According to a post-Covid-19 forecast from a leading Publicis Groupe media agency, advertisers in Pakistan are expected to spend $440 million – a drop of almost $55 million – access all advertising mediums during the 2021 fiscal year.
Media spending is currently split across TV, digital, print, out of home (OOH), brand activations, and radio, with a share of 39%, 26%, 14%, 11%, 6.3%, and 2.1%, respectively. Without Covid-19 and the lockdown, the expenditure was $495 million with a similar spread.
“Media agencies over the years have aggregated buying scale, [which means they] pool lots of advertisers [different clients] money together so they can negotiate better prices [and better value] for everybody,” said Tom Denford, CEO of North America at ID Comms, a consultancy specializing in helping advertisers select best-fit media agencies. “In the biddable market – when you buy with an auction-based method – scale becomes less important because as an advertiser you would bid on a particular piece of media inventory based on how valuable you think that is. Big legacy CPG brands are now realizing that their scale is a less competitive advantage, perhaps, than it was.”
Speaking to Profit under the condition of anonymity, a senior media practitioner with a WPP media agency shared that by 2023, advertisers in Pakistan are forecasted to spend 100 billion rupees, of which digital – search, mobile, online video, social media – will make up 49% of advertiser marketing budgets in Pakistan.
She added that the remaining components of the media mix, namely TV, print, OOH, activations, and radio will make up the remainder 51% at 21.4%, 11.7%, 8.7%, 6.4%, and 2.7% respectively. With Google and Facebook making up the lion’s share of digital spending, media agencies in Pakistan are starting to see global in-housing trends make their way home, with online platforms offering self-serve advertising tools that effectively cut out the middlemen i.e. media agencies.
“In-housing is when advertisers bring the responsibility of key disciplines within media management and media buying, in house,” said David Indo, CEO of ID Comms. “I think most advertisers that are considering it are being sensible – they are looking to future proof the way that they manage media in line with where the market is going. As more and more media becomes biddable in its execution, there will be less reliance on agency partners to drive better pricing through scale.”
The latest research by the In-House Agency Forum found that 64% of companies have in-house agencies, while 75% of in-house agencies reported growing in staff size over the last two years, and over half employs over 50 full-time employees. The study found that 95% of in-house agencies focus on media planning and buying, with under a third focused on creative services and production.
These findings are corroborated by The State of Advertising study by the World Federation of Advertisers that 59% of marketers are bringing more media functions in-house while 27% intend to do their own programmatic buying. According to the latest 2020 Gartner CMO Spend Survey, only 12% of chief marketing officers (CMOs) cited media buying and placement as a vital strategic capability, a sentiment that grows with the gradual shift in media budgets towards digital and the self serve platforms that democratize buying on the mediums.
Advertiser perspectives on media in-housing in Pakistan
Speaking to Profit, executives in Pakistan belonging to the advertiser and agency stakeholder groups shared that in-housing is popular with direct to consumer (d2c) companies, product segments, and business divisions, with the most common instances being businesses classified under business to consumer (b2c) apparel, food, lifestyle, and electronics to name a few.
“The main reason [for in-housing media buying] is performance versus branding,” said Haider Qazi, head of e-commerce at Gul Ahmed. “Any organization which is looking for performance marketing is going away from agencies. Those who are interested in more impressions go more towards agencies. Agencies are not capable of driving sales. But they are good to spend budgets only. Khaadi, Sapphire Gul Ahmed, and other brands are more interested in getting a return on ad spend.”
Similar to the rationale behind Super Sauda by Unilever Pakistan, in-housing media planning and buying means that advertisers have ownership over the acquired first-party data and a surety that the data is not being shared with direct or indirect competitors.
“A lot of companies have introduced the role of media managers but sadly not many of them are trained media buying professionals,” said Sanya Shahid, a marketing professional. “They are rather serving as middlemen for business and media agencies.”
Sohaib Hasan, deputy brand manager at Amreli Steels Limited, told Profit that businesses that operate outside of the D2C space, such as CPG companies, have gradually moved media decision making in-house in the past five years, adding that most apply a blended model in allowing an agency to do the buying and planning for a few campaigns here and there.
“Media in-housing started in Pakistan with business models that were heavily dependent on technology and increased interface with their consumer,” said Mehwish Rafi, a consultant at Third Crow, a supplier of customized business intelligence solutions. “Mostly technology startups that have made it big in the last five years or so [are in-housing media].”
She too made the point that non D2C companies are slow to adapt in-housing due to goals tied primarily to awareness instead of sales, adding that some CPG companies believe that customer data is more important for the retailer – who is selling their products – not for them. She said that marketers – whose own KPIs are tied to awareness instead of sales – do not want the hassle of collecting and managing the customer data.
“The biggest advertisers in Pakistan, pick them from any sector, [they] run their marketing functions on a servitude, procurement, supplier mindset,” she said. “The relationship between them and their agencies may come across like a partnership but such examples are rare. With due respect, 80% of weight in most marketing teams job descriptions is managing these suppliers. Their internal processes are not geared for producing the required output in the kind of timeframe they give to the agencies.”
