Is the growing number of advertising agencies in Dubai a sign of positive growth or of negative competition?
As Dubai has expanded vastly in the last few years, so has the variety and choice in everything from retail to corporate and of course, advertising agencies as well. We have many large and small agencies today, particularly in Dubai, so in any pitch – in the last two to three years at the very least – there are a lot more agencies participating, and clients asking for more agencies to participate in the request for proposal (RFP) process, leading to aggressive competition. Now, when you’re competing for a piece of business, how much are you prepared to fight? It varies from agency to agenc,y but clients can take advantage of this, and agencies are losing out because if, as agencies, we are not consolidated in some way at least, all of us stand to lose.
What does this really mean for agencies and the industry?
If we are not differentiating ourselves in terms of product or service, the one thing that we can control or negotiate is price, so price becomes a major issue in the bid. While the quality [of work presented during a pitch] might be on par with other competitors, price becomes the major factor in deciding who wins the business. Now if price becomes the deciding factor, either I have to relook at the [agency] structure so I can still make a profit while delivering to the client or I am in danger of losing money. And since no one is in business to lose money, I’m not sure that clients end up getting the quality they deserve. Instead, they get the quality that the money deserves.
Why do you think this is happening?
If you look at industries like activation and branding, there are few companies able to provide quality services, so these industries have still maintained their niche. Therefore, it’s a bit easier to control, and quality outdoes cost. Also, since the number of competitors is smaller, they are still able to fairly distribute cost versus service. In the pure advertising world, there are so many agencies; some big, some small and some not really experienced or capable. It is the latter kind that comes in with prices that don’t make sense and ruin the environment for the legitimate agencies, whether they are the big sharks or the small niche agencies trying to make a living.
How – if at all – has this affected you in 2014?
Globally, we look at margins as being an area that’s sadly eroding. It’s the result of a tendency for advertising revenues to be rationalized – in some cases cut – but in a way that the expectation from the agency doesn’t reduce. Now the cost of living, in nearly every country, is going up. If you [as a client] don’t have more money, you still expect the same work as last year although my costs haven’t gone down. The only way I can keep my business is by looking at my margins. Add to that the fact that the staff also expects compensation, incentives, increments – rightfully so – but that all puts a lot of pressure on managers and unfortunately, to manage all of that, margins are eroded. So the search for revenue growth has its limits. Where you need to be careful is how you manage your bottom line; your margins. Globally, we have an initiative to try to look at finding ways to secure the margin at an acceptable level for the company and that’s where a bouquet of services can help. Because if advertising margins are limited, other services may enjoy better margins due to the level of expertise or the kind of senior involvement that’s required.
So we are fortunate because we deliberately went into expanding our offerings. We diversified back in 2009 and 2010 aggressively when there was a global economic downturn and when people were reducing and lowering their spend. We tried to see which businesses could be more profitable. For instance, when we launched our activation business in 2008, advertising saw a decline in the following two years due to the economic downturn, but activation was on the rise. More recently, we have seen our digital and customer relationship management (CRM) companies see a much bigger increase. We also launched our sports marketing business, Ogilvy CommonHealth. These are all specialized capabilities that enjoy a higher level of client participation. Since these are niche and specialized areas, clients are willing to pay for that expertise. The fact that I have a wider bouquet of services to offer my clients – existing and potential – means that I can usually balance things out.
Realizing the need for specialized services, every other agency seems to offer “integrated” solutions versus independent agencies for each specialty. What are your thoughts on this integration of niche services?
It’s not about just opening up agencies; it’s looking at what clients want. Only three to four years ago, social media made clients nervous and they weren’t comfortable investing money in it. But today, you don’t even have to persuade them; they are already persuaded. I have to make a distinction here. In the past, you had agencies functioning as a “jack of all trades” by integrating all services within one company. For instance, you see an employee telling a client they’ve been working with for a while about social media just when it has become popular. Now, either you became an expert in social media overnight or you’ve known about it for a while and hadn’t told your client – neither of those scenarios is very convincing. What we did not do is exactly that. We brought in experts from the US and Europe, from within and outside the network, to help us expand our offerings here and that’s made a big difference for us versus some competitors. So the model of integration is working for agencies as long as you are genuine about the expertise you are providing.
How do you see the agency dynamics playing out in 2015, especially given that it’s going to be a tough year due to the geopolitical issues within and outside the region?
It really depends on whether agencies are going to wait to react or instead how many of them – if any – have planned for it. If you are going to wait for those RFPs to come in, we’re going to see more and more participants and less and less opportunity to do good work and get reasonable money for it. In our [Memac Ogilvy’s] case, yes, it is a concern that advertising in terms of revenue will decline in 2015, but I am not sitting and waiting to try and find advertising money somewhere. We will use a pretty wide selection of services – social, sports, PR, activation – to look at opportunities.
With all this talk about cost and quality – and the right quality for the right cost – how do you measure ROI?
In exchange for a piece of work, the cost of that work + the people involved in it + a markup, is what return on investment (ROI) really means. So I need to look at how much effort I needed to put in terms of people and resources; what the cost is; what the margin is and then I sell it to you. This is exactly what is under attack today because others may have different cost structures, or decide to put one less person on a project, or bring in someone who is less experienced, or be willing to spend less or make less profit on the project… That ROI is in danger.
But there’s another ROI: return on idea. What’s the value of the idea to you [the client] rather than how many hours I [the agency] spent working on it? When you take this idea, how will it help your brand? Branding agencies are experts in selling this kind of ROI and it’s this ROI that leads to much better margins.
And the final ROI is the return on influence. How much does my idea influence the type of people who influence other people? And those are the ideas that go around the world very quickly. And if you have more of those, you should be doing better.
Unfortunately, there is currently too much focus on the first kind of ROI. That doesn’t mean that this kind of ROI isn’t necessary but if you concentrate only on this one type, you’ll have a difficult time. However, if you focus on the other two ROIs, you will be ahead of your game. And if not ahead, certainly making enough money in terms of margins to thrive in a difficult time.
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