Pharma giant GSK’s sign-on bonus demand leaves adland divided

04 Dec,2013

By Pritha Mitra Dasgupta

 

UK pharma major GlaxoSmith-Kline’s demand for sign-on bonus from advertising firms to do business with it seems to have divided the Indian advertising and marketing fraternity into two camps on the social media.

 

While GSK’s move is being condemned by international advertising agencies that have termed it ‘scandalous’, ‘lazy’ and ‘bullying’, some industry veterans in India support the rebate, saying it will put a leash on media agencies that, they allege, discreetly charge over 10% commission and show 2-3% on record.

 

Following an Economic Times story on the matter on Monday, advertising veteran Preet Bedi, who has worked with Rediffusion Y&R and Lintas, wrote on his Facebook wall, “The concept of a sign-on bonus payable by agencies to clients is a masterstroke. As an agency man, I would obviously have opposed it but from the outside, I know it’s a great idea.”

 

His reasons – “one, it forces agencies to pitch only for brands they really wish to be associated with and vice versa. Secondly, it forces agencies to make upfront investment in the new business; currently agencies spend peanuts on new client acquisition. Thirdly, it will force transparency in agency remuneration.”

 

He also says that the move will lay bare a fraud, media agencies often perpetrate. “U (sic) will find media agencies agreeing to pay more than one or two year’s declared revenue as sign-on bonus. How? Because the actual margins are often double or even triple the declared margins. Quite brilliant; Martin has met his match,” Mr Bedi posted on Facebook.

 

This sparked a virtual debate on Mr Bedi’s Facebook wall. Harit Nagpal, managing director and CEO, Tata Sky, supported GSK’s move saying, “Why are agencies complaining? If none of them is willing to pay, it won’t happen. And if even one of them is willing, and the client goes for it, disregarding the agency’s merit, he deserves it.”

 

Kedar Anil Gadgil, principal consultant at Druid System, however, called the concept “an oligopoly of rich, established agencies creating a moat around their castle to protect it from the outsiders” and added that agencies should knock the door of competition lawyers to safeguard their interest.

 

Mr Bedi, however, opined that nothing can stop sign-on bonus from getting implemented. “…don’t waste your money trying to fight it. If clients want it. (sic) It will happen,” he commented.

 

He also wrote that while a client contributes an average of Rs 10 crore to an agency’s revenues, “the input on winning a brand is miniscule.”

 

Vikas Mehta, head of Euro RSCG, Oman, countered it, “The average client does not give an average revenue of (Rs ) 10 crores. Even in the top 5 Delhi agencies, average client revenue will be less than (Rs ) 5 crores and average brand revenue still less. Not workable.”

 

The fear of many advertising agencies is that if GSK is successful in implementing this, then other marketers may follow suit. In the UK, before GSK made its demand for sign-on bonus, Premier Foods that owns brands like Bisto and Hovis had parted ways with its media agency Starcom MediaVest over “investment payment”, head of an advertising agency said. “So it seems more and more marketers are warming up to it,” the person added, requesting not to be named.

 

Industry bodies have come out against the sign-on bonus concept. While the Advertising Agencies Association of India has already said it should be “discouraged strongly”, International Advertising Association’s India chapter president Srinivasan K Swamy, said it is an “impractical concept.”

 

“No marketer or a right thinking person would ask an agency to pay a sign-on bonus. A buyer has to pay for the goods and services he buys and it could not be the other way round,” said Mr Swamy who is also the chairman of RK Swamy BBDO. “If I have signed a contract with my client that says that if sales drop then I will have to pay a penalty then that could be worked out. Otherwise, why should an agency pay a penalty?” A mail sent to Indian Society of Advertisers chairman Hemant Bakshi, who is also the executive director, home & personal care at Hindustan Unilever, remained unanswered till late on Tuesday.

 

R Ramesh Chandran, co-founder at Xtravision Media Associates, wrote on Mr Bedi’s Facebook wall that Reckitt Benckiser had tried something similar three years ago, with some tough demands such as fee to pitch for the business and penalty for not meeting CPRP targets.

 

“…nobody pitched…it fell into ZOD’s lap due to international alignment… the situation at ZOD is quite a common knowledge now…Reckitt account is up for grabs again,” Mr Chandran wrote.

 

Source:The Economic Times

Copyright © 2013, Bennett, Coleman & Co. Ltd. All Rights Reserved

Licensed to republish

 

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