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Carlos Acosta
Director of the advertising report
The business of advertising agencies has been in steady decline for decades. When the big communication groups created the media agencies, they moved the media departments into the agencies and with it also their planning and purchasing, in this way the 17.5% commission on the purchase that the media gave them was lost. From one moment to the next, the agencies were left without their main income, as until then they were not charging “for ideas” (campaigns) and lost the money.
In this new context the “commissions” appeared.monthly payments that they negotiated with their clients at the same time they started charging for projects. Getting paid for the ideas wasn’t easy. He never charges for something that was previously given away. This, coupled with subsequent crises, left much of what was achieved in the 1990s, when advertising investment exceeded $ 1,800 million and Argentine advertising ranked in the top 5 globally.
Last year, investments have reached their lowest level in the last 30 years (regressed to 450 million dollars) in an increasingly complicated scenario, where offers are made for business and talent. Today supply exceeds demand. New players dispute the “alfajor” which was a cake at one point. But how is the negotiating framework today? Who are the interlocutors of the agencies when it comes to negotiating remuneration? Couldn’t the quantitative aspect prevail over the qualitative one become a boomerang for brands?
Among the most serious consequences suffered by agencies in times of high inflation is the the decline in investments in some sectors such as mass consumptionas a result, there is less budget to create and produce. “This implies a loss of competitiveness and a decrease in the profitability of the company, which also affects the difficulty of retaining talents and the possibility of paying better salaries (one of the great objectives of the agency: to take care of and work on the permanence of people who work with us) So it’s very difficult to have motivated people ”details Denise Orman, CEO of Gray Argentina and president of Agencias Argentinas.
Pablo Panigatti, co-founder of the Niña agency, for his part specifies: “the inflationary context forces us to hold commercial conversations on a daily basis with our customers, conversations that years ago were annual or semi-annual, have become monthly, in some cases . In terms of production, we have to be super careful when it comes to budgeting and executing projects. It is important to be predictably aligned with clients and union adjustments so that they can move in the same adjustment periods. If there is something that our local customers understand, it is the context of the country, but it is a bit more difficult when we have to pass these adjustments to foreign customers who are not used to the Argentine inflationary environment ”.
“The most important asset that a communication agency has is its talent, its people – defines in no uncertain terms Papón Ricciarelli, managing director of the Don agency – 70% of the cost of the operation is its human resources, therefore it is necessary to index the salary, making it grow at the rate of inflation. It is very important to manage the moods and daily concerns about the inflationary impact of those who work thinking about strategies, ideas, and how to generate brand value for companies “, in turn, Riccciarelli underlines:” the word indexing has not yet arrived. in the fees applied by the agencies. But it is a word that will arrive in 2023, to prevent profitability from liquefying. Inflation that exceeds 50% is technically high inflation. When it exceeds 70%, reaching 3 digits, we speak of a hyper, without oversizing it. This forces us all to index monthly.
Anita Ríos, co-founder of the Anita & Vega agency diagnostic: “If you work for the local market, inflation consumes you. Our prices are not standardized and it seems that where you can save more is on ideas, which are not tangible. Brands raise the prices of their products and services. Production costs increase, but we are the ham in the sandwich and adjustments of less than 6 months are very difficult to make ”.
Sure, companies can pass increases on their prices, but agencies they cannot adjust them to the same levels at which their costs are adjusted. “The problem we are facing is the involvement of other adjustment variables in the conversation, we are not just talking about parity adjustments, but there are many more,” Orman elaborates.
“The capital of my company leaves every day in the elevator at 6 pm” says Gabriel Maloneay, paraphrasing a hero of global advertising: David Ogilvy. For the CEO of Craverolanis, the primary concern is to maintain commission value and then retain the talent responsible for coming up with the best ideas so that clients get the best results in their businesses. “In an inflationary market, private agreements between parties that are defined only by supply and demand suffer a constant loss due to the triple impact generated by payment terms that average between 60 and 90 days and reach 120 days, “acknowledges Maloneay. He adds: The agreement on an update rate is defined one by one with each advertiser. Each client imposes one on you which is done every 6 months (if you have a good deal) or they are annual. As a result, year after year, agencies lose the value of what they initially agreed with their client.
In an inflationary context, almost all industries in Argentina tend to regulate themselves on the basis of wage agreements, percentages, rates and periods agreed upon by the Chambers of Commerce and by those working in different organizations, under the gaze of the state so that the situations of power between them do not influence “David and Goliath” and reach fair agreements in which both parties feel respected and can project themselves into the year. Today, the most pragmatic solution is to agree on a trading floor in these key points between the Argentine House of Advertisers and Argentine agencies. A better quality agency can increase your initial deal in private negotiations, but it is important to have an agreement that governs the form of payment, rates and update period ”.
Now,Qualified interlocutors are found in advertisers who understand the value of communication to carry out a reasonable negotiation? “Generally, the Marketing or Advertising area is involved, along with the procurement teams of the companies,” explains Orman. “There are those who understand perfectly what we do and that we are not just another“ supplier ”who sells nuts. We can reach logical agreements with them. When this is not the case, and in Argentina and in the world there are many cases, conversations become quantitative when the discourse must be qualitative due to the nature of what we do and the type of service we provide ”.
For Ricciarelli, on the other hand, an accompanying symptom begins to be noticed, of empathy on the part of the advertiser, Don’s CEO prefers to emphasize the positive. “We work with brands that we have been with for a long time and we understand, for the most part, the value of what we offer. They see the communication agency as a strategic partner. We are at a time when it is good to take care of ourselves and understand the positive consequences of doing so: to keep talent active, instead of complaining that we are losing it to other players. Time to do something. “
Argentine advertising. employs more than 60,000 professionals directly and indirectly. Its human resources are its main capital. It is an industry that thrives on ideas. Updating your income is especially important for the characteristics of the job you offer. The emergence of new formats and platforms has led to the emergence of new players and the exclusivity of generating ideas and content has been lost. This added to its historic lack of corporate spirit (in the best sense of the word) it puts agencies in a very vulnerable position.
Source: Clarin
