• Thursday, June 13, 2024
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APCON should desist from price-fixing to sustain industry growth – Muonso

APCON should desist from price-fixing to sustain industry growth – Muonso

MARTINS IKE-MUONSO is a professor and the chief executive of Value Fronteria. In this interview with JOSEPHINE OKOJIE, he speaks on the recently introduced Advertising Industry Standard of Practice (AISOP) and its impact on the industry.

Looking at the global environment and things like the pandemic, inflation, insecurity and slowed growth, what is your view of the Nigerian business environment?

When you are recovering, it usually has to be low because that is like the takeoff point. I guess there is some level of recovery given that the global community has found some way of managing the COVID-19 disruption. However, Nigeria has a peculiar situation at the moment, the insecurity factor is huge. Again, the quality of fiscal programs from the current administration is also perhaps not at the level one would expect given the background of COVID disruptions on the economy.

One would have expected properly targeted fiscal programs that would hasten the pace of recovery rather than us being at a crawling pace. But be that as it may, the business environment and also all of these feed into the prospects for improved currency value. So, given all of this, I do not expect that the takeoff would be anything significantly different from what currently is the situation unless these conditions change.

How is the service sector contributing to the economy and what’s the value of Nigeria’s advertising spent?

Going by more recent statistics, particularly the ones that were revealed by Nairalytics, and KPMG., the advertising spend should be approximately N200 billion. So, give and take, the advertising spend, at least for 2020, for the entire industry should be about N170 – N200billion, which is quite substantial but does not optimize the potentials in the industry and that raises a whole lot of questions about what needs to be done. I guess that number would have been improved, but it will still lie much lower than the optimal revenue level for the industry.

How can the industrial potentials be increased?

We know that the efficiency of the market is always the driver of innovation, the driver of expansion depends on how free the market is and the incentive structures to make the market function better. The market has an information mechanism that no other way of conducting, organising production and economic activities have. So, therein lies a huge potential and how can the markets be manured, fertilised, tamed to do that? It goes back to the regulation of the market. So, if you have efficient regulation that helps with information flows, with reputation building, and different participants in the market to record huge profitable performance, of course, the market will blossom better.

The advertising industry is one of the sectors people believe can help Nigeria diversify its economy. How can the industry contribute more to the country’s economic growth?

Do you know what they call the invisible hand? You see, the invisible hand is another way of saying the market functioning freely with the right set of incentives will always find its feet, its hands, its legs wherever it feels that prospects can be optimized. So, what happens? One of the things I pointed out on looking at the advertising spend, is that the industry is not operating at the level that it should, which again is consistent with the question that you’ve asked, how would the industry help in diversifying?

Most of the time and in particular, in our environment, most regulators are reactive and playing catch up because they are not in the field

Because in helping to diversify, it plays more roles in a wider spectrum of economic activities covering multiple sectors of the economy. That is not very much the case at this point because of what I would call poor market timing mechanisms. So, there is a whole lot. One is the education of the Nigerian people, two is the pricing mechanism for advertising activities, three is incentive structures that will enable people who are consumers of advertising to take advantage of the advertising market, to also expand on the advertising treatment, and a whole lot of other reputational issues that come with advertising and so forth.

Earlier you mentioned regulation being the solution to the industry, and recently, APCON, the industry regulator for advertising came up with AISOP to grow the industry standard practice. What impact will it have on the industry?

I think that is a very good step in the right direction. That’s a major regulatory move that the industry has taken. As far as I know, the advertising industry is not always left just like that as some level of regulation always comes in, particularly in time to protect consumers of advertising products. The challenge I see with the AISOP document, which I think can be easily corrected, is with three things. The first one is horizontal price-fixing. The second one is undue bloating, burgeoning, increasing advertising costs, which again goes back to what we are talking about. The higher the cost of advertising, the less it becomes easy for consumers of advertising products to take advantage of advertising. The third challenge again with the document is the interference or interjections in the freedom of contract, contract enforcement. So, if the regulator of the advertising industry can take a look at these three factors, I think the AISOP document is the way to go.

Read also: APCON boss rolls out plans, as IMC practitioners call for growth-based regulations

Calling on regulators to effect changes in the AISOP document, will this not negate the gains the regulators hope to achieve as advertisers, instead of adhering, simply reduce their spending?

Part of the major hallmarks of good regulation is also to listen because the practitioners have a more proactive understanding of the market. Most of the time and in particular, in our environment, most regulators are reactive and playing catch up because they are not in the field. So, they also have limited understanding, which is based on the feedback.

But again, some feedback is critical, important in helping to influence the regulator’s decisions. For the three factors I mentioned, I can explain each of them in greater detail and how they hamper the advertising industry’s prosperity rather than encourage it. The first one is what we call horizontal price-fixing. Horizontal price-fixing is not accepted in any progressive community in the world because it is like infringing on the capacity of the market to independently connect. What APCON has done at the price-fixing is say, for instance, in the pitch fee, that it has to be between N1million and N2million.

The range is a fixed range that is a horizontal fixed range. The implication is that if the advertiser does not have the capacity because of cash flow management to offer more than or up to a million naira for pitch production that means it would not go into the market at all because it would go off the regulator’s range.

Secondly, about bloating, you know, unnecessarily bloating the costs of advertising. You know that a professional fee will be paid to you. So, let’s assume one million has already been paid for 10 persons or 10 companies or five ad agencies. These five ad agencies make their pitch. Only one is going to be selected. So, the company selects one, the other four, you’re going to be paying them between N500,000 and N1.5million for rejection. The third one is about contract enforcement. The life of every market is the freedom that individual actors have to interact with all the participants in the market to agree and to have these contracts enforced. You cannot, as a regulator, determine these terms. The moment you begin to determine these terms, you are already beginning to whittle down the capacity of the market to independently determine its progress.

What will be your advice to the government and APCON on how to resolve this issue?

I think APCON should desist from price-fixing, it has done very well in coming up with AISOP, that’s brilliant. I think what it needs to do is to look at these points of weakness. First is the horizontal price-fixing issue. It should pull back from it because the horizontal price-fixing will kill innovation, it would kill market competition, the opportunity of the advertising industry to further diversify and set the industry backward. Secondly, even fixing rejection fees alongside the pitch fee, it’s unnecessary. It’s like double payment or double charging. It’s either it goes with a rejection fee if you don’t get it, we pay or it goes with a normal pitch fee, which needs to be determined independently by the parties. The supplier should have the freedom to say this is how much I have, for those who can pitch within this rate, make applications, then we select and those who are selected can have a contract, which the regulator can now oversee and ensure that both parties comply with the terms of the contracts.

Thirdly, you do not determine the terms of contracts for market people. you cannot tell me how I’m going to buy tomatoes, whether I should buy the rotten one or the good one. It has to be something between the seller and tomato myself. What you need to do as a regulator is to step in if I have taken the tomatoes without giving money or the person who is selling has taken my money without giving me the tomatoes or has given me a substandard set of tomatoes.

To the advertising agencies, AISOP is the best news to them but the advertisers are complaining. How do you think the contradiction can be resolved?

The best way to resolve these issues, I think first, is to provide information. The industry does not have data to make decisions. The regulator can do well in helping both the supply and demand sides have access to adequate data, enabling them to evaluate the contracts they are going into. Secondly, the regulators must create choice-making and ranges for prices. In the absence of choice-making in the market, then there’s no market. You only have a dictator, on one hand, dictating the pace of the market or the supposed market. But if you have these ranges, then there could be choice making.