When media agencies first started in South Africa, 25 years (or so) ago, it was a new, exciting and profitable part of the industry. It wasn’t easy getting mainstream agencies and clients to move away from the full service offering, but over time, agencies realised that farming out their media was cost saving, plus they got a part of the agency commission. Then things spiralled, media agencies undercut one another and started working for ridiculously low percentages. And, today clients are dealing directly with media owners. The result? Media agencies are working on smaller and smaller margins.
The predicament in which media agencies find themselves today is due to a couple of reasons. Firstly, clients are looking to reduce what they pay their agencies. The second reason relates to international owners or principals.
While there are many great clients out there who pay their agencies what they are worth, there are many who don’t. The latter type of client want agencies to give them better insights, better service, supply better thinking and innovation, and, of course, better deals but pay less and less. How can an agency deliver this? I don’t think it can. The only option you have as an agency is to give your staff more and more work or employ juniors who don’t cost a lot. Well, the latter doesn’t work because juniors need training and the senior guys are doing the work so they haven’t got the time to truly mentor or train the juniors.
So now you get less experienced staff making decisions worth millions of rands.
Believe me, all media agencies are guilty of this. I was guilty of this. Again, the result is that clients become unhappy, mistakes happen and these mistakes end up costing someone money. And then the stress on the senior people becomes too much and they leave. They don’t necessarily just leave your agency and go to a competitor – they leave the industry.
So we blame clients’ procurement departments. But it isn’t their fault. They are doing their job. What we forget is that procurement is there to save money whichever way possible. Staff in this department look at a cost and see how they can reduce it. As far as they are concerned, agencies are treated in exactly the same way you would treat the company providing you with stationery – get what you need for as little as possible. I don’t believe that procurement understands how much it costs to do what we do. So instead of laying blame at procurement’s door, perhaps it is time to educate the procurement departments, show them the importance of good thinking and how much it can save them.
But to do this you need to have a client who is prepared to work with you to prove your case. If you have a client who wants everything for nothing even before it goes to procurement, which means they do not value you, then perhaps you need to evaluate whether or not you really want to work with that client.
As for the international shareholders, the biggest problem here is that they don’t understand Africa. They think in homogeneity; we think in societal differences. We don’t buy like them, we don’t plan like them, we don’t negotiate added value bonuses (AVBs) and generally we don’t offer additional chargeable services (internal public relations, research, and so on). But what they do often is dictate how much money (in percentages) you will charge a client that is internationally aligned and they set the rules as to how you will work with that client. Oh and I forgot: they will take a part of the local agency fee to cover their international co-ordination.
Coupled with this is the need for agencies to keep their overheads down. So you employ as few people as possible to run the business so that you keep the salary bill as low as possible. The result? Stressed out agency people, frustrated media owners and disappointed clients.
I’ve alluded to the international principals and how their involvement with local agencies does not help the bottom line. So let me unpack just two points I mentioned: AVBs and additional chargeable services.
1. AVBs are not commonplace in South Africa, but very common overseas. These are agency deals with media owners. The big guys negotiate additional media commission based on total agency spend with that media owner. Sometimes the AVB deals are split with clients, sometimes not, but they are always transparent and the client knows what deals are in place. These AVBs can also be the agency’s total remuneration.
So why aren’t we making use of this practice in South Africa? Who says it isn’t happening? If it is, it isn’t common practice. Should it happen? The answer will depend on who you are speaking to…
My opinion is: it hurts the small independents that do not have the volumes.
2. Additional chargeable services, like proprietary research tools or methodologies, are one way that the big media independents make additional income. They create fantastic tools that measure return on investment, redefine ways you look at target markets, and many others. These tools or programmes are available for South African agencies to use, but at a cost. The cost is in dollars/euros/pounds, so heaps of money, and then you have to populate it with local data. This invariably is bespoke research, so not All Media and Product Survey (Amps) data, so that’s another cost. I’ve seen some of these tools, and what they promise to do is fantastic, but in South Africa we cannot afford to fund these tools because very few clients are prepared to pay for the results. Clients believe, and maybe this is our fault, that research is part of the service and therefore covered in their fee.
So how can media agencies make more money? I know that some are saying, ‘To hell with them. They created this, let them reap what they sow!’ But that’s rubbish! Media is an extremely important part of the communication mix, so we have to find a way to fix it.
The first fix has to be remuneration. Clients need to compensate agencies correctly. You want smarts, pay for it. You only want buying, pay accordingly.
You can commoditise media rates and haggle with media owners to get the best deal, but real media expertise is not a commodity, it is a skill that is honed over a long period of time. Would you haggle with a surgeon over what he’s going to charge you to perform an operation? You can argue that it has taken them 10 to12 years to gain their skill. Well, quite frankly, it has taken good media people that long as well. Quality media people are experts; they can save you, or make you, millions.
Finally, fixing the amount that clients pay for media skills is only a part of the solution. Media agencies in South Africa need to get buy-in from their international principals so that they can start offering additional communication-related services like their international counterparts to build new revenue streams. The problem, however, is that jumping into new areas is expensive, and you have to find the right staff, which compounds the problem.
My honest opinion is that if media agencies want to stay relevant and profitable they have to start diversifying, but this means investing in areas that are not necessarily their core expertise, which is uncomfortable. Personally, I like uncomfortable, because I think you do your best work when you are really challenged.
This post was first published in the November 2013 issue of The Media magazine, the free download of which can be found here.
