Earlier this year, the CEO of one of the region’s leading agencies announced, almost nonchalantly: “Like it or not, we’re in a recession.” And he’s not alone: nearly 53 percent of UAE residents think so too, says a Nielsen survey, released earlier this year. And, although this belief isn’t grounded in truth, at least for the UAE and the surrounding Middle East countries, His Excellency Obaid Humaid Al-Tayer, the UAE’s Minister of State for Financial Affairs, said in his statement to the International Monetary and Financial Committee: “We are still facing a tepid and fragile global recovery, with heightened uncertainty and increasing financial turbulence.”

Low oil prices, geopolitical instability and lower government expenditure – the three most important economic issues in the GCC, according to an April 2016 CFA report – have affected several industries across the Middle East, including the usual suspects – oil and gas and energy – and banking, with leading lenders, including First Gulf Bank, Standard Chartered and HSBC, shedding hundreds of jobs in 2015.

Nearly 30 percent of CFA professionals believe that investor confidence is as low as it was during 2008/09 – and almost the same number believe the overall sentiment is currently more positive.

The past year has already been quite challenging for advertising, as overheard at industry networking events. So, with half of 2016 already behind us, have the agencies’ efforts and investments paid off in strengthening client confidence and, eventually, their bottom lines and margins?

Brave new world

Despite the ad world’s version of locker-room conversations about budget cuts and tough times, client outlooks seem mostly positive. David Parkinson, Nissan’s head of digital for MEA and India, is optimistic – and he has reason to be. Nissan witnessed a 50 percent growth in volume and a 25 percent increase in market share over the past five years in the GCC alone. Parkinson attributes the fears of an ongoing recession to the happenings in the region and the instability of the world economy, noting that this has resulted in “people almost talking themselves into prudence”. However, while he isn’t seeing a slowdown, he notes that clients and agencies are looking at ways of “rationalizing costs” – which is especially important for Nissan this year, as 2016 marks the final year of Power 88, a global six-year business plan to push the company’s growth across its markets and segments to achieve a global market share of eight percent and also increase profits to eight percent.

Bachir Siam, GroupM MENA’s chief financial officer, points out that this rationalization isn’t a direct result of the economy. Clients are always looking to rationalize and optimize their costs, he says.

While automotive may have had it relatively easy, things seemed particularly tough for the banking sector, with job cuts, strained profitability and indications of weakening asset and credit quality. So, it seems almost surprising when Emirates NBD reported a record profit of $1.8 billion in Q1 2016, with a YoY profitability of eight percent. The bank’s head of group marketing and customer experience, Vikram Krishna, says the bank’s marketing investment is paying off. “In a nutshell, we seem to be getting the ROI on our marketing efforts. [It is] reflecting in our financial results,” he says.

But why?

Another prominent chief executive once said that advertising professionals are like front-line soldiers in a battle – they’re the first ones to come under fire. Similarly, in the process of cost management, marketing budgets are usually the ones to quickly pull a Houdini on the agencies. But that’s not what the clients – and the numbers – are saying. Yes, the ad spends of Pepsi, Nissan and Emirates NBD took a slight beating between July and September 2015 – usually a period of peak spending. But, as client confidence increased in Q4 and continued into 2016, so too did investments, more than making up for a dull third quarter. In fact, according to Ipsos, Pepsi’s ad spend in Q1 2016 was almost 70 percent more than its spend in Q1 2015.

Impact BBDO Dubai’s managing director, Talal Sheikh Elard, reveals that the pessimism expressed by clients in 2015 became somewhat more subdued by the second half of 2016. While business hasn’t exactly been good, it hasn’t been as bad as imagined, he says. So, “you feel less pressured despite the drop,” he adds.

Another reason for the increase in client confidence is the growth of a medium that went from being a buzzword to become a complex ecosystem that comforts clients with its ability to accurately measure ROI. And this is also where consumers spend most of their time: online.

“When you want to harness marketing performance, you look at your consumers,” says Dani Afiouni, regional director of consumer engagement and media, PepsiCo MENA. The consumption patterns of digital and mobile in the region “mandate that we re-look at our investment YoY,” he adds.

