INSOURCING VS OUTSOURCING

Submitted by admin on Mon, 08/21/2017 - 14:12

When the consideration is brand objective, cost-saving, data security, quality of resources and faster turnaround time for campaigns, what makes some leading brands such as LG, Hyundai, Samsung, OnePlus, etc., choose to craft their ads in-house, while other brands swear by their creative partners?

 

By Neeta Nair

 

A few months ago, an ad featuring supermodel Kendell Jenner caused much grief for PepsiCo, which was accused of trivializing the Black Lives Matter movement, an initiative against violence and systemic racism towards Black people. But the biggest casualty of that gaffe was the brand’s in-house ad agency, Creative League Studio, which came to be cited as a glaring example of the downside of having an in-house creative team. Picking up from there, we tried to understand how upbeat the marketers in India are about crafting their marketing communication with in-house creative studios versus bringing on board full-fledged creative agency partners.

 

What’s at stake here is a good 5-7% of the overall advertising budget of the marketer, which is generally handed over to the creative agency as fees and a whole array of indirect costs attached to the campaign. Many small to mid-level companies aim to save that cost by using their in-house teams to conceptualize their ads. For the bigger companies, it is more to do with the kind of control the in-house teams allow them over the output. Another big factor is the speed at which work gets done, which has always been a sore point in the relationship between a creative agency and marketer.

Globally, brands like Coca Cola, Facebook, Google, Land Rover, etc., have had in-house teams working on their creatives at some point or the other, but in India, most of them work with creative agencies. In the 1990s, the Korean companies Hyundai, LG, Samsung, etc., came to India and launched their in-house ad agencies, in line with their global strategies. Interestingly, there are quite a few examples of in-house ad agencies which went on to align with global networks. For example, globally Lintas was the advertising arm of Unilever, and is now part of the Interpublic Group, while in India, Reliance’s DDB Mudra is now attached to the Omnicom network. Lowe Lintas still handles the work for HUL clients, but DDB Mudra is no more associated with Reliance projects.

 

CONSISTENCY WITH GLOBAL WORK

When Hyundai entered the Indian market in the late 1990s, it roped in Saatchi & Saatchi as its creative partner. But in 2005, the brand launched its in-house ad agency, Innocean Worldwide, to handle all its creative work. Says Puneet Anand, GM & Group Head (Marketing), Hyundai Motor India, “The benefit of working with Innocean in India is that their teams in Europe, the US, Korea, China, etc., have already worked on the products that we are about to launch here. So it is easy for them to sync the campaign with what has worked globally for Hyundai with regard to brand ideas and viewer experience. Also, they have all the material they need at hand. More importantly they know our core dynamics—our timeline and thought process.”
Hyundai’s recent digital campaign ‘HyBuy’, made in collaboration with Innocean Worldwide, helped the brand sell 300 cars in 12 days through the social platform alone. A sonic branding initiative last year ‘Drive mein junoon’ for the passenger car i20 saw Hyundai create a song using only tunes associated with cars – like the sound of opening or closing the door, sound of engine, etc. It got 11 million views in less than six days. While Hyundai does get on board specialized agencies for specific work, it is all channeled through the in-house ad agency.

 

MORE KNOWLEDGE-SHARING

LG came to India in 1997, when the market was ruled by Japanese brands like Panasonic, Sony and Sharp. But its in-house ad agency HS Ad was launched only 13 years later, because the brand didn’t consider India a focused market until then. The ad arm of LG had been started in 1962 in Korea as a promotional team, which was initially just a division within LG and then it became a separate profit and loss centre.
 

On the in-house agency’s relevance to the master brand, Nitin Makdani, ‎Business Head & VP at HS Ad (LG Ad India) says, “There is more transparency and knowledge-sharing between the product team, marketing team and the agency. For example, if product development is happening for a Diwali launch, the marketing team would be comfortable roping in the in-house ad agency much in advance and the team gets more time to work on the communication. If an external agency was handling the creatives, the marketing team would hold on to the information till the fag end, afraid that if shared so early, the information could fall into the hands of competitors. The agency wouldn’t then get enough time, and it would end up as a substandard creative.”
 

Many marketers we spoke to said that they would prefer to share their research data with internal ad agencies more than an external agency. To get similar data, the agency would then need to carry out its own time-consuming and expensive research. Also, if the marketer subscribes to a certain external report, then an in-house ad agency need not spend money on it again as it can be shared.

