely! I think Sir Martin Sorrell uses the word horizontality and that is the way. As a group WPP, we have been the frontrunners and are talking about this for many years and also executing many of these. For example, team Red Fuse and team Red for Vodafone are excellent examples of integration within Wavemaker. There is value, if you can prove that value, clients will lap it up. Will all clients accept it? Time will tell, but then directionally, more clients are getting towards integration. Whether it is few teams working together or just one team trying to do it, those are other nuances. But directionally, integration is a winning proposition for the clients.

On one hand, we are looking at experts in SEO, search, social media, programmatic – within digital too, we want so much niche. Then, on the other hand, there’s integration.

What has happened with many clients over the years is that there was one single ad agency model that disintegrated into a specialist, into being a creative/ media/ digital agency. Just imagine from a client’s end, he will have to now deal with so many entities, which is an operational challenge. On a strategic level, are all these 10-15 partners are unified in their thinking about the brand and hence, their delivery? The consumer is one for whom the brand is one. Hence, integration eventually is the key.

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