... and has been that for some time. With the last hopes of an advertising renaissance fizzling out, agencies prepare for the long drought ahead by slashing costs and focussing on other communication services.

By Abir Pal & Aparna Ramalingam

Ulcer gulch had used up the negative clichés by last year. That, in itself, made a strong case for starting with the positive ones. Advertising pros started arguing forcefully-too forcefully, in some cases-that ''the worst was behind us'', ''when things can't get any bad they can only get better'', and ''we can see the light at the end of the tunnel''. It was the coming of the white. The sun was breaking through. The boom-times were just around the corner. We confess: cynics we are, but we got taken in by the promise of what could be (see Indian Advertising's Strawberry Spring, Business Today, August 22-September 6, 2000).

In many ways the great advertising renaissance remained a shrill promise. This time last year, dotcoms were still advertising (and how!), healthcare and insurance seemed hot new client-industries for advertising, and the consolidation-process in the industry was almost complete. True, the estimated growth rate for 2000-01, was, at 20 per cent, not a patch on the 50 per cent growth the industry clocked in the mid nineties, but it was more than double what it had been in the previous two years. And a growth rate of that quantum, on a base of Rs 8,000 crore wasn't something that could be scoffed at.

That numerical target wasn't met-the industry grew by 10-12 per cent last year-and this year looks no better. ''We are in the middle of a slowdown still. We expect it to be a rather grim year,'' says Rajiv Agarwal, CEO, Enterprise-Nexus. Adds Bunty Peerbhoy, CEO, Maa Bozell: ''I do not see the advertising market growing significantly in the current year.'' Enterprise Nexus hopes to grow by between 8 and 10 per cent this year, and industry leader HTA, with billings of Rs 1,560 crore last year (December, 2000), expects to do so by 10-15 per cent, or the same as the estimated growth rate for the industry. Says Sunil Gupta, Executive Vice-President, HTA: ''The financial services business is down and insurance has not taken off, although this is expected to be rectified by the end of the year.''

A prolonged slowdown is the last thing the ad industry, plagued as it is by several ills needs. It suffers excess manpower, but boasts little talent; already slim margins are being squeezed further by relentless clients; and advertising, once the dominant service offering in an integrated agency's menu is increasingly having to play second fiddle to once-shunned services like public relations. But given the state of affairs, both in India and in other parts of the world, a prolonged slowdown is just what the industry is set for: things are unlikely to look up for the next 12 to 18 months.

The Making Of A Rut

That usual suspect, the economy, is, in part, responsible for advertising's dry summer. The market for fast moving consumer goods (FMCG) is stagnant-we got this one right (See Still Life with FMCGs, Business Today, June 21, 2001); and reports suggest that things are unlikely to look up before early 2002. FMCG heavies Hindustan Lever Ltd. (HLL) and Procter & Gamble (P&G) say they will continue to spend enough on advertising to retain their share of voice in the market. That won't mean a significant increase from the Rs 1,400 crore HLL spent on advertising in 2000 (Jan-Dec 2000; up from around Rs 1,350 crore in 1999, a 3.7 per cent increase), or the Rs 100 crore P&G did in 2000-01. ''A large chunk of business for the top three to four agencies in the country comes from the FMCG sector. That's the reason the industry is running scared,'' says K.L. George John, Chairman and Managing Director, TBWA Anthem.

HTA had billings of Rs 1,560 crore in 2000 (Jan-Dec); O&M, Rs 742.6 crore (Jan-Dec, 2000); and Lowe Lintas, Rs 760 crore (Apr-Mar, 01). Together, the big three accounted for almost 40 per cent of the advertising industry's turnover last year. Ergo, anything that impacts FMCGs will impact them too, and if they feel the pinch, the industry surely will.

The story is the same in the case of consumer durables: most companies operating in this industry are planning to spend less this year. Videocon, for instance, proposes to prune its advertising budget from Rs 110 crore last year to Rs 65 crore this year. However, not all such decreases mean a reduction in the volume of advertising. Space in most media, is available at a discount today. ''Even large newspaper groups give discounts of 30-40 per cent on published ad rates,'' says Suhel Seth, the CEO of Equus. Consequently, ad agencies that saw between 15-20 per cent of their growth in the mid-1990s come from increases in media rates, are finding out that the concept cuts both ways. The volume of work they do has increased, but thanks to the discounts their earnings remain the same.

