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How are HK agencies holding up with more brands preferring projects over retainer contracts?

How are HK agencies holding up with more brands preferring projects over retainer contracts?

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Amid economic uncertainty where marketing budgets are tight, Hong Kong clients are opting for short term projects instead of retainer contracts, where agencies are hired to deliver creative and media services in the long term. 

In fact, this phenomenon aligns with the fact that Hong Kong brands have been quite conservative about the future growth of ad spending in the city. Hong Kong’s ad spending in general for January and February this year has dropped slightly from last year to reach HK$4.4bn, representing a 5% YOY decrease, according to Admango’s latest ad spending report. 

Don't miss: Are industry players optimistic about the growth of HK ad spending in 2024?

Various favourable factors led to a significant increase in ad spending in Jan-Feb 2023, which made the 5% drop in Jan-Feb 2024 inevitable due to the local economy's recovery being hampered, the report said. 

Observations from industry players 

Industry players MARKETING-INTERACTIVE spoke to also observed the increasing trend of clients hiring agencies on a project basis in Hong Kong and it is likely to stay. 

Vin Ng, director, Spread-it, said a primary driver behind this phenomenon is the pursuit of cost-effectiveness. “In the ongoing process of market recovery, clients are seeking greater control over their budgets. Opting for project-based engagements enables clients to define the project scope and negotiate a fixed price, which often proves more economical compared to monthly retainer fees,” he added. 

While there is no YOY data specifically illustrating this shift, it is evident that there is a demand for greater flexibility and better budget control, according to Maggie Wong, CEO, VML Hong Kong.  

Additionally, the rise of in-housing on the client side has also impacted the client-agency dynamic, said Wong.  

“The shift in internal capabilities may result in a reduced need for long-term, retainer-based agency partnerships, but rather an increased preference for project-based engagements for specialised expertise or specific campaigns,” she added. 

On the media front where agencies are often signed up on a retainer basis, the average contract durations are generally becoming shorter, despite having partnered with most of its clients for over three years, according to Wai Chung Au, managing director, media at dentsu Hong Kong. 

“This reflects a broader trend where brands, facing a volatile economic climate, are seeking increased flexibility to adapt swiftly to market changes. CMOs are under considerable pressure to perform and respond dynamically to fluctuating market demands.  Opting for project-based engagements or shorter contract durations may allow them more budgetary discretion and minimise long-term commitments,” he added. 

While the debate between retainer and project-based models continues, Andreas Krasser, CEO, DDB HK, said it is important to consider the benefits of retainer relationships.   

For DDB Hong Kong, although the split between retainer and project-based revenue hasn't seen a significant shift in recent years, it has observed a trend towards much smaller projects in Hong Kong due to tighter marketing budget control and increased focus on short-term objectives, he said 

“Despite these shifts, I sincerely believe that retainer relationships offer undeniable advantages. They foster stronger partnerships, mutual respect, and trust between marketers and agencies, which ultimately leads to more effective, long-term brand building and campaign work.” 

How are agencies sustaining their businesses in a project-based agency landscape? 

Within a project-based agency landscape, how agencies can better sustain their business is a million-dollar question. 

One of the ways is diversifying client base to help mitigate the risks associated with a project-based model, said Florence Kong, founder and managing director of WeGlow HK. 

“Agencies should strive to attract clients from various industries, sectors, and geographic regions to ensure a steady flow of projects. This reduces dependency on a single client, industry, or region and provides stability for the agency,” she added. 

Agencies should also leverage their existing client relationships to identify upselling and cross-selling opportunities, she added.  

“By understanding the client's broader needs and offering additional services or expanding the scope of existing projects, agencies can increase revenue and enhance client satisfaction. This can include upselling services such as social content creation, influencer marketing campaigns, event activation, or other complementary offerings that align with the client's marketing and advertising goals.” 

Furthermore, agencies should also consider building recurring revenue streams within the project-based agency landscape, said VML HK’s Wong. 

This can be achieved by offering maintenance / support contracts, ensuring ongoing assistance and updates for implemented solutions, she said. “Additionally, adopting a project retainer model allows us to maintain a continuous pipeline of work with clients, ensuring a steady flow of projects and revenue.” 

From a media point of view, dentsu HK’s Au said retaining a stable team that understands clients’ KPIs and way of working is key. 

“Because by having a stable and close working relationship, we bring knowledge and efficiency to the time-poor marketing team that would boost their effectiveness.” 

On the other hand, DDB HK’s Krasser said without the stability and certainty of a retainer agreement, it gets really difficult for an agency to predict revenue and workloads, which in turn means that balancing resources and cash flow becomes a tough task.  

“Usually, a heavy shift towards a project-based model means that agencies will be quite conservative in terms of investing in new capabilities, moving towards leaner structures to maintain margins,” he said. 

When it comes to project work, clients theoretically run the risk of resources not always being available – at least not on an ad hoc basis, he said. “In reality however, agencies will bend over backwards to accommodate project requests, moving people around, and assigning whoever is currently available, adding freelancers, etc., all risking inefficiencies and maybe even a diminished final output.” 

Related articles:

Carousell appoints Archetype Hong Kong as retainer PR agency
Farfetch hands China retainer to Reuter Communications

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