 

MORE TALENT, SKILLS AT AGENCIES

But on the flip side, in-house ad agencies may not have the diverse experience or skills that professionals from full-fledged creative agencies bring to the table. Say adman KV Sridhar, founder of HyperCollective, “Every client likes to experiment with an in-house agency, but they are unable to attract the best talent. Lintas was not the best place to work earlier; only when it was separated from Unilever and started working with other clients did it become more creative and more challenging as a creative agency. But you can’t entirely blame the client here. Until the 1990s, single agencies handled everything from media planning, media buying, qualitative and quantitative research, promotions, exhibitions, on-ground activity, design, PR, etc., and then everything got unbundled and a marketer needed to communicate with so many different agencies for a single campaign. Dealing with all of them is a pain; so the client prefers to bring in people together to handle at least the BTL and digital work.”

IN-HOUSE TEAMS = SAVING ON COST

The same logic led Paisabazaar and Policybazaar to move from Lowe Lintas to an in-house creative team. Though they launched their first series of ads featuring Kapil Sharma in 2015 with Lowe Lintas, since the beginning of the last financial year, their ads have been conceptualized in-house and executed by a production house which they approach directly. Their advertising costs have come down by approximately 20% ever since they switched to an in-house team, they say.  

Talking about the recent digital ads around the Champions Trophy, Sai Narayan, Group Director & Head of Marketing, Paisabazaar.com says, “Today, we handle almost all aspects of marketing, be it Digital, Search Engine Optimization (SEO), trade marketing, content, social, even PR, in-house. We have better control of the entire work and spends. Each and every rupee spent is measured with the length of ROI. We get better efficiencies too. We earlier spent around 4-5% of our overall advertising budget on agency fees. We measure the success of any campaign by the increase in traction on our website – so the ROI we got from our in-house campaigns is slightly better too.”

Meanwhile, a brand like Zomato, which has largely worked on all its campaigns in-house, is aware of the flaws this may have. Akshay Surendra, Head of Marketing, Zomato says, “For anything to do with marketing and advertising, it is important to have diversity of views. When we work on creatives in-house, a lot of it is on the basis of what our data tells us, which sometimes means that we miss out on looking at it from an outsider’s perspective. That would be the one disadvantage of working in-house. Also, we are well aware of the quality that comes out when you create a TVC with in-house capabilities. So, going to an agency makes complete sense when creating a TVC. But, TV is not one of the channels that we leverage for growth, and our other requirements are best suited by an in-house team.”

 

SOURCE OF ADDITIONAL REVENUE

Many brands believe that their in-house agencies can understand their product better than an external agency, and would have better knowledge about the company values and requirements. Additionally, there would be a lower risk of conflict of interest or confidentiality breaches. But today, many in-house ad agencies of big brands – such as Hyundai’s Innocean Worldwide, Samsung’s creative arm Cheil India and LG’s HS Ad - also take on external clients. However, they do steer clear of working with the master brand’s competitors. So these agencies not only help save advertising costs for the brand, but also become a revenue source.

Interestingly, the advertising unit Audacity, which is a part of Radio City, does not handle the promotions for the mother brand. It has clients like Britannia, OLX, Google, Asian Paints, ITC, etc., for whom it does creative work. Audacity was apparently set up with the sole aim of channelizing the creativity of the employees at the radio station. The 45-member team came from within the system, and no outsider was employed. Even today, RJs like Sucharita, Salil and Archana are expected to contribute creative ideas for Audacity from time to time. Radio City thus has managed to put up an in-house ad agency at no additional cost.

Kartik Kalla, EVP & National Head - Programming, Marketing & AudaCITY, Radio City 91.1 FM explains, “We have divided our creative functions into two internal teams - one is Audacity that works on client solutions across mediums and the other is our in-house team which works on promoting brand Radio City, this team created the Rag Rag Main Radio City property, songs, jingles, city-centric promotions and testimonials, played on the channel. Any promotion outside of that for the radio station is handled by Scarecrow Communications.” Within a couple of years of being functional, Audacity is contributing to 25-30% of the overall revenues of Radio City.

 

TOO COLOURED BY THE BRAND?

