Have media rebates and kick-backs killed media neutral planning?
Amid the ongoing industry debate about media rebates and transparency in media agencies, Stephen Wright asks is it still possible to have neutral media planning?
With the increasing choice of media channels available to marketers, there has been a growing necessity to obtain media-neutral advice on the most effective way to select and buy access to the media channels.
But there are changes happening, often beneath the surface that is making the concept of media neutrality increasingly more difficult to achieve.
These include:
- Traditional agency remuneration
- Media agency trading desks
- Media rebates, commissions and incentives
- Media agencies as media owners
Lets look at these individually. But first lets review the process we currently use.
The media process
At the simplest level there are three basic stages – strategy, planning and trading for all media.
The strategy stage is about drawing on research, data and insights to choose the channels and the investment level required to deliver the objectives.
Planning is about implementing the strategy with the choice of specific media environment that will become the basis of the media trading.
The final stage is the negotiation and the actual transaction, be that manual or automated through programmatic buying.
For many marketers these services are provided by a media agency, while others have separated strategy from the planning and trading. But we have recently seen a trend back to a single-agency solution for a number of reasons including:
- Convenience of managing a single media agency
- Consolidation to reduce media agency costs
- The need to have strategy informed by trading opportunities
Therefore the end-to-end media agency appears to be the prevailing model.
Traditional agency remuneration
We have written previously about the race to zero in agency remuneration and the continuing downward pressure on agency costs. But in media specifically, the media agency is remunerated not based on the value of the media investment or the value created, but the resource cost of providing these service.
Simply paying the agency for their resources removes the incentive to automate and become more efficient and means that revenue growth comes from simply doing more rather than generating greater value.
If the agency is to generate greater revenue from their client they need to either encourage greater spend through promoting media owner opportunities and the bigger the better or taking on more of the responsibilities of other agencies.
Both are increasingly common. But becoming an effective sales representative for the media owner is counter to media neutrality.
Media agency trading desks
Trading desks and demand side platforms have been discussed extensively previously, but there is a concern held by many advertisers about the lack of transparency and the lack of suitable benchmarking.
The other concern is that the increased use of programmatic buying is not delivering the efficiency savings to the advertiser and it is increasingly difficult to ensure accountability in the placement and delivery of the advertising.
This perceived lack of transparency and accountability leaves many advertisers concerned it is impacting on the impartiality of the process of selecting and buying media properties.
Media rebates, commissions and incentives
All of this is exacerbated by the reported trend of media agencies effectively subsiding their fees by obtaining income from the media owners in the form of rebates, commissions and incentives. This was first highlighted by the article in Mumbrella by deputy editor Nic Christensen and in my subsequent post on the topic.
The relationship between the media agency and the media owner has become commercialised in a way that acts in conflict with media neutrality. The agencies participating in this behaviour have financial incentives to influence the media spend to favour the media owners offering the largest incentives or to meet pre-agreed commitments.
And this is not an arrangement that can be identified with a financial audit.
Media agencies as media owners
With the announcement of the merger between Publicis and Ominicom last year, there was much discussion about the benefits and implications. One that was highlighted was that the size of the merged entity gave them the mass to either create or acquire major media holding or create media platforms in the digital space.
If agency holding companies become media owners, this significantly compromises their media neutrality.
Achieving media neutrality
The first question you need to consider is if media neutrality is important to you? What do you see as the specific benefits of achieving media neutrality? It could be that having the media trading, planning and strategy combined is delivering opportunistic advantages to your media and comms. This could be through the delivery of money-can’t-buy sponsorships or integrated media solutions.
But if you do want to achieve media neutrality, the first step is to separate channel planning and media strategy from media planning and buying. The media strategy is developed to deliver specific objectives using any and all available data and analytics. It is also important that the strategy development is separated from the implementation in all financial aspects. And it is also important to remunerate the strategy development based on performance or value and not cost.
To ensure media neutrality is delivered without compromising the trading opportunities in the market you then need to have the media strategy agency manage and oversee the media implementation planning and the trading as well.
The media planning and trading agency is incentivised on buying efficiency and the strategy agency is paid on media effectiveness. In this way the two work in cooperation with the emphasis and focus on effectiveness and then the implementation optimised to be as efficient as possible.
In this way you deliver media neutrality in the strategy and channel selection, without compromising the efficiencies of the dynamic trading market.
Stephen Wright is business director at TrinityP3 and a former new business director for Starcom Mediavest. This article firs appeared on the Trinity P3 blog.
An increasing number of clients are aware of all of the various forms of income an agency receives in addition to the fee a client pays. The next couple of years will show us if they are comfortable with these practices occurring or not.
A big challenge to agencies will be the way data analytics shows differences in audiences that to now have all looked the same when using very broad demographic descriptors as a basis to trade – similarities lead to commoditization lead to rebates and kickbacks to entice business.
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when competitors in an industry are for all intents and purposes the same – same tools, same data, same suppliers – it will always drive down the price to unsustainable levels which will force these companies to find other, less value adding, means to survive.
