Agency-client relationships are often complicated, hierarchical, mostly unequal partnerships and full of smoke and mirrors.
The pandemic has badly shaken everyone and their businesses, and for the advertising industry, it has been even worse as their unequal relationship with the clients has strained further.
Veterans from the advertising industry told BestMediaInfo.com that this crisis phase exposed the agency-client relationship.
Asheesh Malhotra, Executive Vice President at Dentsu Aegis Network, said that clients, who believed in the power of branding and continued advertising in the current times, continued to support their agencies.
Clients that were not strong enough have moved out. Around 30-40% of the total business relationship between ad agencies and clients is on a project basis.
"I think that most relationships have stayed within their character, the transactional ones have shown up, but the deeper ones have huddled together to fight back. Some may have used the word 'partnership' selfishly, but I don't think that's been the norm," said Dheeraj Sinha Managing Director - India, Chief Strategy Officer - South Asia at Leo Burnett.
Without relationships, businesses don't work and maintaining a good relationship with clients is given but "the strength of the relationship gets tested when things are not good," shared Kawal Shoor, Planner and Founding Partner of The Womb.
This change in the relationship dynamics and agencies turning into unequal partners hasn't happened overnight, but it has been a gradual process, experts said.
For the last 15 years, agencies have moved from commissions to retainers to project-based business.
If the relationship is strong, then agencies, as well as brands, take the pain together. If the connection is transactional then agencies have to give a lot more for what is needed to do, says Saurabh Varma, an Entrepreneur and Former CEO of Publicis Communications.
Project-based business first to vanish
Increasingly a lot of the businesses in the industry is project-led and such activity is very transactional.
From the client perspective, they only pay for specific deliverable and scope of work. In the last two months, a lot of project-led business completely vanished.
"Yes, agencies with a project led accounts are having a tough time. If eight out of 10 clients are on a project basis, then the agency is in big trouble," said Malhotra.
I think having a diversified portfolio helps in such situations, said Sinha. "If you have a good mix of clients across sectors, you are relatively balanced in your revenue flow. So if you work with online players as much as you do with packaged consumer goods brands and have a few health led brands, then it should all balance out," he added.
In the current situation, agencies are adjusting with delayed and squeezed payments, stalled projects by existing clients as most of their businesses have shut.
Using pandemic as an excuse to squeeze agencies?
Some clients are using sensitive times as an excuse to delay and squeeze payments, said a CEO of an agency.
"We know it is happening. Clients who can pay but they are not paying. Mostly it depends on the relationship one has with its client. Network agencies are afraid to sack the client, and they are desperate to retain the business. At Pinstorm, we are very straight up that if you don't pay, then we stop work," said Mahesh Murthy, Founder of Pinstorm.
Malhotra said, "I won't be surprised that some people would take advantage of it, delaying payments making COVID as an excuse of it.'
"Cutting the agency to the bone may not help much except to debilitate them. Clients in a good partnership/relationship understand this very well," said Sinha.
Sinha thinks that clients will continue to pay for value. "One may get one or two who behave out of character, but then that's not going to be a long-term game from both the sides. This is the actual test of a relationship and both need to come through in this situation," he said.
Is the client's action genuine?
Brand activities in the last three months have drastically changed. If an agency was doing ten ads in a month, it has come down to one or two in current times.
"Shrinkage in the scope of work can be a reason of reduction in the pay-outs and agencies are total with it, they don't expect the clients to pay the same amount of retainers or money as before," said Malhotra.
"I don't think clients are taking advantage of the situation. As far as the retainers and AOR are concerned, clients are taking measures to protect their bottom lines," said Varma
Clients who are genuinely, badly hit have asked agencies to cut the retainers. Many agencies are offering various other digital services apart from communications in return to maintain their respective businesses.
How can the agency-client relationship be cemented
According to Malhotra, stalwarts from advertising fraternity needs to come together to protect themselves, their own and the advertising community. They should set a few rules on the common pain points of ad agencies. "We only cut each other throats and do not support each other, even in times like this. All the big stalwarts of our industry should come together and set such rules for the advertising community," he said.
For agencies, business is clients and assets are the creative people. If they are not able to pay their people, they will not be able to give the demanded results by clients.
Clients and agencies should come together, collaborate and adapt to the new situation.
"Agencies have to have the ability and commitment to help clients navigate this. An ad is not necessarily a solution for what the businesses are going through. Agencies will need to help solve business problems rather than pretending that an emotional ad can solve all ills in the world," said Sinha.
Agencies have launched playbooks and models to help clients plan on the current crisis.
Malhotra said if a client doesn't pay intentionally, it will impact the relationship. They should stop engaging and give the agency a notice that they won't be able to spend so can't do business anymore.
"New clients are very transactional and don't understand the power of branding, and they have not seen the power of brands, its narration. Few of them come from the technical field, for them to get to understand the power of branding is very difficult they see it as a transaction," said Malhotra.
Experts said that most of the clients are making the procurement people deal with agencies. These people have the least clue about advertising! Procurement people call ten different agencies who undercut each other, and the cheapest one gets the business.
It's done by both small to big clients and shows a mentality that they are treating it as a transaction.
"Earlier we use to say we have a five-year plan now we say we have a five-day plan. Brands are like babies. They need nurturing. They don't grow up in five days, we have to look at it that where it is going to be in the next five years," said Malhotra.
"There are pressures on revenue and cost simultaneously. There's a need to be accountable and effective. I think the margins on error have reduced considerably. We all need to deliver work that moves business results," said Sinha.