June 8, 2016
Yesterday, the ANA released the findings from an eight month research study into the issue of transparency within the media agency industry. The findings are damning, but not surprising for those who have been following this issue. The phrase in the report that caught my eye was this: “evidence of a fundamental disconnect in the advertising industry regarding the basic nature of the advertiser-agency relationship.”
In other words, it’s the advertising-agency relationship that stinks.
Look past the rebates, the free cash disguised as “research and consulting” and the media mark ups and what you’ll see is the advertiser-agency relationship that has been under strain for years has finally completely collapsed. Three factors have driven the industry to this point:
- Agency success metrics tied to an outdated approach. Clients expect high impression levels, high click volume – all at a low cost. This doesn’t allow a lot of room for media agencies to show additional value beyond scale and efficiency. The result is that agencies continue to look for opportunities to drive more impressions and lower CPMs without any accountability for real business and revenue impact.
- Marketers slow to educate themselves. Marketers are paying more attention to the media buying ecosystem and issues of transparency are top of mind. But very few advertisers have taken the time to understand how digital media is bought and sold, how trading desks make money or even the terms of their media agency contracts.
- Advertisers squeeze agencies on fees. Advertisers need to own the part they have played in setting up the conditions that have fostered these practices. Advertisers continue to demand lower fees while expecting agencies to plan, buy and analyze media across an increasing number of channels while using different types of ad technology. To make up for lost revenue, agencies have had to diversify the business model. This diversification in the form of trading desks, technology and data partnerships have created the complex environment in which there is ample opportunity to act in their own best interest – rather than that of the advertiser.
For advertisers who are shocked at the findings, your first thought may be to whip out a magnifying glass and start reading all of the fine print in your media agency contract. And we encourage you to do so. But don't play the blame game; use this as an opportunity to hit restart on the agency relationship that has been under strain for years.
- Incentivize intelligence and adaptability. Don’t reward your agency for mass reach buys with low cost impressions. Set success metrics that align with finding and acting on key audience insights, unlocking new sources of valuable data and driving business results. Use a marketing measurement platform that provides a quantified, objective measure of performance and contribution of each channel to the overall return on investment. These systems are expensive, but so are wasted ad dollars.
- Educate yourself. Stop hiding your head in the sand. Take the time to learn how your money is being spent. Ask your media agency questions about the distribution of dollars, read insertion orders and contracts with media publishers, identify the types of technology being used when buying and the costs associated with them, and exercise the auditing rights in your contract. Advertisers who abdicate all responsibility to their agency will need to hold themselves accountable when their money is being spent irresponsibly.
- Rethink the split of responsibilities and ownership between you and your agency. The structure of the agency relationship is still rooted in the mass marketing world where clients delegated execution to the agency and primarily exercised oversight on strategy and budget – not bothering to dive into the details. That worked then with the luxury of long planning cycles but breaks down in the post-digital world of targeting, data and optimization. Ignoring the details of what data and technology platforms are used is no longer viable.
- Abolish the term “working” dollars and strategically plan for three performance levers. “Working” dollars should not be defined solely as the cost of media. Reach against the target audience is still an essential driver of results but in this post-digital age, the data needed to identify and personalize messaging to that target and the technology that enables these interactions are equally important levers to pull. By bucketing everything but media cost into a “non-working” budget, you’re de-prioritizing the fuel that actually makes the engine run.
Follow up with a Forrester analyst to discuss how to improve your media agency relationship, become an expert on the digital media buying landscape, get the low down on how media publishers make money or take the next step to implement a marketing measurement solution.
Readers can download the full ANA report here.