It hasn’t happened yet, but many pundits expect that it is only a matter of time before ad spends of companies start shrinking. Inflation is at a 13-year high, profit growth and revenue growth is slowing, and the stock market has lost around one-third of its value thus far this year. And money is becoming harder to come by.
Chief executives of ad agencies say they will likely have to come down hard on salaries, and salary hikes in 2008-09, and cut out profligacy in hiring. They are also hoping that attrition across the middle and senior levels will come down because companies in the retail, hospitality and media businesses that hire extensively from ad agencies are themselves slowing down hiring. Mint presents edited excerpts on what India’s top advertising executives see:
M.G. Parameswaran, Executive director & CEO, Mumbai, Draftfcb + Ulka
All agencies have completed their performance appraisal, reward and increment process. So, the sudden spurt in inflation will have an impact on pay scales or (see) some correction next year around, since we will be factoring inflation along with a softening of salaries in the services sector. Attrition levels had moved to a very high level over the last two years. We do hope that there will be some reduction in attrition this year. Yes, we should see a slowing down of attrition across all sectors. Look at the recruitment pages of leading papers, that is an indication that job hopping has slowed down. However, key talent is still in short supply and they will continue to command a premium.
Game plan: A slowdown is an opportunity for a healthy company to invest in marketing and build market share. Research done in market after market points to the beneficial effects of investing in a downturn. So, a good strategy would be to judiciously control costs, without losing out on the opportunities offered.
Chandradeep Mitra, President of media group, Mudra Max, Mudra Group
Agencies will get cautious about hiring. When people earlier quit jobs, they expected a 30-40% hike. That expectation will get reduced. People leaving jobs will have to factor in the economy, inflation, etc. Offers in the agency business would be far lesser and hence attrition should reduce.
Under the current scale, mid-level people (five-six years experience) ought to be drawing Rs8-9 lakh a year, whereas those in the senior levels (at least with nine years of experience) will be drawing between Rs14 lakh and Rs 15 lakh. While their salaries will not drop, the rate of increase in salaries will slow down. For instance, if the mid-level employees were getting a 20-30% hike in salaries in existing jobs, it would come down to 10-15%. Currently, in service-oriented sectors, about 40% of expense bill is on people. Job offers across advertising will be less, which is why there will be less attrition. Rate of growth of agencies could slow down. If an agency was growing at 20%, it will now grow at 5 or 10 %.
Game plan: CEOs will be looking to cut expenditure such as infrastructure, space, staff, foreign trips for conferences, etc. in order to maintain healthy figures. But while a lot of people (CEOs) switch to essentials and freeze on expansion plans, there will be others who smartly invest in areas that offer disproportionate returns. For instance, when everyone’s cutting down on investments, you invest in new areas.
Or if others are cutting down on staff, you go out and get the best people. When the world zigs, you zag.
Arvind Sharma, Chairman and chief executive, Leo Burnett India Pvt. Ltd
The overall economic environment is one of nervousness. Everybody is worried about crude oil prices, inflation and now political uncertainty. However, we have not yet seen any slowing down in advertising spends for our clients.
Game plan:At Leo Burnett, we believe that advertising is a talent-driven business. We will continue to find ways of rewarding our good talent better than the market and our exceptional talent exceptionally well. The absolute per cent (of rewards) will be decidedly lower than in 2007, but there is no change in our philosophy or approach. If the slowdown spreads beyond sectors such as real estate, two-wheelers and durables, we will begin to see a lot of focus on promotions and non-traditional, which represent significant opportunity for our marketing services agency, Arc.
Mahesh Chauhan, President, Rediffusion DY & R Pvt. Ltd
With inflation, on the one hand, and recession, on the other, we are facing a tough, yet interesting situation. Unlike a few years ago, where employees were happy with 8-10% increments against 5% inflation, things are different today. There is a pressure on us to absorb the incremental impact on staff costs, which is fairly substantial in our industry. Even real estate prices have gone up in the last few years, forcing agencies to move North (in Mumbai, the capital of India’s advertising industry). The third aspect is that it is (the business is) not paying well. At this point, the industry has no choice, but to buckle up and get competitive. What we will see is a correction in salaries, though it will not be severe as at the end of the day we are an intellectual service agency.
If this crunch continues, you may see a lot of pink slips. There will be an exponential change in the salaries being offered. The days of (job) offers with a 50-70% hike in salary could well be over. This would also bring down the rate of attrition, as people are less likely to change jobs over small hikes. The rate of attrition, which used to be in the 30-35% range, is already down to 20%. While the numbers will be revised, current pay packets may not see a substantial change as the economy is still growing at a good 7-8%.
Game plan: Will there be a freeze on hiring new talent? Not likely, as all of us (ad agencies) are sitting on shortage of personnel, so at no point will there be a freeze on hiring. What will happen, at least at Rediffusion, is that there will be a renewed focus on training.
Colvyn Harris, Chief executive officer, JWT India
The market is slowing and sure, growth will also slow as a result of it, but it doesn’t mean that brands will stop selling. If you look at certain categories, people will not stop consuming these products just because of a slight price hike.
Even in a bearish market, there will always be people who will continue to make money. Of course, the phenomenally high pay packets being offered by agencies will now bear some semblance of reality. However, our lifeblood is talent and agencies will have to continue investing in it.
Game plan: There is going to be no panic selling right now, we are not reliant on one particular client or category for our revenues. There is a huge diversification in categories and there are brands and businesses that are being developed even in this environment. So, there will be no substantial impact on the overall size of business, as all the growth and budget have been planned keeping all the factors in mind.
Nirvik Singh, Chairman , South Asia & President , South East Asia, Grey Gro
Honestly, 10 years ago when the going was good, a lot was hidden under the carpet. But today, there is no fat in the system — ad agencies are already offering a threadbare package compared with other sectors. There is no more fat that can be trimmed. So, the challenge will largely be to retain talent in a situation like this. We haven’t seen the worst as yet—oil is expected to touch $200 (Rs8,580) per barrel, we haven’t seen the culmination of the US subprime crisis and inflation continues to rise here (in India). So, we may very well be looking down the barrel of a gun.
In an environment like this, agencies will definitely be more conservative. You will see organizations becoming more cautious. They may stop pursuing stars with huge pay packets, shift training sessions from off-site locations to on-site ones. However, at the end of the day business will continue to grow. So, there is not likely to be any clampdown on hiring of new talent, or organic and inorganic growth.
The impact of the slowdown is likely to be much higher for the classical ad agency, rather than for an agency with the full spectrum of service, which are better equipped to weather the storm.
Game plan: In such a scenario, the advertising dollar moves quickly to the marketing services side, or what we call, below-the-line spends. So, as an agency, we will continue to recruit and invest quite aggressively in those specialized areas. Also, some agencies may even choose to move to cheaper locations, which would have a huge impact on the bottom line.
Piyush Pandey, Chairman, Ogilvy & Mather Pvt. Ltd
Three months back, everyone was talking about how great the economy is doing, how India’s faring so well, etc. But there’s no way of knowing what’s next. I doubt if salaries can continue at the current disproportionate levels. Obviously, if our clients feel the impact, our business would also be impacted.
Game plan: What CEOs will do is to keep their eyes open. If it’s a tough period ahead, CEOs should be in a position to take tough decisions. It’s also important to prioritize differently, in terms of investment or bringing in new units. We have also got some big plans ahead, but we are waiting and watching like everyone else.