Nissan axes Dentsu as Hakuhodo gains
by
David Kilburn
In a surprising and unusual move, Nissan Motor Co has sacked Dentsu, one of its main agencies in Japan for over 40 years.
Nissan said that it was moving about US$76.5 million in billings out of Japan's largest agency to rival Hakuhodo in a formal letter to Dentsu dated February 10th 1992. The letter, from Shuzo Nogami, general manager of Nissan's advertising department, went to the account director at Dentsu, Jumpei Watanabe.
The letter reads: " The severe structural problems the automobile industry is now facing have affected our company more than was anticipated. In view of the critical situation we will have to continue to reduce our budget for advertising and make the most effective use possible of our advertising expenditures. Taking all things into consideration, we have decided to use the agency services of Hakuhodo. "
The decision which is expected to take effect from April 1st, the start on Nissan's new fsical year, was one outcome of a review carried out over recent weeks [months ???] by Nissan executives.
" We have been using four agencies. Dentsu, Hakuhodo, Nippo, and Standard," said a spokesman from Nissan's Corporate Communications Dept. " Dentsu, Nissan, and Standard have each had about 30% of our budget, with the remaining 10% going to Standard. In our last fiscal year, [ending March 1992], our advertising budget was Y 32 Billion for Japan."
" We evaluated the agencies in terms of their overall performance, but I must say that the cost savings agencies can provide are a very interesting and important factor to us since we want to save money. But we also want to make sure our money is spent as efficiently and as productively as possible. In saving money, we don't want to lose out on quality."
Executives at Hakuhodo said they were aware of the review, but not of any final decisions.
"We've been told nothing officially, but we are keeping our fingers crossed," said a spokesman.
Likewise Standard Advertising said they had not been told officially of any decision. Sources at Standard said they expected to continue as a Nissan agency but would not be booking media. Sources said Standard expected to work alongise Nippo Agency on unspecified projects.
Nippo Executives declined to comment. Nissan owns 40% of the agency, is the largest shareholder, and contributes about 3O% of the agency's billings.
An article published Monday (10/2/92) in the weekly trade magazine Kigyo to Kohoku speculated that there were a number of reasons for change.
One was Nissan's realisation that it would be easier to plot strategies for, and position their cars in the market by working with one agency. This would allow the agency to have an overall view of the business and eliminate competition between separate agencies as a factor in planning each campaign for each model. This, the magazine said, would lead to better strategic thinking and more efficient planning in Nissan's opinion. Both objectives were hard for Nissan to achieve when their different models were split over a number of highly competitive agencies.
Another factor suggested was that Dentsu is seen as being very close to Toyota, who spend about Y 31 Billion through Dentsu, out of a total budget of Y 45 Billion. The magazine also suggstes that Nissan preferred working with Hakuhodo's account executive structure which is seen as a little closer to that of international agencies than Dentsu's.
According to the magazine, Dentsu will lose about Y 12 Billion to Hakuhodo. Industry sources suggest that Hakuhodo's total Nissan billings could eventually go up from an estimated Y 10 Billion currently to around Y 30 Billion, depending how how much further business is consolidated with them, and the extent of any budget cuts.
One factor that apparently did not play a role was account conflict. Like Dentsu, Hakuhodo also works for several auto clients, including Toyota, Honda, Mazda, Daihatsu, and Suzuki, as well as for Nissan.
In the view of some agency executives, Nissan's dramatic move signals a change that is taking place in the way Japanese advertisers perceive the role of agencies and how they want to work with them.
".... they are being motivated by various factors, but primarily the ned to bring one agency closer to the corporation, and grasp the complete picture, to be a more substantive partner and take part in the planning and strategic aspects of a company's communications, " commented Mr. Denis Richmond, president of DDB Needham Japan Inc.
" Many Japanese auto executives have experienced the fuller and deeper professional relationship that exists with agencies in overseas markets and see value in seeking similar arrangements in Japan. Automotive advertising needs a major shake-up in Japan where it is possibly one of the least creative categories of advertising. The changes taking place are evolutionary and represent a more mature approach being adopted by automative advertisers. Japanese agencies will ned to become more strategic. This will test their ability to operate as multinational agencies do."
While Nissan's move is not the first time a major Japanese advertiser has moved budgets, it is unusual in that the company has chosen to severe ties, a practise often said to run counter to Japanese culture. It is unusual too in that the changes have not been conducted in the total secrecy that usually wraps even minor re-alignments.
As courteous as always, Dentsu promptly replied to Nissan, and wished them well.
" While we have some regrets, we of course respect your decision. We wish to express our deepest appreciation for the long business relationship we have enjoyed, and we extend our best wishes for your company's continued success," read their reply.
"It's not the first time we have lost an account," said a Dentsu spokesman. "We will recover from this."