Hasan and Shahid were also of the opinion that non D2C advertisers in Pakistan are not following the global trend of in housing the media buying function at the moment due to the current state of the media mix being non digital and the prevalence of unqualified media managers on the advertiser side. Abbas Arsalan, global head of insights at The Coca-Cola Company, told Profit that Pakistan currently has a small digital landscape where spending is mostly with Facebook and YouTube.
“So agencies don’t have consumer data,” he said. “A few people tried it, but realized that about seven to ten sites captured non-Google and Facebook data. So that wasn’t worth it much either. For TV , buying efficiency is more important. Even big spenders are not big enough to get good rates on their own. So they will buy through media agencies but try to get more creative value through direct liaising with TV channels.”
Marketers that spoke to Profit off the record shared that among informal communities and groups on WhatsApp and Facebook, a discussion has been brewing about shifting media responsibilities away from agencies, which are seemingly growing faster than they ought to be given the state of the economy and pricing models.
A series of unfortunate revelations leading to overwhelming mistrust
The following timeline illustrates the series of events and revelations that grew mistrust between advertisers and agencies, building a business case for in-housing critical media functions such as strategy, planning, buying, and placement.
In mid-2012, the Association of National Advertisers (ANA) conducted a study with Reed Smith about the awareness among advertisers of media companies providing incentives to media agencies for referring client spending, whether advertisers have language in their media agency contracts that addresses incentives, and whether advertisers conduct periodic audits to ensure that undisclosed rebate or incentive activity is not occurring with their agency.
In the member-only report seen by Profit, a whopping 51% of chief marketing officer respondents said that they were not aware of the industry practice of media companies providing rebates or incentives to agencies for referring or influencing client spending towards that media company.
In mid-2016, the ANA published an independent study of media transparency in the US advertising industry written by investigation firm K2 Intelligence. Profit believes that this was the report that ‘broke the camel’s back’, showing marketers worldwide the evidence of and clues to spot non-transparent business activities involving different methods of passing money between media vendors and media agencies.
These include incentive cash rebates paid by vendors to agencies in return for client billings, additional discounts or bonus free inventory, service agreements – where the vendor agrees to pay the agency for services such as research or consulting at inflated prices, marked-up pricing where the agency is taking a principal position and pre-buying media inventory, sometimes this resulted in dual-rate cards – different pricing dependent upon whether the agency was acting as agent or principal.
Denford believes the situation was driven by two key factors: namely, the pressure on media agencies to find aggressive growth in media revenues and profitability – perhaps whilst their fees were being cut – combined with a lack of specialist knowledge and resource on the advertiser side to properly govern their media investments and hold agencies to account for transparent delivery. He said that the complexities created by the rise of digitization and automation of media buying has combined to create a perfect storm.
That same year, ID Comms published its own global media transparency report, which highlighted media rebates as the area most driving the low trust marketers have in their media agencies. Denford said that the evidence presented by K2 now gives companies much-needed insight into what has become a complex, opaque, and confusing area of their marketing investment. It was around this time that the World Federation of Advertisers first published a report on the state of advertising fraud, further compounding the trust deficit between advertisers and agencies.
A subsequent study in 2018 by the media consultancy found that trust levels between the advertisers and their media agency partners fell even lower in the two years after the ANA report, with advertisers’ concerns and deeply suspicious that agencies have benefited from undeclared income streams. In the months that followed, federal prosecutors launched an investigation to probe the media buying practices of the advertising industry.
A follow-up report in 2019 by the ANA and Reed Smith found that the top six reasons creating mistrust between advertisers and agencies were the nondisclosure of media rebates, the rise of invalid traffic and digital advertising fraud, misuse of first-party data acquired by client campaigns, being sold free media at an undisclosed markup, rebates for digital ad data, and the overwhelming lack of transparency in the media supply chain.
The final nail in the coffin appears to be a 2020 report by the Incorporated Society of British Advertisers (ISBA) which sought to understand how programmatic advertising supply chains – the way in which advertisers and publishers are served by the programmatic ad delivery system – have been mapped from end-to-end, anywhere in the world. The report found that demand-side platform fees took an average of 8% of media budgets and supply-side platform fees took an average of 14% of media budgets.
While the entire ISBA report merits a read, the finding that shook the industry was the revelation that nearly 60% of advertiser budgets are eaten by advertising technology and media verification costs, with under 40% of the intended media budget reaching the publisher. The report also found that 15% of media budgets were unaccounted for, disappearing into what was referred to as an unknown delta.
Reactive reasons for in-housing
“As a marketer – as a buyer of media – if my marketplace is not innovating in the way that I need to, I will just take control and I will drive the innovation I need to maintain competitive advantage,” said Denford. “Agencies have got to account for what is driving this trend of marketers wanting to take control because if you were supplying the solution for a CMO that reassured them of all the other things they are seeking then you would imagine that would be a thriving new agency industry and you would have fewer advertisers ‘we’ll do it ourselves’.”