There is also the perception that a creative team operating from within the offices of a brand, and on its payrolls, will look at any idea from brand-coloured lenses. For example, the PepsiCo commercial which was widely ridiculed for co-opting protest movements for commercial gain, missed out on crucial feedback it may have received if it had employed an external, more neutral agency. Closer home, the Trivago man – outcome of an in-house creative idea - was the subject of jokes on social media. (It’s another matter that while he was heavily trolled, he managed to generate enough buzz for the travel website!)

Many a time, in-house teams have churned out killer ad campaigns like Star Sports’ ‘Mauka Mauka’, which was widely appreciated and went on to win several awards. When time is the key, especially for brands which are by themselves content and creative hubs like news channels or entertainment channels, it perhaps makes more sense to assign work to in-house teams. Also, when speed of communication is of utmost importance, hierarchies at the big agencies are known to cause delays for brands, as approvals take a lot of time.  

However, Tarun Rai, CEO, J. Walter Thompson, South Asia, has a different viewpoint. “For seven years, I was a client, heading a media joint venture. We had a huge number of creative people – writers, art directors, digital creatives – but I never thought that they should work on our brand communication campaigns. That expertise rests with communication agencies, and we appointed two such agencies. The reasons are obvious. First, why develop an in-house team of a few people when you can have access to some 300 creative people of a large agency like JWT? Also, the cross category experience that a large agency creative pool has will never be matched by the small in-house team. Even if a client is in media and has access to creative people, brand strategy and communication is a specialized field best left to the experts,” Rai explains.

Echoing the same sentiment, ‎Ravi Desai, Director, Mass and Brand Marketing, Amazon India says, “At Amazon, we have always had a set of creative people. Ours is a large platform with more than 10 crore products. Even if I multiply each product with five photographs, we are talking about 50 crore digital assets which we need to keep vibrant. To service that requirement, we require a fair amount of creative talent in-house which we have. But I don’t see merit in starting an internal agency. We tap external agencies for our ad campaigns.”
 

while others like HDFC who are Leo Burnett’s clients, advertising communications is complex business best understood by agencies. Ravi Santhanam, CMO, HDFC Bank says, “Every organization does some amount of creative work in-house. But doing it completely in-house would need a separate set of skills altogether. We marketers are more business oriented people while ad agencies are communication oriented people. Creative work is better done outside in my view, best to leave the job to the experts.”

 

SHOULD AGENCIES WORRY?

Over the past two decades, agency margins have seen a decline from 15% at the time when media and ad agencies were one, to an average of 5-7% today. With the emergence of newer domains such as social media and PR, there is further fragmentation of the fee paid by the client to the creative partner. We ask the CEOs of Lowe Lintas and J Walter Thompson - two prominent ad agencies in India - about their revenue models and whether they worry about inhouse ad agencies set up by brands.

RAJ GUPTA

CEO, Lowe Lintas

WORRY FACTOR:

I don’t think it is a worrying trend for agencies. While Japanese and Korean companies have always adhered to the in-house model, I can’t think of large, medium or small-sized companies having their own ad agencies for a simple reason - good creative talent will not agree to work for one company or one category. There would be no intellectual stimulation in that.

REVENUE MODEL:

We at Lowe Lintas charge clients anywhere between 3% to 7% of the advertising budget as fee depending on the volume of work involved, be it through the retainer fee model, retainer plus commission model or project-wise. I don’t think agency margins are shrinking as overall client budgets on advertising, sales, promotions are going up. But yes, they are getting fragmented because brands appoint a Digital, Social, PR, Performance agency, etc.

TARUN RAI

CEO, J. Walter Thompson, South Asia

WORRY FACTOR:

A few clients may be trying out in-house ad agencies, especially to produce quick digital content, but they are few. Even for content, the reasons for hiring experts are the same as for mainline brand communication.

REVENUE MODEL:

All compensation models - retainer, commission or project-based - have their pros and cons. It’s time for both marketers and communication agencies to discuss a remuneration system that is in sync with the communication ecosystem of today. Right now, clients pay far too much for the execution of the idea rather than for the idea itself. We need a more balanced idea versus production expenditure.

CASE FOR DEDICATED TEAMS

The fee paid to an external agency is largely dependent on three factors – time, number of people dedicated to the project and the number of campaigns to be made. While brands like Airtel, Vodafone and HUL prefer to have dedicated teams within their creative agencies working on their products all year round, because of their steady stream of communication, other brands prefer to get a one-off campaign done by an agency partner. Says Jagdish Acharya, founder of Cut the Crap, “Some brands work on per-project basis as opposed to a retainer arrangement, which turns out to be slightly more expensive. But in the long term, it always makes sense for the brand to work with the agency all-year long.”
 

