Regional Market Outlook on Advertising
Advertising agencies in Brazil largely provide end-to-end services to clients, ranging from strategic planning to digital creative, along with media planning and buying. The digital agency landscape is known to be in its nascent stages, hence advertising agencies tend to bring in the required digital talent within their structure.
- In the Latin American market, the highly adopted sourcing strategy is regionally planned and sourced model. This is because this model enables the marketers to have consistency in strategy, branding, and communication across the regional markets and have greater alignment across their marketing model
- The primary adoption of this model is because the marketers want to promote products that are premium to the value-oriented Hispanic consumers. The centralized model has a lower adoption in this region, as it is difficult for marketers to target multicultural population in Latin America with a general-market advertising campaign
- Assurance of supply: A number of global agencies like have their presence in both Argentina and Brazilian markets. Some of them are Ogilvy and FCB, who hold the highest market share in the region.
- Cost: The cost of sourcing locally in Latin America could be less than global sourcing, as there are a higher number of local agencies in Latin America. Local bidding could lead to competitive bidding, which lead to cost savings.
- Quality: Regionally planned and sourced model, creative services and campaigns conform to global quality. This is because marketers engage with global agencies that have regional presence in Latin America. These agencies adhere to global advertising standards.
- Risk: Risk associated with a regional planning can be lesser than global planning, as regional suppliers know the market pulse for future advertising regulations and are more aware of economic risks in their region.
Agency Engagement Models – Expert View
In the key Latin American markets, like Brazil and Argentina, the popular model that is adopted among marketers is the preferred agency model, where there will have a preferred roster of agencies that the marketer engages with for most of their requirements.
Remuneration and Contract Model for Agencies
Typical remuneration model adopted in Latin America
The highly adopted pricing model in Latin America is the retainer-based pricing model. Among the two types of retainer models used for creative services a hybrid of retainer & project-based model is popularly adopted in this region
Less preference for performance-based pricing
There is high difficulty in defining and measuring KPIs for several agency services, and hence, payment by result is the less adopted pricing model. The risk involved in performance-based payment includes frequent negotiation and focusing on short-term tactics to gain the performance bonus rather than adopting long-term best practices
- As a procurement practice, annual review of agency relationships is common in Brazil. However, the typical client–agency relationship lasts for several years (3+ years) in media service segment. This is mainly because of the high switching cost involved
- Changes in the existing agency relationship happen often, due to the changes in agency engagement, mandated by global team because of global negotiations. Switching to another agency also happens, due to high agency fees or poor quality of output from the incumbent agency
Price fluctuation clause
Global contracts with media agencies tend to have price fluctuation clauses, which shields the clients against depreciation/appreciation of currencies vis-à-vis USD. However, if such clauses are not a part of the MSA, the clients would be priced higher for media slots, if they are procuring it in the local currency in the current situation