The fine art of lying low

Here’s how ad agencies are combating tight money conditions

February 5, 2024 08:20 IST

Despite challenges, the Indian advertising industry seems to be in a healthy place

In the last two years, layoffs have become firms’ default response to the challenges created by advances in technology and the general economic slowdown. Over 7,500 workers were let go by 46 organisations in the first two weeks of 2024, including tech giants like Google and Amazon. The first Indian firm to announce layoffs in 2024 is the payment network Paytm, which let go of about 1,000 workers. Amazon is reducing employee counts in departments such as MGM Studios and Prime Video. Over 425,000 workers were fired by tech companies globally in 2022 and 2023, with over 36,000 of the layoffs occurring in India.

Any staff reduction of this magnitude would undoubtedly unnerve advertising agencies since these are some of the largest brands with lucrative advertising accounts. “The reality of budget cuts and constrained spending is undeniable, impacting various sectors, including ours,” says Himanshu Arora, co-founder, Social Panga. The start-up landscape, in particular, was badly hit as funding dried up, resulting in a notable absence of “top of the funnel” marketing activities by many of them. Additionally, the retail sector faced challenges, especially in the first half of the last year.

That’s not a fun place to be in. Ad agencies stand to lose a big chunk of their recurring revenue in such a scenario and have a difficult time scaling down people costs. They face the dilemma of letting team members go to maintain margin or eat into their reserves. Although retention and new client onboarding remain important, the smart ones are taking a close look at their budgets, automating key processes and looking at ways to save their hard-earned money moolah.

The good thing is, there hasn’t been any knee-jerk reaction this time. Some advertising firms are coping by cutting their budgets for discretionary spending; some others are hiring only for critical roles, but largely, it appears to be business as usual.

It’s not all gloom and doom

Despite challenges, the Indian advertising industry seems to be in a healthy place. According to estimates, the size of the Indian ad market is expected to increase from `1.09 trillion in 2023 to approximately Rs 1.22-1.57 trillion in 2024, at a time when the global advertising growth rate has been muted — at 4-6% — amid geopolitical concerns and a general slowdown.

Back home, the industry is pinning its hopes on this year’s bumper events — the general elections in April and some state elections; the highly anticipated IPL in May-June, followed by the ICCT20 World Cup. That, coupled with a likely resurgence in sectors such as FMCG and an uptick in rural consumption, is expected to aid the adex this year.

Smaller and asset-light agencies have also done a good job of holding their own. Talented, an ad agency born in the middle of a raging Covid, says it is going full steam ahead with hiring, training, and travel. Interestingly, nearly 80% of the pitches it has participated in in the last one year have been paid-for engagements. “Pitches are expensive and we’ve been lucky to deal with plenty of marketers who see the value in making that entire process more professional. That’s exactly what paid pitches signal — a more respectful and professional process,” says Gautam Reghunath, CEO, Talented.

The two-year-old attributes its growth to a conscious effort “to be the leanest possible version of itself with a very high talent density”. “It is possible for agencies that are asset light to maintain an efficient operation — one that can withstand the ebbs and flows of the market. It’s not easy but it’s possible. Going by early signs, I see no reason 2024 will be any different,” Reghunath adds.

The growth of its digital business has given the DDB Mudra group its much-appreciated stability. Vanaja Pillai, president, 22feet Tribal Worldwide, and head, DEI DDB Mudra Group, says, “Our new business conversion last year has been good. This has brought excitement to the teams. Thanks to this growth, we have been able to reward our people well. While we haven’t made many cuts we continue to be careful in what we invest in,” she adds.

“While we have not cut back on pitches, pitch fee is a wish for every agency of some repute,” says Arora of Social Panga. The agency has adopted a more “rational” approach to its hiring process compared to 2022. “We remained prudent in our approach, particularly in matters related to travel and other expenditures, to avoid taking any drastic measures,” Arora adds.

It has shifted its focus to AI-led solutions and developing cost-effective content for clients. “This strategic shift not only captured the attention of the clients. The march of AI, as anticipated, has impacted manpower needs, particularly in routine and repetitive tasks. It has reduced the need for human labour in those specific areas, enabling employees to redirect their focus towards more strategic aspects of their roles,” says Arora.