Thailand's advertising industry is facing a challenging adjustment
during 2000 as agencies struggle to create new billing systems for
clients.
According to research conducted by Bangkok-based consultant Adarco,
agencies found it difficult to adapt to changing market realities in
1999, specifically the introduction of media specialists.
Adarco managing director Sara Fielding said 2000 should be a good year
growth-wise, but profit margins would remain tight until companies sort
out billings and add value to clients.
"Some have reduced agency commissions but not everybody. Charging full
commission is more prevalent with local agencies than with international
companies," she said.
Adarco interviewed 17 managing directors of major advertising agencies
in Thailand, with the results indicating more difficult changes lie
ahead.
The study said that in the past, finances were a simple case of charging
15 per cent commission on media.
The volume of business allowed agencies to develop additional services,
providing more than just creative development and media buying to
clients.
These services were incorporated into an account, but were rarely priced
separately and never given real value.
With the recession, agencies were put under pressure from clients to
reduce the commission percentage charged on media.
Some clients turned to buying their own media, using agencies for
creative development alone, but only acknowledging commission on third
party costs, not payment for the generation of ideas.
The emergence of media specialists has wrenched more media volume and
income away from full service agencies.
While remuneration methods other than media commission are beginning to
appear in the form of fee payments and compensation by results, there is
still a lack of knowledge on how these systems operate and reticence by
agencies and clients to change billing and payment.
The requirement for a greater degree of transparency in accounting
systems and sharing of information is thought to be one of the major
reasons why these fairer payment systems have not been introduced more
quickly in Thailand.
As agencies no longer needed to negotiate on volume to buy media, media
specialists saw this as a green light to enter the Thai market, which
was previously closed to outsiders.
More than 10 media specialist companies now operate in Thailand, where
there were none, 18 months ago.
Agency profitability has taken a dive, particularly because of the
reduction in advertising volume and never before has the industry been
under so much pressure or faced so many challenges.
Adarco concluded by saying that despite initial negative feedback, most
agencies were in agreement that higher professional standards brought in
by media specialists could only be a long-term improvement for the
industry.