...A large chunk of business comes from the FMCG sector. That's why the industry is running scared.. K.L. GEORGE JOHN Chairman & Managing Director, TBWA

Companies are also realising that it makes economic sense to move a portion of their ad-spend to below the line activities. That isn't altogether surprising: promotions and allied activities deliver immediate results-those visible in the quarter's results. In contrast, the pay-off period for most advertising campaigns is fairly long. ''Today's customer is more evolved. So the client wonders why he needs to spend money above the line to create awareness,'' says Seth.

The decision of companies to focus equally on below the line activities and advertising, says Bharat Dhabolkar, the chief executive of Publicis isn't just because of the slowdown: ''Globally, most companies do spend 50 per cent of their advertising and promotions budget in below the line activities.'' That they do, but Indian advertisers couldn't have chosen a worse time (from the agency perspective) to emulate their counterparts in other parts of the world.

Making The Logo Bigger

When the client moans and sighs
Make his logo twice the size
When the client is hopping mad
Put his picture in the ad
If he still should prove refractory
Add a picture of his factory
—Anon

None of these measures will work if the client doesn't want to advertise at all, wishes to do less of it, or wants a better rate from the agency. Unable to control the external environment, agencies have started looking within, at ways to make their own processes cost-effective. ''In our case increments have been restricted to a few outstanding cases. Otherwise, they have been frozen. The same goes for capital expenditure too,'' says Agarwal of Enterprise-Nexus. Publicis, which has just moved to a larger office and hired people is now aggressively seeing to cut costs. It hasn't laid off anyone yet, but is relocating the employees of Madhyaam, the Delhi-based agency it acquired in January, this year.

The larger agencies have followed the Publicis-line: they haven't come to laying off people yet. Their cost-management efforts have thus far been restricted to managing travel and communication costs, adopting a far more stringent recruitment policy (read that as zero intake), and freezing increments. In mid-July, the WPP group instructed two of its agencies in India, HTA and Contract, to not offer raises this year. But the smaller ones have already started the pink-slipping process. Equus, for instance, shut its Calcutta office in April 2001. All employees were given the option to relocate to Mumbai; only two did.

..We expect it to be a grim year. In our case, increments have been restricted to a few outstanding cases.. RAJEEV AGARWAL CEO, Enterprise- Nexus

Agencies are also looking at the larger bouquet of services that form part of integrated marketing communications to drive growth. ''We're looking at things like design, merchandising, events, retail-advisory services, and interactive advertising,'' says Gupta of HTA. And if O&M saw its topline grow by 19 per cent last year, then the performance of its direct marketing, public relations, and rural communications divisions had a part to play in that. Adds S.V. Siva, Associate Director, Lintas: ''We've opened up significant revenue streams in public relations, direct marketing, interactive communications, market research, event marketing, and healthcare.'' Indeed, once agencies, or marketing communications companies, as they insist they be called now, are willing to accept that the business isn't just about advertising, their refrain changes. ''Yes, there has been a slump in media spends,'' admits John, ''but I don't think there is a slump in the advertising industry itself. There are enough growth opportunities in specialised services''.

Hope takes the form of the few advertisers upping their budgets. Like HDFC Bank and Whirlpool. Says Neeraj Swaroop, Country Head, Marketing & Retail Assets, HDFC Bank: ''Last year we spent Rs 25 crore on advertising. We plan to grow by 30-35 per cent this year. So we aren't reducing our ad budget. We will spend 25 per cent more on advertising this year.'' Still, advertisers like these are few and far between.

Now that it is evident that the renaissance in advertising isn't going to happen in a hurry agencies have an opportunity to restructure their businesses for the future. Geetanjali Kirloskar, the chief executive of Quadrant believes this is a great time to redefine cost structures without cutting back on critical resources. ''A lot of our time goes waste in crying over slashed ad budgets. We have no choice but to restructure our operations to deliver what's needed.''

That could be above the line mass-media advertising, it could be a short-term below the line price-promotion, or it could be something as far removed from advertising as public relations or direct marketing. Manifest in the willingness of agencies to go down this path are an acceptance that things won't get better anytime soon, and a desire to make the best out of a bad deal.

-Additional reporting by Rakhi Mazumdar, Roop Karnani & Venkatesha Babu
  

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