This is even more crucial in high-involvement categories, such as banking and automotive, as online is usually the first step in the purchase journey. Consider Nissan’s luxury brand, Infiniti: in the Middle East, 96 percent of its consumers start their journey online through search before visiting the dealership, versus just 52 percent roughly five years ago.

As consumers moved online, so did budgets – but not necessarily at the same pace. In 2016, 40 percent of Infiniti’s spend has moved to digital, while Parkinson says that Nissan’s digital spend has increased to nearly 45 percent this year versus roughly 35 percent in 2015, with some campaigns being 100 percent digital. “TV is very expensive [in terms of ad space and content creation], so we’re rationalizing into more frequent spend on digital on smaller pieces of work,” he says.

Meanwhile, in the banking sector, 81 percent of UAE customers are willing to switch to another bank if it offers complete smartphone-based banking and 60 percent are willing to shift to a digital-only bank, according to Ernst & Young’s GCC Digital Banking Report 2015. So, it’s no surprise that Emirates NBD’s continued -focus on having a strong digital and mobile footprint has emerged as a key differentiator in the sector, says Krishna. The brand runs more than 200 campaigns a month, many of which are purely search-based or social. Digital investment varies across campaigns, but at least one-fourth of the bank’s media mix is digital.

Meanwhile, PepsiCo’s marketing investments have not changed per se, says Afiouni – probably due to the diversity of the firm’s portfolio. However, the company is focusing on what he calls “right-sizing optimization”, which aims to make sure the brand and its content remain relevant to consumers. The company’s digital investment is approximately 40 percent, varying across the portfolio, he says.

Mad Men meets Silicon Valley

It’s not only clients that have embraced digital, but also brand/creative agencies, which have had to adapt and evolve to cater to their clients’ consumers. At the heart of digital media is data powered by technology and, until recently, creative agencies have been slow to harness and analyze this. “We cannot be an island that’s immune to what’s happening in the world,” says Ronald Howes, chief operating officer, Memac Ogilvy.

When asked if creative agencies have been slow to invest in data, Parkinson carefully says: “It hasn’t been a priority for them, but they’re coming into the game now.” Even Howes admits that there is a still a “huge opportunity” in this part of the world, in terms of managing and using data.

Tapping into this, Impact BBDO has almost quadrupled its investment in data analytics and research in the past two years alone, and has made key appointments in related roles. Elard says that, once the brief is cracked and the big idea established, the agency ensures the “channel plan builds content that’s relevant at every single touchpoint.”

But creative agencies’ slow-paced investment in data hasn’t really worried clients, because they receive data not just from media agencies, but also from internal research and third-party sources. However, when Nissan shifted its account from Mindshare to OMD earlier this year, the digital remit – handled by Mindshare – went to its creative partner TBWA\RAAD. “Now, we are looking to do more real-time marketing,” says Parkinson. “We have asked them [TBWA\RAAD] and they’re investing in tools to drive that.”

As part of this process, TBWA\RAAD now has a “Nissan United” team, which is like an agency within an agency. The team has been tasked with bringing together all other agencies – including OMD – from the brief stage itself. The agency had already adopted this integrated and collaborative way of thinking with the absorption of its digital arm, Digital Arts Network (DAN), into its other departments, but Rafic Kamaleddine, chief strategy officer, TBWA\RAAD, says: “It’s not just about integration, but thinking about where the idea best lives. The mediums then become subservient to all of this.”

The focus is now on “collaboration”, but not just the sort that takes place between creative and media. Instead, it identifies and brings the various partners on board right from the beginning.

For Elard, the mantra for 2016 is “fast, cheap and good” – and he disagrees that only two of these are possible at any one time, largely due to a change in mindset. Companies want to do something different, assisted by technology. Therefore, he isn’t surprised by the shift toward digital; he attributes it – in part, at least – to the aggression of tech players. “It’s very obvious as the tech companies get aggressive in promoting their media tools,” he says.

It’s interesting to note that tech companies started off by approaching media firms, but, last year, they focused on developing partnerships with creative agencies too. “Yes, you will have media tools and products from a tech perspective, but, if you don’t have the content that drives consumption, it won’t work,” Elard say.

