Thai agencies struggle to create new billing systems for clients

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.

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