Rizwan Merchant, the CEO of M2, a media auditing consultancy, told Profit that global concerns of transparency between agency and advertiser relationships ignited the in-housing trend as many advertisers look to build in house capabilities for media and take control over their advertising spends.
“This is rather easy for digital media for certain obvious reasons,” he said. “Data is readily available, Google and Facebook being the most advertised platforms provide training to whoever sitting wherever in the world, [and] there is no barrier with regards to the economy of scale on digital advertising. An advertiser can place a campaign of $50 or $50,000. Why pay a high commission percentage when an advertiser can hire an expert in house and manage its advertising with an ever-changing landscape.”
As the former CEO of OMD Pakistan, Merchant said that in a bid to inflate their importance, digital media practitioners at agencies frequently employ the use of jargon to position digital as a medium with a steep learning curve, as a means of dissuading in-housing. Speaking to Profit, Merchant said that during an audit assignment, his firm was informed that a request made to a digital agency to benchmark the cost per click for all campaigns run during the year would be ignored due to the agency believing that digital cannot be benchmarked.
“The digital agencies are there to make a profit as a business and digital media has just given them the opportunity to do so by charging higher commissions,” he said. “The media agencies historically charged 3% or less on traditional above the line mediums but on digital they are charging over 10% and in some cases over 18% in addition to the [agency volume deals, rebates or media kick-backs] structure they receive from Google and Facebook.”
Proactive reasons for in-housing
John Pattisall, a principal agency analyst at Forrester, said that savvy CMOs view an in-house agency as a strategic resource to improve control, transparency, and marketing operations, adding that these CMOs are better equipped to manage overall agency fees while justifying the expense as a strategic resource to their CFO counterparts.
As the co-author of Predictions 2020: Agencies by Forrester, Pattisall said that CMOs are compelling agencies to finally embrace their own transformation by reassembling their process, workforce, and capability to amplify audiences, activate campaigns, and build experiences with results or find themselves falling further into irrelevance.
“This will be the year that agencies of every size and type finally take up the task of deconstructing and reassembling their model in the face of economic uncertainty, looming regulatory action, and a compounding pressure to both perform and transform simultaneously — or risk falling further into irrelevance,” said Pattisall. “In 2020, anticipate that agencies, under the guidance of new, operational-minded leaders, will reshape their processes and capabilities around centralized structures that can deliver services in a coordinated manner.”
According to Pattisall, the trend of in-housing media grew five percentage points in 2019, predicting that in 2020 a third of in-house agencies will include media operations that control substantial portions of the paid media budget.
“Given the trend of taking portions of media, creative and digital marketing execution in-house, agencies will emerge more consultative, providing their clients access to high-demand, difficult to recruit creative and strategy specialists,” said Pattisall. “High-concept, brand creative, will remain outsourced to agencies. Daily digital marketing will migrate to clients. Agencies will adjust to the economics of projects and specified scopes, consequently emerging as leaner, but able to flex across lots of marketing activity.”
An antidote for survival, trust, and relevance
“You have to tear down the existing structures and you have to rebuild them,” said Sir Martin Sorrell, executive chairman at S4 Capital. “It’s very difficult when you have an established structure to actually tear it apart. [When the CEO of Best Buy] was told that digital transformation is about change management, he said ‘yes it is and I changed the management’ – he understands that what you have to do is so radical that it’s very difficult for people with a short term position and a short term emphasis to do the necessary.”
One such example of tearing down existing structures is a new digital media planning and buying service by Publicis Groupe called The Pact. This offers money-back performance commitments that guarantee the business outcomes from digital marketing campaigns, an offering that was cited by Pattisall as a step in the right direction for agencies that want to align themselves as partners that drive commercial results.
“The introduction of The Pact is a timely move to give brands a mechanism to manage the risk of marketing during the global pandemic in the short term,” he said. “The long-term implication of a performance guarantee, however, promises to rewire the nature of agency-client contracts and, consequently, the agency’s economic model. Performance-based compensation is not a new concept, but it is used less frequently. The presence of a guarantee tied to performance will change the way brands, procurement, and agencies provide value and structure contracts.”
He said that the money-back performance guarantee throws the doors wide open for agencies and marketers to explore pure performance arrangements, adding that marketers that are eager to mitigate risk and agencies anxious to recover losses from the sudden cut in commission fees are more than willing to explore revenue models based on results.
Profit believes that the skin in the game model is also another way for media agencies to align themselves as partners with their advertising clients, tying compensation to objectives that are not served when ad spend is lost to ad tech, ad fraud, or media deals based off kickbacks instead of quality touchpoints that result in conversions.
“Ultimately, The Pact moves the industry a step further toward transforming its model,” said Pattisall. “More importantly, it provides CMOs and their companies a mechanism for accountability during a time when it is greatly needed.”