Are ad agencies in danger of becoming brand vendors?

Food delivery platform Swiggy’s IPL 2023 campaign Match Day Mania, featuring movie actor Neena Gupta as a stern judge, succeeded in grabbing viewers’ eyeballs. The campaign maintained Swiggy’s tradition of churning out interesting TV adverts during the premier cricket tournament.

There was a difference. Unlike the 2022 IPL brand campaign executed by legacy agency Ogilvy India, this year Swiggy chose a relatively new entity called Mind Your Language. The objective was to give a new twist to the discount promotions Swiggy offers customers during the T20 tournament.

Similarly, Britannia Industries is working with multiple agencies. The company's chief marketing officer Amit Doshi said “…in today’s times, an idea can come from anywhere. And while each agency partner plays a specific role, collaboration among agency partners is critical to make the winning idea shine.”

Wakefit's marketing head Prateek Malpani also shared that despite having Spring Marketing Capital as its long-time partner, the company works with specialised agencies on a project basis.

An increasing number of entrepreneurial ventures and big companies are roping in disruptive new agencies or ad startups that are creating clutter-breaking ad solutions.

The trend of long-lasting agency relationships is definitely changing. Advertising executives that Storyboard18 spoke to say this trend is becoming stronger by the day.

What this means is that legacy advertising agencies are increasingly in danger of becoming vendor-zoned by clients and independent writers, content creators and small creative outfits.

Changing relationships

In such cases, clients bring in specialists and ad agencies are assigned coordination and execution-related duties, significantly altering and diminishing client-agency relationships.

A young advertising executive who works with a new-age ad startup that works with several big brands on a project basis told Storyboard18 that many legacy agencies are stuck in time and are in need of transformative measures.

"Some of the senior leadership don’t even understand the consumption patterns of young consumers of their clients,” the executive said on condition of anonymity.'

Graphic - Are ad agencies getting vendorzoned

“They still think on the lines of delivering one big TV ad and using edits of it online across social media platforms. It just doesn’t work.”

Clients are noticing this, too. They are leaning towards younger talent who run new-age boutique agencies or ad startups. It works out for them in terms of budgets as well.

Cost-effective

According to several agency insiders that Storyboard18 spoke to, many independent writers and small shops take one-third of what an agency from an ad network charges. One can make a commercial, from scripting and production to post-production, in as little as Rs 20-30 lakh, said the head of a Gurgaon-based content company.

In truth, agencies getting so dangerously close to the vendor zone is a result of many things. Issues that have been a long time in the making have put legacy agencies in a challenging spot. Brands’ increasing dependence on digital is the final nail in the coffin.

Young executives think that there is nothing wrong in being a vendor as long as one gets their due.

Project model

Gautam Reghunath, co-founder of Talented, which is one of the newest agencies in the country, says that he has begun to embrace the project model.

Reghunath’s agency has worked popular campaigns such as Why Is This A Swiggy Ad for Swiggy and the Google Pixel launch campaign purely on a project basis.

“A relationship on paper by itself doesn’t secure a client anymore. Consistently delivering great work does,” Reghunath said.

“Over the last decade, I think agencies have tended to take the client relationship for granted. But the truth is that every day, they’re choosing to be your client or not. Somewhere it felt like a client relationship is a subscription you renew every year. It’s not a given,” he added.

Reghunath believes that the evolution of digital agencies helped the industry in this regard.

“At digital agencies, we’ve grown up on project work. Fought so hard for a seat at the table that because we were always pitching, we developed a skill of communicating who we are and what we’re bringing that some of the larger agencies may have lost,” he noted.

Reghunath believes that people like him who have a profit & loss responsibility need to make a mindset adjustment to accommodate projects over retainers if that's what the climate demands.

“In fact, in the majority of cases, we've realised that projects may even be more profitable for nimble, operationally efficient agencies,” he said.

Counter view

A senior CXO at a global ad group admitted that advertising agencies are to be blamed for such industry practices as pitching lower prices to get work.

“Vendor-zone trend is happening because many agencies are willing to discount fees to sign clients. May be a bigger agency may not be comfortable reducing their cost and may also charge a premium because good talent is expensive to retain,” the executive explained.

Clients are to be blamed as well because they let their procurement departments run the show when it comes to picking advertising partners.

“Procurement team of clients treating agencies as vendors has created a huge problem. It is a global problem. Procurement does classic negotiation. We are a people business where clients invest in talent, ideas and people. We are not buying inanimate objects but people. How can you put a price on the talent,” the executive argued.

Long-term impact

Ad experts believe that this practice is prominent in certain categories of brands including startups as they chase a different business metric. They point out that the traditional agency model kicks in when the brand wants to engage in deep strategic thinking.

Senior industry leader and COO of McCann Worldgroup India, Jitender Dabas, feels that legacy agencies need to redefine and reassert the value they bring to the table. They should focus on highlighting the value they add to clients' businesses, rather than just the outcomes, such as the campaigns they produce.

"Often, it happens that the brand/marketing teams change, but the advertising agencies remain as the anchor, holding the brand together for years. However, as creative agencies, we haven't done a good job of justifying the value we bring to the brand or seeking a fair share of that value. We build brands, not just create ads. This resetting of perception needs to be done by both the industry and clients," he added.

Dabas laments that certain brand categories, such as startups/D2C brands, do not yet understand the value of the long-term brand-building process, and that is likely to come back and hurt them.

"The ultimate goal of consumer companies should be to create long-term measurable brand value that is not replicable by the competition. However, most startups are chasing the next million downloads or new unique visitors to present to their VCs to meet funding goals. Hence, it is not surprising that one hardly sees many resilient brands in the startup space. Since most of them do not have a competitive brand advantage, every next guy walking in with a better functional proposition has the potential to walk away with their user base. We have seen that across many categories. Since a lot of them are choosing short project-based relationships, there is no one holding their brand together, and therefore, there is often no continuity in their marketing/branding efforts either," he concluded.