“I am really concerned”
Publicis Communications’ Raja Trad says the market is in danger of destroying itself if agencies keep pushing prices down.
Publicis Communications CEO Raja Trad says that by agreeing to lower margins, agencies are becoming a danger to themselves.
At the Dubai Lynx in March, Du was named Advertiser of the Year. Since it was launched in 2005, the UAE telco has used consistently innovative and creative campaigns to get its messaging across. And all that time its agency of record has been Leo Burnett.
So it came as a surprise to the industry when Du put its creative account up for pitch at the end of last year. It was even more of a surprise to many when the telco announced last month that it would be shifting creative duties from Leo Burnett to TBWA/Raad.
At the time, Du’s vice-president of brand and communications, Abdulwahed Juma, said: “We would like to extend our warmest gratitude to Leo Burnett, whose creative team has been integral in our success during our unprecedented 13-year partnership and has helped us grow into the $2bn company we are today.”
Raja Trad, CEO of Publicis Communications Middle East, Leo Burnett’s parent company, says he believes the shift was largely a cost-based decision.
And costs, he says, are a constant issue in the market today.
While he insists that his concern about the falling margins for regional agencies is general and is not related to Du moving its business, he says: “I am really concerned about the future.”
The published and public figures of the big holding groups, including WPP, IPG, Omnicom and Publicis, show margins of between 13 per cent and 16 per cent, says Trad. “Globally it’s announced, it’s public, it’s not a secret,” he says. “So why do you want, here in the Middle East, to settle for 2 per cent or 3 per cent or break-even? Why?”
Trad says margins should be in double figures. “All that I’m saying is that as long as it’s within the range of 10 per cent to 20 per cent, it’s fair game,” he says. “But if I go with a 10 per cent [margin] or I go with a 5 per cent and [another agency in a pitch] goes with a zero, then it’s not competition any more.”
Trad says no Publicis Communications agency would take on a client at a loss, no matter how prestigious the name.
“I would not be able to service it,” he says. “I would not be able to hire the good people that would make a difference. At the end of the day, to be able to make a difference you have to have a competitive edge.”
“What will bring you the competitive edge in this business we are in?” he asks. “It’s people. It’s intelligence. It’s smart people.”
Without a decent margin, agencies are unable to hire the best talent and retain it.
“Those smart people, those intelligent people, they want to go to Google, they want to go to Facebook, and they want to go to those attractive tech platforms. If I want to attract them I have to be able to really compete a little bit, not be at a disadvantage,” says Trad.
Even if agencies do hire superstar staff for the first year of servicing a trophy client, he adds, if the compensation is not there for the agency, the rewards cannot be passed down to its teams.
“If I get a client and I am losing money, then I hire people,” he says. “They will work a year for me, but what about the next year? They are great performers, they are stars, they are superstars, they are stars in the making.
“But the next year I want to evolve them but I am losing money. From where do I raise the reward? How can I retain them?”
Luckily most of the people who were working on Du at Leo Burnett have been retained. The agency recently won the McDonald’s account. The fast food giant consolidated its creative and buying within Publicis Groupe in a pitch that was led by Leo Burnett. Burnett had previously shared creative duties with TBWA/Raad and that agency’s sister shop, DDB. The Omnicom agencies had pitched along with their media agency, OMD, which was McDonald’s incumbent.
Leo Burnett has also begun work on Mercedes after a worldwide realignment. Du teams have been shifted to these two big accounts, as well as elsewhere within other Publicis Communications agencies