Separating the two disciplines of thinking and transacting is good in theory – but it ultimately will suffer from the same issue … the competitors in both spaces are too homogenous. The crazy part is it is most likely that clients are in the best position to understand consumers better than anyone given their closeness to all the different elements of the business – but choose to under invest in the area and outsource their marketing comms to the lowest bidder … creating even more uniformity (as then you have competitors in categories like FMCG, auto etc using the exact same tools/channels/tactics/practices)
Not sure how you can fix it unless boards/senior management begin to view marketing as true investment/asset creation not an expense.
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There is a massive assumption here that media agencies do not work in the best interests of their clients. You are implying media agencies push solutions onto clients that derive more revenue at the expense of client goals. This is offensive to all the good people trying to forever deliver more value to clients with less remuneration year on year.
As an employee of a media agency i can tell you this view is just hogwash.
What happens is:
1) Once we have strategic direction, We propose media channel plans to clients, and they are debated, redone, redebated and changed about 7 times before signoff. Nothing is “pushed”, and the client is certainly not a silent participant. At the end of the day the client signs off on the media plans, and gets what they want after listening to our recommendations. Half the time times clients agree with our advice, and the other half of the time they ignore it and dictate their own changes to our recommendations.
2) Media plans are passed onto the implementation planners & media buyers for the actual trading transactions.
3) All results are audited by media auditors to asses how we did against industry benchmarks. (How media auditors know what industry benchmarks are when all client buys are confidential is beyond me).
So given the above is what’s actually happening on the ground, how the hell can we be accused of pushing particular media channels? We get paid a fixed fee (which decreases every year, thanks to media consultants), all plans are challenged and changed by clients, and all results are again audited by media auditors with their made-up cost pools.
What a joke.
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@Hmmm: are you saying agencies don’t receive any sort of kickback from vendors for meeting and/or exceeding certain spend thresholds?
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@hmmm I think Stephen’s article clearly outlines that the assumption media agencies do not act in the best interest of their clients is not ‘massive’ but rational. If the big agencies out there dedicated as much strategic nous and creativity to their clients’ campaigns as they do to thinking up ways to gouge money from them while scoring vendor kickbacks our industry would be the envy of all others..
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Two things to add here:
* A lot of the need to make deals with media owners is in order to get the ridiculous year on year savings clients demand. Media neutrality is fine until we have to get 20 off TV – how can you do that unless you pick a couple, or even just one supplier?
* If clients were happy to pay fairly for the services they receive there would be less pressure to monetise elsewhere.
probably naive, but I don’t think that stops it being true.
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@Shamma – not in my agency. For us all media rebates are contractually passed onto the client, and we get paid a fee for our services. But even if there was some sort of kick-back scheme in order to hit some volume target – this is irrelevant as the client is actively engaged in challenging and changing media channels on every media plan.
Maybe there are some naïve clients out there in some agencies who blindly sign off on anything a media agency recommends to them.. perhaps in that situation there is a potential for agencies to “push” particular media. But I think you will find most clients are a lot smarter than what you think.
@Rich – People in media agencies are not coming into work every day trying to work out new ways to gouge money from clients. We’re too flat out meeting client demands with our limited resources, trust me. You may have experienced a rogue agency / manager / or something, but please don’t slur all the good people who work hard to please our clients.
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As an online media network owner, i constantly hear from agencies that they can’t allocate budget to anyone outside of the top two as they are behind their spend commitments and therefore they need to allocate as much budget in order to achieve their annual kick backs.
I appreciate this may not be the case for all agencies but it is very obvious to anyone that operates in this space that these rebates drive planning decisions, not what is right for the client.
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@hmmm I’m not saying agencies aren’t full of good people working hard within their means to please their clients (I happen to work in a media agency too).
However, there are some big question marks over the way agencies supplement their explicit financial relationships with clients and vendors.
This may not be an important factor in day-to-day client servicing, and it probably makes a lot of jobs easier, however longer term it erodes the ability for an agency to be trusted to represent the clients interests above their own in the media marketplace.
So we’ll have a situation where smart clients probably don’t trust their media agency, leading to more questioning and challenging of plans you earnestly compose and revise on a daily basis..
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Can someone update me as to when media agencies stopped rebating the media commission directly to the client, or if the client requests it to the creative agency (less paperwork for them). Or do things still work that way and some people are talking out of their (_!_).
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@JG Things do indeed still work that way JG. The issue is not about the transparent 10% but the other rebates and commissions beyond that received by the Agency or Agency group. These aren’t necessarily client specific which is why they will never be picked up by an external audit but rest assured they do exist. So no JG I am not talking out of my (_!_)
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It is also exasperated by advertisers wanting PBRs included with their agreements with the media agencies. Show me a PBR and then watch how internal behaviours change. Watch how the players kick towards the goal posts often at the cost of other team and external players. Look out for the compromises that take place to kick those PBR goals and the expense that is incurred in other areas of media management. The ultimate expense is that to the marketer who thought they were clever by negotiating PBRs in the first place…………..it makes you irk and your skin to crawl.
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