THE Malaysian advertising industry, which traditionally is paid via a 15% commission on clients gross spending, is moving into a fee-based remuneration that could possibly be fully adopted within two years, said R3 Asia Pacific principal Greg Paull.
Singapore-based Paull, who started R3 last year in response to marketers needing consultancy services on their relationships with and investments in their advertising agencies, added there was little hope that agencies in Malaysia would ever agree to a fixed standard of fees.
Every agency would differ depending on the kind of people they hire, what they pay these people and the varied quality of work and so on, Paull told StarBiz after a half-day seminar in Kuala Lumpur organised by the Association of Accredited Advertising Agents (4As).
Paull made a joint presentation on the subject of agency remuneration with David Beals, the chief executive officer of Jones Linden Beals Inc, of which R3 is the Asia Pacific partner, at the seminar-cum-workshop.
Beals, who presented a scenario of how global compensation practices have changed, explained that most US and European agencies and their clients worked on a fee system, then detailed the steps of implementing a fee remuneration system and the potential pitfalls to watch out for.
Earlier, Singapore research agency Saffron Hill managing director Raymond Ng presented a recent analysis of 100 leading markets in Singapore, Malaysia, Hong Kong and the region, the first time such a survey had been completed in Malaysia, showing how these companies pay their agencies, their levels of satisfaction and compared these with similar results of surveys done outside Asia.
Paull said the switch to a fee remuneration system in Malaysia would probably occur in tandem with the growth of multinational corporations here, especially as many of these companies already used such a system in many of their overseas offices and understood the concept well.
I think there will be greater growth of below-the-line advertising such as direct marketing, which could achieve more if properly targeted, Paull added.
He said this was because it was not an easy task for Malaysian agencies to possess a complete range of facilities that could provide the information necessary for a fee-based system, such as the ability to calculate the actual time spent on a particular project, or the returns the client would get and so on, in addition to information that neither side would like to divulge.
Paull said there was definitely a need for greater transparency on all sides as often clients would want to know what kind of profit the agency would make off the deal in the hope that they could then negotiate lower costs.
Ultimately, it could be expected that fee remuneration, already in use by a number of agencies, especially those with international links, would take over from the commission system as there are reports of constant undercutting in a market that grows more competitive for an ever-shrinking advertising dollar.