In a subsequent interview, Nogami explained Nissan's decision:
Here is an interview with Mr. Shuzo Nogami, General Manager, Advertising Dept, Nissan Motor Co Ltd, Tokyo.
Q. Please explain the realignment of your agencies, and the reasons for it.
A. There are two major reasons. One is the pursuit of greater efficiencies in advertising. The second point is concerned with our products.
If we are to stay with four agencies as we have had hitherto, it is rather difficult for us to have agencies participate from the development stage where we would like to utilize their knowhow. That is why we have narrowed down our agencies.
Q So you plan to get closely involved with your agencies in all stages of developing marketing, advertising, strategy ?
A Exactly so. Nissan is a car maker, so it is Nissan who determines the product objectives and the model line ups. We don't expect agencies to get involved in this, but once the structure of our product line up, and development objectives of each model, are determined, then we need the agency know how and expertise. This includes making use of all the lifestyle information they have, and bringing added values to what we are doing as a result of this knowledge.
In this sense, we are not looking on advertising agencies merely as agencies, but as our business partner.
Q That's the first time I've heard an agency described as partner !
A Agencies work for many different clients in many different industries, therefore they have a great wealth of knowledge about the consumer and about lifestyles as a result of this work. We Nissan are pursuing a market oriented product development strategy. It is important for us to have an outside party verify whether or not we are really succeeding in being more market oriented, and sensitive to the consumer.
Q What factors led you to choose Hakuhodo ?
A We've been using four agencies - Nippo, Dentsu, Hakuhodo, and Standard.
Nippo is our house agency, so they cannot really fulfil the role of giving an outside, independant point of view.
Hakuhodo is a very aggressive agency. When we put forward our proposals to our agencies, usually the response is 'Yes, We understand, We agree, We'll be happy to do what you say." But Hakuhodo aren't like that. They say "Why don't you look at the problem this way ...." or "Have you ever thought of ...." They make critical comments about our ideas and come back with their own counter proposals.
Naturally, we expect commitment and advice from advertising agencies. With Hakuhodo this was done in great earnest and from a critical point of view. We think very highly of this.
Q So you felt Hakuhodo had been making a bigger and better contribution to your advertising over recent years?
A I certainly gained this impression and my colleagues shared the same view. Various corporate officers concerned with sales and marketing reached the same conclusion. No-one was opposed to the idea of going with Hakuhodo when the idea was put forward.
Q Will you still use Nippo and Standard at all ?
A Yes. Both will have subsidiary roles alongside Hakuhodo. They will have a part to play. Although Standard Advertising is a small company, we think they are outstanding in terms of both marketing and creativity. We work with Standard both domestically and internationally through Nippo, and we think highly of their work.
Q Why did you decide to totally severe your links with Dentsu ? Japanese culture is often said to stress long term - permanent relationships.
A We work in a cultural environment that attaches importance to harmony. We used to spend our budget based on this concept, using multiple advertising agencies. But the business climate is becoming very severe. Customers tastes and preferences have been diversifying, and they also look at companies, their products, their activities from a much more critical point of view than before. It's important that we evolve, and develop our products and activities accordingly. It is no longer possible to deal with multiple agencies as we once did. But it is important to us that the agencies understand this new philosophy and accept it as necessary in the prevailing business environment.
Q Hakuhodo works for several other car companies. Would you prefer an exclusive relationship with them ?
A Emphatically No. An agency like Hakuhodo has many divisions and each division corresponds to an independant advertising agency in the USA. The division that handles Nissan at Hakuhodo has no contact with the one working for Toyota, for example. For Hakuhodo to develop their relationship with Nissan, it is not necessary for them to relinquish their relationships with other, competing, car makers. Having competing accounts in an agency serves to keep their ideas fresh. It keeps an agency on its toes.
The corporate culture of Hakuhodo is a very aggressive one. We hope very much that this will ensure they don't lose any accounts from our competitors.
Q So you feel for Hakuhodo to handle competing accounts leads to a high level of service, and helps innovation.
A That's right.
Q It's unusual for agency changes by major advertisers in Japan to take place so publicly. Normally secrecy prevails. Could you comment on this ?
A We started this project last summer [1991] and we kept it secret till the end of January when some news came out.
Q When do the changes take effect ?
A April 1st.
Q. Do you think we are entering a period of structural changes in the advertising industry in Japan ?
A I think advertising agencies now recognise that changes such as this really can happen. From my contacts with people outside the auto industry, I know that my counterparts in many other companies share our ideas. I think our decision will prove a case study for them.
Q Has the overseas experience of Nissan executives been a factor in reaching your decision.
A It has been a trigger, but I think its questionable whether European or American business practises can be introduced and adopted in a Japanese business climate.
Q How has your budget been changing ?
A We're planning FY 93 Budget now, I imagine there'll be a 5-10% reduction on the current fiscal. This year our budget is about 7% down on the previous year.
Originally published in Advertising Age, February 17th 1992