There’s no I in team

…but there are two in digital. Creative and media are two elements that stand out among the mix and, while media agencies got a headstart in adopting digital and offering it under their bouquet of services, it hasn’t taken too long for creative agencies follow suit.

The most striking example of the confidence in a creative agency’s digital expertise is Nissan handing over its digital account to its creative partner rather than a media agency. Parkinson admits that data and analytics give media a stronger seat at the table, but, he adds: “For Nissan, we feel that the creative agency is the brand custodian. That works best.” However, PepsiCo’s Afiouni says: “Today, ‘brand custodian’ isn’t the way to look at it.” He doesn’t differentiate between the various types of agencies because of the simultaneous convergence – of insights, idea and values – and divergence – of capable talent and their skill sets. “Capable talent isn’t harnessed in one agency, so we rely on our partners and the entire ecosystem to give us added value,” he explains.

At the other end of the spectrum is Emirates NBD’s Krishna, who places custodianship in the hands of all three agencies – media, creative and PR.

He emphasizes that no one agency can do everything, because it’s “physically impossible for a set of people to know every aspect of the spectrum”, especially given the complexity of the media landscape, the diversity of consumer needs and the fragmentation of media consumption.

Despite the continuing ‘creative versus media’ discussion, creative agencies seem rather secure – even in the face of growing competition, not just from media agencies, but also from marketing consultancies, such as Booz & Allen, Deloitte and, now, IBM Studio, which are offering similar services.

“Whether it’s a TVC worth half a million or a $30 piece of content, they’re both the same. They both need an idea, storytelling and good production,” says Elard. Meanwhile, Memac Ogilvy’s Howes admits that, although media agencies were the early adopters of digital and data investments, “it’s not just about data and driving a strategy, but about being able to implement it creatively, which a media agency wouldn’t be able to do.”

Kamaleddine simply chalks up the media agencies’ services to activations, drawing a clear distinction between media and creative, with the latter being focused on the brand and strategy. Moreover, since clients seem to have strong relationships with their creative/brand agencies – especially global brands, as Howes points out – they would be more willing to extend their services to accept data analytics and digital from a creative partner rather than shift to a media agency.

This, in turn, leads back to the age-old conversation of the agency model, which seems to be going back to its integrated ways. However, the nature of this integration varies.

Elard cites the example of PepsiCo, where the integration is so seamless that even the account PNL is a group PNL in the UAE. He says: “If the business requires it, we will have an integrated team, but not all clients are asking for it” – more importantly, not all clients need it.

Howes echoes the sentiment, saying that it’s not as though clients are asking for it, but when an agency does use integration effectively, it is able to better convince the client about a strategy, approach or campaign. “If an agency is geared that way, it’s more likely to be successful. If it isn’t, it may explain why some agencies are finding this year difficult,” he adds.

Change of mind, heart and structure

The shift toward digital is naturally reflected in agency models and structures, and – thankfully for agencies – even on the client. PepsiCo, for instance, now has an in-house consumer engagement team, which focuses on two core capabilities: tech and digital, and content model and expert capabilities. Afiouni says: “We’re in the midst of a culture change, where we are hiring subject-matter experts,” resulting in changes in the content model, digital investments, and distribution strategy.

There have been some changes at Emirates NBD as well, with mobile becoming the primary banking channel for consumers, resulting in need the for in-house expertise in user experience, technology and product design. However, there haven’t been many changes in the marketing department, because Krishna believes that any marketing manager has to be well-versed in the various facets of digital. “We have vertical capabilities, where there are specialists looking at digital marketing, mobile platforms and online banking, but we also have marketing managers who are increasingly spending more time in the digital and social space,” he adds.

Nissan, on the other hand, continues to retain its “generalist” structure across markets, relying on agencies for certain specialisms, says Parkinson. “We’ve been looking at the structure closer to the top to ensure that we’ve got a good split – and synergies – between PR, digital, advertising and sales,” he adds.

On the agency side, it’s apparent that, while investments are being made in hiring talent with digital as well as more technical skill sets, there’s also an emphasis on adopting an inherent digital thinking process. “We’re hiring young people who are more digital in nature, but, for me, digital is not a language we need to learn, but one we need to speak every single day to do what we need to do,” says Elard.

