Industry Analysis by R3

Industry Analysis
by R3
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industry analysis

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Industry Analysis by R3
Industry Analysis
R3 Asia Pacific
1. The state of play globally
Today in 2004, the Singapore advertising market is one of the most developed and
000 sophisticated in South East Asia and the world - all the major global agencies are here
in force, along with a number of regional ones (Dentsu, Chou Senko, Hakuhodo, Bates,
Batey, Chiel and others) and an extensive group of competitive local agencies - in fact,
Singapore has more agencies per capita than any country in the world. This section
looks at the changes in agency structure and direction globally and locally, compensation
trends for marketers and their agencies and the state of the client-agency relationship
Holding companies consolidate
In the space of five years, 80% of the world's advertising and marketing services now
resides within 4 main holding companies. This year, with the acquisition of Cordiant
by WPP, this trend has only continued. In Singapore, we believe this number is closer
to 70%, but is still substantial. Four main groups, all publicly listed, now dominate
the sector. We have also seen the trend of single holding companies making client
deals - for Coca Cola, Ford and Daimler Chrysler as a start. We are yet to see, however,
the economies of scale and benefits flow onto clients.
group
ad agencies
media agencies
other agencies
WPP
Ogilvy, JWT, DY&R,
Mindshare,
PR, BTL, CRM
Red CellBatey (75%),
MediaEdge CIA
Research
Bates Asia
Omnicom
DDB, BBDO, TBWA
OMD
PR, BTL, CRM
Interpublic
McCann Ericsson,
Universal McCann
PR, BTL, CRM,
Lowe, FCB
Initiative, FCB (Asia)
Publicis
Publicis, Leo Burnett,
ZenithOptimedia
PR, BTL, CRM
Saatchi
Fallon (60%),
StarcomMediaVest
BBH (49%)
Dentsu
Dentsu
Media Palette
PR, BTL, Media
Havas
EuroRSCG
MPG (ex Asia)
BTL
Arnold
Motivator
(Asia JV with WPP)
Grey Global Group
Grey Worldwide
MediaCom
PR, BTL, CRM
Entertainment
Hakuhodo
Hakuhodo

