Ad agencies review client profitability

With the economy on the downturn, advertising agencies are reviewing their operating structures and clients profitability more closely. The tightening liquidity squeeze and the slowdown in the economy, “is a source of worry to us,” says Mudhukar Kamath, managing director and chief executive officer, Mudra Group.

The worries for the industry include defaulting payments, slowdown in industry growth rate and budget cuts. “While we are bracing ourselves for budget cuts in the near future, we can’t give our customers longer credit cycles as we operate on wafer-thin operating margins,” says Kamath while admitting that they have experienced a few cases where payments are getting stretched.

The October-December quarter is the most critical quarter for the advertising industry as the spends are the highest. “But due to the current state of affairs, the industry growth is expected to take a small dip in November and December compared to the 20 per cent growth recorded from January to October,” Kamath adds.

Kamath, who is following the tightening credit scenario more closely and looking at how much of an effect it has on his clients, says, “We will use this slowdown period for improving our efficiencies, delivering better solutions and even establishing a structure change.”

Keeping track of what is happening in the economy and trying to understand the same is also high on, Leo Burnett Managing Director Nitish Mukherjee’s agenda. And his modus operandi during these tough times: “Be agile and sensitive in responding to customers needs.”

The silver lining for the industry is that revenue-linked investments in brand building and sales have not yet been hit. “Budgets by clients are usually made with a long term outlook of three to four years,” says Mukherjee. “It is still to early for marketers of brands to take steps to cut down on budgets and growth plans on the basis of the current economy predictions.