If you want transparency then maybe you’re going to have to pay for it
Recent weeks have seen extensive debate regarding the relationship between agencies and advertisers. Mumbrella editor Alex Hayes argues that clients must take some responsibility for the state the industry finds itself in.
The revelations of the last couple of days around Mediacom’s misreporting of campaign performance will have clients across the industry asking tough questions of their own agencies about what is happening with their own business.
But before auditors become the only winners, it is worth examining why things are going wrong.
Pejic
Firstly, good on GroupM chairman John Steedman and Mediacom boss Mark Pejic for conducting a transparent audit and going public on the results. Although this may not be much consolation in the face of what seems likely to be a battle to retain IAG which appears as if it may call a pitch.
And maybe pitches are part of the problem. For the typical client, there’s little to choose between the major media agencies at present. They all do the basics well, efficiently booking spots and dots, and throwing in programmatic buys. Most now will even run your social media, content marketing or create your ads for you if that’s what you want.
For most clients it eventually simply comes down to the question of price.
And when all the groups are buying at (roughly) the same rates from media vendors, value banks come into play because this will define how much of a discount they can offer the client,
A widely circulated recent rumour is of the agency that offered 90 per cent discounts to secure a multinational giant, but was then told to get stuffed by media owners when they tried to deliver on the promise. Short of going back to the clients and admitting they might have overreached, they are now forced to find the value somewhere else.
In effect take a bath on the account, or dig deep into the value banks built up via the marketing dollars of other clients.
Of course price isn’t just an issue in media agencies.
A doozy of a creative pitch involved thirteen agencies scrapping for a few tasty bits of business. Almost all of those agencies asked the client whether they were in a serious pitch, to make sure they weren’t wasting their time. They were assured they were.
The end of the protracted process saw half a dozen agencies still in contention, and three agencies given the nod they were all but a shoe-in.
Then global procurement stepped in. Suddenly the long term incumbent was given a chance to make a last ditch offer to consolidate the business, and they made an offer the client couldn’t refuse.
A question they almost certainly didn’t ask was whether for that reduced fee level, they’d get anyone senior to work on the account. Of course they won’t.
So suddenly we’re thrust into a situation where juniors across the industry are having more and more responsibility thrust on them, because their agencies can’t afford to staff accounts properly.
During that hangout, which you can see below, Morgan made some very pertinent points (his comments can be listened to from 11minutes into the hangout), particularly around “unscrupulous” people in the industry squeezing these margins.
https://www.youtube.com/watch?v=QU4USrj73pw
So why do agencies take it? Scale. Scale allows agencies of all guises to wield bulk and intimidate suppliers and vendors, so it can be tempting to go all out to lure that multinational client in, then try to seduce them with extra services which are the real profit centres not included in the original agreement. Never mind it might not be the best thing for the client.
Nikki Lawson, the chief marketer of Yum! Brands, one of the advertisers caught up in the Mediacom TV reporting furore, recognised that the company might have been heaping pressure on the agency a little too much.
She told me Yum! Brands is reviewing the way it structures its arrangements with Mediacom. If the agency can make a margin, the staff are less likely to make those errors because they are overworked or not properly supervised.
She said: “If people are feeling they can’t deliver our targets within the structure then there’s an onus managerially on clients and agencies to make sure its structured to work.
“It may be they think they can’t make it work because the targets are unrealistic for what they’re looking for, particularly with junior people on them.”
Much as some would love to argue with it, agencies aren’t business partners to their clients. Not in the truest sense of the word. They are suppliers on a severable and negotiable contract – as the name suggests, agents acting on their behalf.
If you don’t pay your cleaner enough to get by and come home one day to find the family silver has been cleared out you might take a portion of the blame.
It’s little wonder some agencies – and I’m not talking about Mediacom here – are turning to less than transparent means to turn a buck. But if there’s one thing the Mediacom situation has shown us, there are no winners.
So for clients, next time you’re leaning on your agency to reduce costs, perhaps pause for a minute and ask yourself whether it is in the long term best interests of your own business?
Because by paying that little bit extra you might get people who are able do something great for you.
Alex Hayes is editor of Mumbrella
In depth:
- TV misreporting issues explained
- GroupM’s value banks admissions and what they mean
- Marketers seek compensation over misreporting as IAG mulls review
- How GroupM is tightening its practices
Opinion:
Should be printed off and stapled to every client and procurement person’s desk.
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.Well said … or stapled to their forehead.
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so let me get the gist of this article straight:
– we advertisers have to err on the side of overpaying media agencies
– because they are commodity suppliers
– who can’t articulate their differentation
– and who can’t articulate their value to our business
– otherwise, we only have ourselves to blame if they lie to us?
if so, it’s another indication of how backward and anachronistic adland is compared with the real business world
can you imagine a law firm mounting this argument to a corporate client?
“look, we know we overbill you with make-believe hours, but you’ve got to see it from our point of view – it’s the only way we can sustain our $500k salaries and 1:1 PA to partner ratio. You don’t expect us to drop off our own dry cleaning, do you?”
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So Sammy let me get this right.
– client demands 90 day payment terms
– media terms are 45 days
– agency terms are 30 days
– agency ‘wins’ with prompt payers, loses with slow payers
– agency bankrupt with 90 day terms
I suppose it gives more time to polish your boots after licking them for you.
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Completely agree with Sammy, a few less yachts, ridiculously expensive parties and subsidised cafes, bars etc etc etc. could completely revolutionise this outdated business model. This has been a long time coming and I hope at last we may see some change to an industry that is filled with ego, self-interest and entitlement not to mention the moral compass of a bunch of sociopaths, constantly exploiting the power and responsibility given to them by their clients.
I noticed the very accurate use of the word intimidate, how can you expect anyone to consider for a second intimidators and liars are going to suddenly do the right thing with more money? Because more money cures bad character? If they can’t be trusted with a little, imagine what they’ll do with a lot. TIme to innovate (lawfully) or die. nb arbitrage does not count for innovation in 2015…
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A few less yachts? Are you kidding? I’ve sold all the others off and am down to my last one.
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@Grow up – in your free time between rants, I’d love it if you could point me in the direction of either the yachts or the subsidised bar. In particular the ones I’ve bever seen before in fifteen years working in five agencies in three countries in two hemispheres. Thanks.
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The question is, why does the agency offer a 90 per cent discount if they do not know they can secure this from the media owner and if it is going to put them out of business? Sounds like they bit off more than they could chew and are incredibly naive. Not sure why that is the client’s fault.
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Apart from adding middle costs, what does an agency do? There is a cozy arrangement that stops clients from doing their own placement and buying.
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Patrick, was your question posed to show how little you understand the industry?
Oh, hang on. Your next statement confirms that.
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No industry had a right to exist. Clients can’t force an agency to accept a deal. If a car dealer said they had to fiddle the figures to make money because customers ‘forced’ them to make a loss making deal you’d laugh straight to their face. Mature industries compete aggressively above their marginal cost line. If agencies want to gamble on volumes making up for lost margin, their success or failure is completely on them.
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So the value bank as an industry rumour has been proven. What about the kick-backs to an agency guised as the agency training the publisher? The clients money is being used to negotiate a kick back to the agency. Isn’t this form of activity illegal? I read a post this week about calling the ACCC. I think it is a police matter. Come on mumbrella – dig into it and help clean up the industry. There is so much good in this industry from new tech, brave clients, great creative and the it all gets a bad rap due to these agency holding groups bullying publishers into providing a kick back but also other publishers can’t compete because the money is tied up. That part is a ACCC matter.
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