Blame it on inflation, ad margins shrink 60 pc
The decline in consumer spending is taking its toll on the fortunes of the advertising industry. War on Inflation | In Pics: World's 10 most punctual airports | Day in Pics
By Abhijeet Mukherjee, |
NEW DELHI: The decline in consumer spending is taking its toll on the fortunes of the advertising industry. Inflation has forced agencies to settle for abysmally low margins. Compared to last year, margins have shrunk over 60% this year.
An adman explains that while earlier, in a business of Rs 10-15 crore, the profit margin for ad agencies was around Rs 80 lakh, inflation has now forced them to work for a wafer-thin Rs 20-30 lakh mark-up.
Agencies believe the impact of inflation to be more on MNCs than on Indian firms. India���s ad industry is growing at about 15-20% each year, but is yet to garner decent revenues. Agencies feel that clients are paying less and there is a bargaining pressure to grab the business opportunity at hand.
An adman explains that while earlier, in a business of Rs 10-15 crore, the profit margin for ad agencies was around Rs 80 lakh, inflation has now forced them to work for a wafer-thin Rs 20-30 lakh mark-up.
Agencies believe the impact of inflation to be more on MNCs than on Indian firms. India���s ad industry is growing at about 15-20% each year, but is yet to garner decent revenues. Agencies feel that clients are paying less and there is a bargaining pressure to grab the business opportunity at hand.
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���When it comes to inflation, clients squeeze margins, and this is just so visible. Very few clients who feel that advertising is important are actually willing to pay a premium,��� said Leo Burnett India national creative director KV Sridhar.
With talent a rare commodity, there���s not much agencies can do on salary front. ���As far as increments and bonuses are concerned, the average bonus has been affected but those at the higher end of the pay-scale, are well compensated because to retain performers, companies have to squeeze out more money from their own pockets.
It���s a 10-30% ratio. While the mediocre could expect around a 10% hike, the performers may expect 30% raise in their salary,��� said Mr Sridhar.
All these factors have put agencies��� bottom line under stress. ���About 60% of the brands go for promotion and when they expect a discounted price, the agencies sweat. Agencies have to work more for lesser compensation, which effects the production cycle,��� said Mr Sridhar.
While most big agencies are willing to pay the premium, some verticals, such as banking, auto and the consumer durable segment, big advertisers in their own right, have cut down on margins.
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The Indian economy has been strong, consumer mood was on the upswing last year and clients and brands too have kept their budgets more or less intact, said McCann Erickson India executive chairman and regional creative director for South & South-East Asia Prasoon Joshi. ���But yes, many MNCs with their headquarters in the US where there has been an economic slowdown, could sense a trickledown in terms of the sentiment,��� he added.���There is a valid reason for below-the-line forms to get a larger share than above-the-line at this juncture. Advertising agencies should feel the pinch to some extent,��� said TBWA/ India chairman and MD K George John.
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