At Ogilvy, client investment in pure advertising has reduced, but other areas, such as PR, digital, shopper marketing and experiential, have balanced that out – at least at the bottom line. Howes says he hasn’t ever seen so much PR investment and activity from clients, indicating that the budget cuts in other areas go a long way in PR and social media. “The revenues that used to be allocated to advertising were big numbers, so, although the revenue might not fully equate with some of the drops, what’s more important is that the margins are a lot more balanced,” he adds.

Regardless of the restructuring that some agencies have undergone, the one thing they emphasize is the agency-client relationship. “If that relationship is resilient enough, it is down to the agency and how it manages its clients,” says Elard. Sure, these are difficult times and clients have it tough as well – although Elard questions “if this [difficulty] is really tough”.

To this, Howes says, “It’s about being more effective with the money the client has got.” He goes on to add that, in these trying times, marketers have it tough, because they’ve been informed about budget cuts that are beyond their control and they still have their KPIS, so they “need a partner versus someone nagging”. In fact, for Elard, this has been one of the learnings from the 2008-09 recession, when agencies were asking clients for an increase in the retainer. “During the planning stage in Q3 and Q4 of 2015, we worked closely with our clients, understood what the challenges were and reassured them of our support and collaboration,” he says, adding that the only change he did notice from clients is their increasing reliance on the agency.

Resilience and resistance

Clients’ challenges have been mainly external and focused on the dynamic behaviors and consumption habits of consumers. Based on internal research, PepsiCo’s biggest challenges are: 1) The value chain with the consumers is broken, with only one out of five consumers believing that brands deliver on the promises they advertise, and 2) Consumers are looking for meaningful relationships with brands. On a similar note, Emirates NBD finds itself struggling to deal with consumers’ fragmented media consumption, while keeping pace with consumers in a socially and economically challenged market. Agencies, on the other hand, have a little more to deal with than the market conditions and consumer habits. Kamaleddine isn’t shy about the havoc that procurement wreaks on creative agencies. “Anything you present becomes meaningless, because it has become commercial,” he says, adding that the pitch process for ad agencies has always been flawed – even unfair – because they’re the only entity – unlike PR or brand consultancies – that has to actually create the work beforehand. Add to that limited opportunities and you find agencies are willing to give away more for less – or even for free at times. “That’s lowering our margins and increasing our cost,” he says.

Understandably, the quality of the work may not be as good. This is something for marketers to assess, says Howes: “Frankly, most of the time, you’ll get what you pay for. You may save in the short term, but, in the medium to long term, I’m not sure that’s the case.”

Almost there…

Stepping into Q4, clients – and agencies – that started off the year on a somewhat pessimistic note seem to have regained some of their confidence and are now entering the last quarter with a steady foot.

GroupM’s Siam clarifies that, even though things are way better now than they were in 2008-09, “some key players were concerned at the beginning of the year, but we now have more visibility on the economy.” Moreover, clients and investors have realized the economy’s resilience and have witnessed moderate growth, which is “pretty decent”, says Siam. Still, agencies have had to manage costs, but Elard clarifies that this doesn’t mean cutting them. He candidly admits that it’s easy to cut costs: “We have done it ourselves, back in 2008 and 2009.” While this may ensure healthy margins in the short term, “it causes great concerns in the growth of the business,” he adds. That is why the agency’s head count remains pretty much the same as it was last year, with some new talent specializing in content production, digital, data and technology.

Having already invested a significant amount in data and technology, Elard adds that the agency is looking to expand its services and offerings, much like Ogilvy, which plans to introduce three new disciplines this year in the fields of digital and mobile – areas in which “we feel we can and should do a lot more,” says Howes.

Recognizing that “there are no more boundaries between who can do what,” Kamaleddine’s focus for the agency is to put the brand strategy at the heart of everything. “We own strategy, which means we own brand equity. We guard it and make sure anything the brand does is in line with its vision. If it doesn’t have one, then we create one,” he asserts.

Usually, a brand’s vision is to connect and engage with its audience – a task made even more difficult by a cluttered media landscape and fragmented consumer attention. This is why agencies have gone from being mere resources to business partners. But, regardless of – or despite – tough market conditions, “The idea rules,” Elard says. “That drives everything else.”