Commentary
Rigging And Transparency -- Brands Are Just Reaping What They Sow
- by Sean Hargrave , Staff Writer, December 20, 2016
OK, here goes. Brands; nearly everything wrong in the current advertiser and agency relationship right now has been at least exacerbated, and sometimes created, by you. Sounds harsh? OK, so consider this. Are brands really so dumb that they think when they beat down the big agencies on media that it's the end of the story? Of course it isn't.
Procurement has triumphed in commoditising marketing, and its tentacles are deepest in media. Blind e-auctions and a general policy of letting agencies know the cheapest bid will win have stripped out nearly all the visible profit from media. It's no surprise, then, that agencies try to claw some back through third-party tech deals and publisher rebates.
That has been much discussed in 2016, and it's true that brands have a reason to complain when their budget is more influenced by the media agency's rebate requirements than their own brand-building criteria. However, the area this is already spilling into is only just being uncovered by the Department of Justice in America. Trust me, this is happening in the UK too.
In the above model we have a bunch of large media agencies who have had prices screwed to the floor, although they have no idea what price media will cost in a year or two. Parting of hedging their bets, then, has been to win business for sister agencies, typically in creative. Often it is just forced on brands, but where they insist on opening up projects to rivals, the big agency will get in bids and then -- guess what -- the sister agency comes in with just the right price to win the deal.
Knowing many people as I do in the smaller, independent sector, I would never defend this. There are too many decent people trying to make an honest living against the odds who are hurt by it. However, if the brands think this is all just a matter of greedy agencies adding to transparency woes out of malice and an insatiable thirst to grow the bottom line, they are missing a point or at least part of it.
If brands continue to turn everything into price, if they continue to screw cost so tightly -- particularly through the mega money media deals -- then they would be stupid not to realise there will be mission creep. Big agencies aren't going to be cut to the bone without trying to make a little action for themselves through rebates and third-party costs, as well as -- and this is the issue of the day -- ensuring that another arm of the business wins other work to grow billings and profitability.
It's not action that can be automatically completely forgiven. But it can be easily explained, and when it is, the brands have a lot to answer for. As for the poor old independent, smaller agencies, they are responsible for virtually none of this, yet they are the main victim. If brands can't see how reducing everything to cost at first saps the big agencies but then emboldens them to eat the independents' lunch, then they are dumber than anyone could have ever thought. If they continue, there will be no choice when deals are renegotiated. Just the big guys they have ground into the ground who have paid it forward by grinding down or buying smaller agencies in return.
Let's hope, then, that 2017 is the year where brands focus on value and on ROI than simply cost. Only they can do this. It can't be done for them.
Sean Hargrave is MediaPost's London Editor. You can reach him at seanhargrave@btinternet.com.
"It's no surprise, then, that agencies try to claw some back through third-party tech deals and publisher rebates."
Or, Sean... or agencies are so visibly raking in significant profits as demonstrated in their very public shareholder disclosures and quarterly reports, as well as their reported payments and bonuses for their top dogs, that procurement departments and marketers in general felt that there was a lot of "fat" in what they were paying the agencies and so THEY clawed some back.
It is very hard to say what is the chicken and what is the egg in this debate. In your narrative, agencies got screwed out of so much income they simply had to find alternative income. OR... agencies were making so much money, and it was so blatantly on display that marketers knew they could probably dial some of what they were paying down.
Both scenarios have validity. What does NOT have validity is that ,whether you are chicken or egg, you decide it is OK to run shady, complicated, made-to-obscure schemes. And THAT is what is at the heart of the trust debate.
This is a well thought-out and written piece. The issues are systemic and blame can be assigned to both agencies and advertisers, but finger pointing likely won't solve the problem. Obviously, illegal actions or contractual violations should be punished, though I do agree with Sean that the brands are reaping what they sow.
Not every advertiser is the same, but as a cohort, advertisers are disingenuous when referring to transparency as "open and collaborative" when the sole objective is really to control (and minimize) agency margins.
Ultimately, both parties will be better off if the cost of services are based on the value proposed and delivered, instead of the basing costs on the inner workings of how an agency operates and the methods it uses to obtains results. If the existing model doesn't change, the cat and mouse game will certainly continue.
One of the main reasons why major agency clients have allowed their "procurement" people---who are nothing more than accountants in most cases---- to-squeeze the agengy media buying function down to the bone is the plain and simple fact that the top brass at these advertisers regard media as a boring numbers crunching exercise and see no reason to bother themselves with learning what is actually going on in media and what the agency really does for them. So why not let their own numbers crunchers crunch the agency numbers crunchers? Is this stupid. You bet it is, but it's not going to change until the agency media planners and buyers begin to depart from their often slavish reliance on numbers and start to take chances by involving themselves in the entire marketing and advertising function---not just CPMs, GRPs, reach and frequency, etc. In other words, come up with really new ideas on media mixes or scheduling or targeting and campaign until clients consider testing these ideas. And when they are successful, promote the concepts like the "creatives" promote their successes. Will every idea work? Not likely. But some will and if these become prototypes for new thinking that demonstrably helps a client, the big wigs will start to take notice. Numbers are a tool, they are not the end---just the means.
Great comments, guys. I think there is obviously wrong on all sides and as the agencies have taken such a drumming over the year on transparency, I thought it would be interesting to put forward another view I keep hearing in adland, even from the intermediates who help broker these mega media deals.
i think the crux is that, yes, they've been making money and so procurement are trying to reduce the margin but most people are telling me this is now getting to the point of being counter productive. Any idiot can win a big media deal but then, with reduced budget, they have to buy cheap media, which may not always be what would work best for the client, nor what they are used to.
It's also a bet on the future price of media, so they're taking a huge risk, so it's back to some poor old habits which muddy the transparency waters.
I guess my point is that if brands are hoping for greater transparency, screwing agencies on price isn't the best way forward because it simply encourages more shady practices.