JV with Daiko,
Yomiko
Aegis
Carat
Synovate,
Filter (20%)
SPI Japan
AsatsuDK
Asatsu DK
Asatsu DK
Integrated marketing a must - but one agency?
Every agency and holding company has recognised the importance of delivering
integrated solutions involving advertising, PR, CRM, Promotions, Interactive and other
disciplines working in harmony. The biggest challenge we've seen is this materializing
into real deliveries on an ongoing basis for marketers. Because of different cost
centres, politics and a complete understanding of each other's capabilities, there are
far fewer cases of successful integrated solutions from a single agency than the
financial commitment behind these structures might suggest. Marketers are now
becoming the centre of gravity and forging three ,four and more agency relationships
to achieve what is needed.
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Industry Analysis by R3
Global agency agreements
Today over 40% of US based multinationals have a global agency agreement / alignment
- and this number is up from 15% just ten years ago. This presents a challenge for
marketers and agencies with strong and weak offices across boundaries. It also makes
a challenge for global campaigns to deliver as much resonance in every market and
not get watered down to appeal to none. Global agreements also mean global systems,
templates and co-operation, hopefully streamlining and enhancing the production of
communication
Labour Based Fees take off
Our latest research in the US in 2003 shows that labour based fees account for 78%
of all client-agency compensation agreements. The reasons for this are simple - for
the last 100 years, marketers have not got what they paid for from agencies ,they
received service that correlated to around 15% of their media spend . Some marketers
need, want and are willing to pay for far more than this - others require less. The
important point is that agencies are now being paid specifically on what they deliver
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- with complete transparency and an agreed profit margin
Payment by Results more common in agreements
With this transparency, more and more clients are now allowing their agencies to 'get
some skin in the game' - to get rewarded for a combination of successful performance
of the agency, the advertising and increasingly, the advertiser. As R3's core consulting
basis for the last thirty years, we assist in establishing and benchmarking this fee and
setting the parameters to measure in twelve months time. From our US experience,
we've seen 83% of marketers that have migrated to Payment by Results report an
improved performance from their agency. And all the enlightened agencies we talk
have also embraced it as it gives them an opportunity to succeed.
The rise of procurement
Today in the US , close to 50% of all new agreements for multinationals involve the
procurement department - and we increasingly see in Asia finance and procurement
teams working with the marketing department on agency appointments. This is a
reality that smarter agencies are preparing for by training their own people, and often
educating procurement people.
2. Regional trends for 2004 and beyond
A surge of advertising expenditure in China is expected to fuel a regional rebound in
marketing investment in 2004. In this first survey of its kind ever in Asia, JPMorgan
and consulting group R3 Asia Pacific analysis shows advertising expenditures in Asia
will jump 8.3 % in 2004, in line with JPMorgan's forecast for Asian economic growth.
industry analysis
The survey talked directly to 200 marketing decision makers across the region for the
first time. It points out the highest advertising growth markets are China (+18%) and
Thailand (+9%) compared with lowest advertising growth markets of Singapore
(+4.9%) and Hong Kong (+5%). China's advertising growth is expected to exceed the
economic growth by 1.4 times. Thailand's advertising growth should match the GDP,
while advertising in developed Asian countries is expected to lag the GDP growth.
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Industry Analysis by R3
China's outdoor advertising should be the highest growth sector in 2004, reflecting
the combined benefits of strong cyclical growth and a structural shift of ad spend out
of television into outdoor
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The pharmaceutical, manufacturing, telecommunications, automotive and retail
industries are budgeting for more than 10% growth in advertising in 2004 while fast-
moving consumer goods (FMCG), primarily in Southeast Asia, and the regional
finance industry are expecting a flattish year for advertising expenditure.
Television's historical dominance of advertising budgets across the region is under
pressure following large advertising rate increases in recent months -this is pushing
ad spend away from television and into outdoor advertising (particularly in China)
and new media (Internet, customer relationship management (CRM)
The survey also suggests spending on below the-line (e.g. direct marketing, public
relations, event marketing) is expected to increase in 2004 from 37% to over 40% of
the marketing mix. Well over a third of respondents indicated they would be specifically
shifting funds from above the line to this sector, with the automotive and IT categories
leading the way in terms of BTL thrust.
The analysis drew responses from 179 key decision makers of corporations across 5
key markets in Asia (Singapore, Thailand, Malaysia, Hong Kong and China.) on
advertising and marketing budgets as well as 24 key regional budget holders .
Marketers included HSBC, Nokia, Canon, F&N, Nestle, Unilever, J&J, Hewlett Packard,
Cathay Pacific, Hang Seng Bank and Caltex, along with local China marketers such as
KangshiFu, Yue Sai, Shanghai VW, Li Ning, Shanghai GM, Maxxiumm, and Shanghai
Dairy.
It is estimated that these 203 corporations will spend US$1.5 billion in advertising
and marketing in Asia this year, equivalent to US$7.3 million per advertiser. As a
result, trends emerging from the survey are reasonably indicative of the trends expected
in the markets as a whole. The results of the survey offer investors and industry
players insight into the expected growth in the total marketing budgets, how marketers
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Industry Analysis by R3
allocate between various advertising and marketing platforms (e.g. television,
newspapers, outdoor radio and direct marketing), and how this mix will change over
the next 12 months.
The implications for Singapore are clear - growth is lagging the rest of Asia in the
sector and more funds than ever before are moving into non-traditional marketing
areas. The traditional media will need to continue to innovate in terms of content and
context to attract marketing dollars.
3. Evaluating Agencies
Recent relationship studies conducted by R3's European offices and here in Singapore
raise important questions on the role of the agency and how it must evolve to meet
with client needs.
The most recent research, the second in three years, looks at marketers' satisfaction
with agencies on some core areas - Agency Values, Integrity and Trust, general service
quality and other key indicators, before mapping these against what the agency thinks
of the clients.
Five core criteria were specifically then aggregated and benchmarked
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Reliability
The agency keeps its promises, get the job done right the first time
and deliver error free records with clarity
Responsiveness
The agency delivers prompt service, can easily be reached and go
that extra mile for the client
Assurance
Agency management is accessible, employees have the highest
levels of integrity, and are clear and honest
Tangibles
The office and staff are practical and functional, efficient at
'housekeeping' and ensure the good appearance of the agency
Empathy
The Agency gives personal attention, understanding of the needs
and Management has a clear client focus
These have then been measured and graphed based on over 200 relationships
When Singapore is compared to the rest of the world, we see that marketers have a
stronger view of reliability and responsiveness here from their agency, this sense they
will get things done in an extremely efficient way. Where the gaps are for Singapore
agencies is in the areas of Assurance and Empathy - the lack of detailed understanding
of the client's real business issues and the lack of senior management involvement on
their business
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Industry Analysis by R3
Our belief is that these results link back to the way marketers pay their agencies. Most
of the work is commission or project based (an alarmingly high 29% of Asian
relationships are project based) often preventing the agency getting a deep knowledge
of the client's ultimate business challenges. Coupled with this is the ever-tightening
squeeze on costs and the pressures from the agency's holding companies to keep
pursuing more profitable new business. This makes the senior management very
accessible during pitch time, less so as the account is won and the tactical realities
sink in
000 The future role of the agency
As one UK agency head put it "We are thought of as an industry that sells ads rather
than gives advice - we have become identified with the pictures and less identified
with the thinking behind them" The challenge for agencies in Singapore - as in
anywhere else in the world - is to clearly demonstrate the value of the service they
provide. While the agency world is still that of talent, and can never be bought or sold
like IT and stationery, it increasingly needs to wear a commercial hat to answer the
marketing and business challenges of its clients. One industry pundit, on reviewing
an Asian agency's book on '360 degree branding in Asia' put it quite clearly - "it shows
again that even this agency, seen as one of the greatest communications companies
in the world, remains just that : primarily a producer of communications, not a driver
of business profitability"
For the agencies, this means measuring the responsiveness of each piece of
communication, or in the case of brand building initiatives, tracking these over time.
It means truly thinking media neutral, and recommending an event or sponsorship
rather than something media related when they are more appropriate. It means truly
being an expended arm of the marketing department and offering considered views
on price, place and product. Ultimately, this will mean everyone benefits.
– greg paull (greg@rthree.com) is principal of R3 Asia Pacific, the Asian arm of a global
consultancy group specializing in client-agency relationships and compensation
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Industry Analysis by R3
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industry analysis
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