A new year needn’t mean an immediate change in fortunes for a business or an industry. For anyone thinking otherwise, Avi Bhojani emphatically dismisses such wishful thinking.
“This year looks interestingly difficult,” says the CEO of BPG Group, one of the Top 5 advertising and communications network in the Gulf. “There has never been a greater opaqueness about how this new year will likely to be. The biggest problem advertisers are facing is not addressing changes in the business model.
“It’s similar to any retailer continuing to believe that her or his business will not be impacted by eCommerce. Either he is an extremely enlightened person or on a different planet.”
Last year was an exceptionally difficult year for the local advertising industry, in much the same way that it was for the media and publishing sectors. Advertising spending shrunk in double-digit terms, and even within the digital space, growth rates had seen a trimming. Some of the smaller agency brands, in particular, have taken quite a hit, because the departure of even a single client could impact on billings and cash flows.
Bhojani says that client-agency relationships will keep on getting shorter. “It’s been difficult for agencies to adjust … because we all grew up feeling entitled. That a client we had for 25 years will continue to remain so for another 25.
“The reality is that client pressures are different now and their need for agency services changes. The onus is on us to excite clients on an on — going basis.
“In today’s context, agency-client relationships are more contractual. You get lucky if you have one for more than one year. There are few very situations they extend to three years, such as the one BPG Maxus had with Global Village.
“In a contract, relationships will be different and every two or three years, there is this feeling among clients that they need to get the best price. Price, often, is the only variable that counts.
“Even in the case of multinational clients with multinational agencies, there is a huge level of promiscuity. That was never the case before.
“In the next few years, a consolidation of (marketing and communications) services will be a reality. Clients don’t have the luxury to have to deal with four different marketing service providers for their ads, media buying, digital assets and PR.
“Any marcom firm in the UAE that is able to offer a combined set of services will have a fantastic 2018. Those who still rely on doing things from the past will have a harder time … a much harder time.”
Because these days the impact on an agency is not just coming from another agency stealing a blue-chip client. Or even from the way the digital media behemoths — Facebook and Google — are absorbing ad spend.
Agencies are facing threats from management consultancies — the likes of Bain, McKinsey and Accenture — coming in and advising clients how to go about marketing a product or service, or even what their messaging should be. in years past, these were services that ad agencies routinely provided clients.
“These strategy consultants are beginning to eat our lunch and dinner,” said Bhojani. “But I would say ad agencies still retain some edge.
“An Accenture or a Bain can possibly help with the content. But when it comes to the arbitrage part — of being the middleman in buying an ad space or allied services — consultancies are not geared for that. They don’t understand arbitrage.”
Despite the tough market environment, BPG’s operating margins still held up, according to the CEO. “In fact, they were better than what we had in 2013 and 2014, which were our lowest margin years.
That was because we were then short-selling our services, especially in certain practices.
“But there’s one thing I’m finding out to be more true than before — clients who are happy with the quality of counsel are insensitive to price.”
Bhojani’s hope for 2018 will be to come across more of them.
Keep those numbers on your side
Whatever happens, Avi Bhojani is not going to take his eyes off the bottom-line. He has his reasons.
“At the end of the year, numbers tell the story,” said the head of BPG Group. “If you do the numbers, everybody believes you know your business. And if you don’t, everybody thinks they know your business better than you do.
“Other than 1992, I don’t remember a single year when we made losses. And even in 1992, we made a trading profit. Even through the worst years for the economy, we have always managed to do our numbers. You have to adjust your cash burn, adjust deliveries. and hope we continue to be fortunate.”
Going forward, the ad industry will need to work out ways to find some sort of “meeting point” between content creation and offering arbitrage services, which is to be the via media for all those content to be placed on the right media platforms. Once that’s achieved, there would be a better grip on costs.
But is that meeting point possible? “That’s where we are trying to get,” said Bhojani.