Uber, which has just come out with its first integrated campaign in India conceptualized by Taproot Dentsu, is simultaneously building a strong in-house creative team. According to Sanjay Gupta, Marketing Head, Uber India, “I am a big believer of internal creative agencies. Very soon, we will be releasing a very interesting campaign made by our in-house team. There is a need for it, especially in the digital age, where you need to churn out content on a weekly basis.”

 

IT’S ALL ABOUT THE MONEY, HONEY!

Are brands getting their money’s worth with external ad agencies, and where do they go knocking if they are looking at greater ROI and cost efficiency? Well, for many, the answer is simple - look inwards. Not surprising then that smartphone manufacturer OnePlus has a 10-member marketing team that also doubles up as its in-house creative brain, Paisabazaar looks at its brand marketing and PR teamas its creative hub, and electronics major LG as well as auto giant Hyundai’s inhouse agencies are respectively 90- and 150-member strong.

Rooting for the in-house agency business, Nitin Makdani, Business Head & VP at HS Ad (LG Ad India) says, “A substantial part of revenue is saved, one is through manpower itself. Since you have an in-house agency, you can have fewer people on the marketing team. You can just call a product manager who can directly brief the agency about the product, so you save on a separate brand manager per category. Secondly, there are tools or market research studies or condition analysis which the brand will happily share with the in-house agency. At the end of the day, we are tracking the same competition, so the agency need not subscribe to it or carry out the same research again. If the external agency pays for any research, they will eventually recover it from the client. Another factor is that an internal ad agency keeps no buffers. For example, if there is a production cost of Rs 50 lakh and agency commission is 10%, an inhouse agency will only charge 10% - unlike an external ad agency which can keep some buffer by showing some margin on record but retaining extra.”


While in-house teams are more or less part of marketing teams, brands like Samsung or Hyundai, which have set up full-fledged ad agencies, pretty much run them as independent profit and loss centres. So how differently do they get paid for their work? Puneet Anand, General Manager & Group Head (Marketing), Hyundai Motor India Ltd, says, “Considering that it is a global arrangement, their commission for printing, creative, production, etc., is fixed depending upon the expertise and time we are spending on those campaigns. Innocean is a 150-member team, so they would need money to maintain equipment, manpower and other functions. But, commissions are all very transparent. Additionally, there are also savings, because an in-house agency doesn’t charge fees for basic things like activations, for which external agencies will readily send us a bill. As at the end of the day, we belong to the same parentage, the ideation, the campaigns, the production, everything is finalized based on the budget implications.”

 

There are also other models wherein the company agrees to pay salaries and reimbursements for the total number of people working on the campaign. It also includes indirect costs like office expenses and other support services, in addition to a profit margin, much like retainership at full-fledged ad agencies.

 

MORE THAN JUST AN AD

Clearly, there is more to ad agencies than just creating ad campaigns. Starting from identifying the problem a brand faces to competitive analysis, research, etc., they need to do a lot and have more resources at their disposal. Another factor that works in favour of in-house agencies is that a lot of companies today prefer not to outsource customer relationships. By creating their own campaign, they get to directly interact with and monitor feedback from consumers at different touchpoints.

Sometimes, creative agencies also may not be in sync with a brand’s expectations, as in the case of smartphone manufacturer OnePlus. Last year, OnePlus started looking for agencies for its first digital ad in India, and spent close to two months in briefing different agencies, explaining the priorities and concept. But none of the ideas presented appealed to OnePlus. “So we worked on that Diwali homecoming video in-house. We conceptualized the idea and Boring Brands did the execution. We also won a couple of awards for it. The next campaign featuring Amitabh Bachchan was the biggest for us. Again, we didn’t get the idea we were looking for. Creative agencies have their own way of thinking and working, which does not always resonate well with the brand objective,” says Vikas Agarwal, MD, OnePlus. “Now, whenever we work with an external agency, our in-house team of 10 people parallelly works on an idea; and that way we can avoid delays.”
 

@ FEEDBACK
neeta.nair@exchange4media.com

Category: 
Volume No: 
14
Issue No: 
11