There Should Be A Fair Trade Deal On Payment Cycle- Otis
Otis Ojekhoa is the Managing Director of one of Nigeria’s foremost experiential marketing agencies, Brands Optimal. A consummate professional with over 17 years of experience in the integrated marketing communications industry. He has worked on many local, continental and global brands. In this interview with Brand Communicator’s Jeremiah Agada and Tolulope Egbewumi, he speaks about myriads issues affecting the industry including marketing spend, payment circle, EXMAN, experiential business in 2019 among others. Excerpts:
Assessment of 2019
The year 2019 has been a very difficult one. Though I don’t have research based data to explain why the year has been so, from our own business as an agency, I can speak on this relatedly. By this time last year, we had done more than thrice of what we are doing now. By that estimation, we are more than fifty percent down from what we were billing by this time last year. So, from a billing perspective, we are seeing a drop. However, this is not to say we are operating at a loss. We are only seeing a decline in our revenue. We have not lost any client either to attribute that decline to the loss of business.
Because of my relationship with my clients, especially those in the FMCG sector, I know that this year has not been a very good year for a number of them. Their business is actually making losses. At the Q2 of this year, some of these businesses are still posing loses. Our billing, revenue generation as agencies is based on our clients’ marketing spend. If they are not spending money on marketing, we are not getting billings.
Whenever there is a need for these companies to make savings somewhere, they will start to cut budget or resize their structure or downsize. The first to be affected has always been marketing and advertising spend, and that is exactly where we get hit. So, where businesses are not making money, they want to make savings to shore up profitability. Because of this, I can tell you the year has been quite slow for many agencies.
That is not to say it is going to remain so for the rest of the year. Understandably, we are in the lowest period of the year in our industry, which is the rainy season. Our business relies on live situations to create experiences and engagement. If it’s raining, who is going to do a roadshow in the market or organise an event for people in the market? Clients shy away from doing big jobs that can be interrupted by the rains. Clients will rather leave those till after the rains or before the rains. This year may not be as good as last year but definitely, there is going to be some form of recovery before the close of the year.
This is an issue many shy away from talking about perhaps because they don’t want to ruffle feathers. But then, this is an elephant in the room that needs addressing. This issue is leading to the eroding of profitability for businesses. There are three different perspective to this issue.
First, procurement people at the client’s side want to prove a point. Whether they have just been employed or given a new role, they want to prove that they can do XYZ or do some level of savings for the business. They understandably want to achieve results in their role even if it means delaying payment for longer. In some ways, it is part of their KPIs. The truth is, the longer it takes for the client to pay, the better it is for their cash flow. This is basically about cash flow management.
Again, there is always going to be cross industrial, cross category movement where professionals move from the agency side of the business to the client side and vice versa. People who have moved from agencies to clients will always find ways to help their clients make more money by striking better deals from agencies. That knowledge across board puts pressure on profitability and payment terms for agencies.
This is what I see as consequences on the suppliers’ base; business becomes less profitable. For instance, if I do a business for you at the cost of 10 million naira and you are going to pay me that money in thirty days after I invoiced you, and I had borrowed that money from the bank, they are going to charge me like four percent. If my profit is 10 percent and I am going to pay the bank four percent, I still have six percent- not a bad business. But if I took that business from you and my commission which is 10 percent is now stretched to sixty days, bearing in mind that I am now going to pay eight percent, I will now be left to make just two percent. Now, consider it stretched to 90 days, I am completely removed from the picture. I will then be working for the bank and working for the client at a loss. To compound this, where payers are increasing payment terms and reducing commission that is going to be a recipe for disaster waiting to happen to suppliers.
There has to be an open dialogue between buyers and suppliers because there is no business where only one side benefits. Business is a mutually beneficial relationship where both parties should make profit. If one party profits and the other doesn’t, then, that is no longer business but philanthropy.
I also believe that there should be a form of regulation in this area because every relationship should have the right rules in place. I believe maybe the regulatory bodies need to come and set the tone for engagement. If I have the opportunity, I will like the entire industry from all spectrum to come together and discuss fair trade deal. If you are giving your distributors or partners 30 days credit for them to pay you back, then you should also be able to demand 30 days credit from your suppliers. If it is 60, same should apply and so on. But if you are asking them to pay 100% advance for you to supply them, then you should be able to pay your suppliers advance before they give you service. There are instrumentalities in place to guide all of these things. I do believe there should be this fairness in place which right now is lacking.
I am a passionate member of EXMAN and a founding member of the association as well. We started the discussion about the association and I was its first secretary for two terms. I do believe that EXMAN is doing an excellent work towards ensuring that we get a fair playing ground that will build relationship and partnership across boards and build partnership with the clients we service and of course, empower and build capacities for member agencies.
I believe the new EXMAN President, Tade Adekunle is going to do an excellent work steering the association. I am confident he will drive more meaningful engagement with the client to arrest the drain in our profitability which is eroding. Something needs to be done about that because agencies are closing down. They are closing down because they are not making money and cannot continue to sustain themselves. If we don’t watch the downward spiral, many more agencies will run into difficult starits and the entire IMC industry will suffer for it. In terms of that meaningful engagement, we all need to see the value we offer, the buyers, suppliers, etc.
Innovation and creative execution of ideas is always behind every of our operations. As a business, your focus will always be about how you will add value to your client’s business on a regular basis. One of the things we are proud of in the area of innovation is how we deploy it to make our clients win. Last year for instance, we bought a research from Euromonitor. In one of our client’s category where it was supposed to grow in the modern trade category. It is currently around 8 or 9 percent but volume from that channel to the main stream channel is expected to grow by 2021. That channel will be contributing 30 percent to the national sales volume. This my client and that category are not there. We reached the client with a proposal on that and what we thought they should do.
They were happy because they had been thinking about it and never knew how they can go about it. We had done similar work for another client in a different field like that.
Every business is looking for the most cost effective way to reach their audience. Traditional media is today not arguably the most effective means to do so, yet, it is way more expensive than online media. Now if everyone is online, there will definitely be no need to spend on a medium that is very expensive.
Though right now, not everyone is online, the trend shows an upward growth as more people get online. Online penetration, mobile internet penetration is growing at the rate of 30, 35% according to a recent report. 4G is now in the villages. I believe that every business must leverage on the power of the internet and the social media to remain relevant in these times.
At Brand Optimal for instance, we have taken our business and broken it into different components because we know that there is no one source for delivering experience anymore neither is there one source to reaching the clientele. Many people now do the bulk of their transactions online, they no longer have to leave the comfort of their homes to do that. This is a trend. More people are buying more phones than they are buying television sets. It is crazier when it comes to the youth segment. Even when they are home with you, they are online physically, spiritually, they are always online.
I strongly believe that any industry that wishes to survive needs to have a digital footprint, ours not exempted.