Articles

Like Marriage, Great Client – Agency Relationships need Constant Vigilance

Stephen Broderick, CEO

Two years ago, we published an article on the secrets of great partnerships between advertisers and media agencies. Since then, plenty has changed in the dynamics of this critical relationship, so now is a good time for Stephen Broderick – Global CEO of FirmDecisions, Ebiquity’s compliance auditing business – to update our advice.

Over recent years, it is clear that trust between media agencies and advertisers has eroded. Across the world, the onward march of programmatic buying and decreased transparency have done nothing to help. Recent examples of the causes behind the erosion in trust include:

1 – The current controversies in Australia (see commentary below) and media rebates in the US have kept the topic of accountability high on advertisers’ concerns.

2– A former senior agency finance executive has suggested that, despite the common view that the market is relatively transparent, kick-backs have been an established part of the market for many years. Following further, very recent revelations, it is expected that this will be a hotly-debated subject at the ANA Financial Management Conference at the end of April 2015.

The advent and growing dominance of Automated Trading Desks (ATDs) had made agency paper trails more opaque than ever, and, with Ebiquity CEOs estimating that between 12 and 15 percent of all advertising inventory will be traded programmatically by the end of 2015, the odds are stacked increasingly against harmonious client- agency relationships.

On one level, clients only have themselves to blame, as agencies enticed them into signing up for apparently keenly-priced digital deals on the proviso that the clients signed away their audit rights, excluding specified media from audit. True transparency requires a full audit of the composition of media pricing and the rebate chain at agency and group level, yet Ebiquity data suggests that today as much as 50 percent of digital revenue remains in agency groups as revenue and/or via mark- ups during the purchase. While some of this is necessary – for adserving and technical costs – a lack of insight into the purchasing trail has meant many advertisers are fundamentally unclear how their money is being spent and managed by agencies; agencies are doing little to clear muddy waters.

Consolidation in the agency world into fewer, bigger, and – critically – listed groups has created an oligarchy of media agency powerplayers who have their own shareholders to satisfy and targets to meet. The net result of consolidation is that even major advertisers like multi-brand FMCGs are only a small part of a GroupM or Vivaki portfolio. So at a time when agency margins have increased as much as they have as a result of non-transparent media trading and agency rebates, it’s time advertisers asserted themselves.

Here’s our six-point plan for better client-agency relationships:

  •   Have a fair and clear contract – based on your own and not your agency’s template – and enforce it, with regular checks
  •   Work with industry bodies including the WFA and ISBA to write better contracts
  •   Insist on 100 percent visibility of an audit
  •   Pay your agency a fair fee, with clear KPIs
  •   Don’t make your relationship about the cheapest media
  •   Consider doing deals direct with media owners, as well as with the major platforms such as Google or Facebook

In 2012, we talked about client-agency relationships as arranged marriages needing a good marriage contract. As negotiations have got tougher in the intervening period, it’s become increasingly important for advertisers and agencies to sign and enforce the equivalent of pre-nuptial agreements, and indeed that exact language is starting to be used in pitches; clients are now routinely encouraged to get agency agreement on legal and commercial terms as a precondition of agencies getting on the pitch list.

And while what’s happening in Asia, Australia, and the Americas is top of mind right now, it’s important to remember that these issues aren’t new – they’re just manifesting themselves in new ways because of the emerging trading ecosystem that programmatic brings with it. There were similar issues around IPG as long ago as 2005, as reported in Advertising Age. In the intervening time, global advertisers who have invested the time and effort to craft, sign, and have agencies stick to fair, clear, and binding contracts – often working in partnership with third parties such as FirmDecisions – are those that have not been affected.

Stephen Broderick is Global CEO of FirmDecisions

Visit FirmDecisions website.


The view from Australia


Chairman of Ebiquity Asia Pacific , Eric Faulkner,  gives his perspective on the value pots issue in Australia.

I loved the line in a recent blog article from a hypothetical CMO, when talking about agency pitches: “Meanwhile, for anyone wondering about the race to the bottom, I reckon you hit it about three years ago. Not that anyone seemed to notice.”

Our hypothetical CMO might have added that “… this year’s media buy is 20 percent cheaper than last year’s, and that was 20 percent cheaper than the year before. So next year’s will be free. And the agency has dropped their fee to nothing already, so they’ll be paying us to handle the business next year. Not that there’s much to handle, as all the ads have appeared after midnight, and no one knows our brands or buys our products anymore. Which is just as well because the retailers take 110 percent of what we earn anyway. I wonder what the surf’s like today?”

Clients don’t want to distrust or hate their media agencies. They entrust them with much confidential information about their business. They want a constructive, collaborative, and professional working relationship.

But pressure is created from the beginning of the relationship. Tough and competitive price negotiations take place. Both the fee price and the media cost price are pushed to the limit, and sometimes beyond. And this creates the opportunity for the events that occurred at MediaCom Australia during the past two years. The behavior in the Australian market was not picked up earlier because of the assumption of apparent honesty. Nobody wants to assume that a key supplier will not tell you the truth. But most of us carry out spot checks to reassure ourselves.

So, it might help to clarify the difference between what Ebiquity’s media consultants and what FirmDecisions’ experts do. The principal role for Ebiquity’s media consultants is to help clients and their agencies drive continual improvement. It is based on benchmarking and comparisons, not auditing. The principal role of FirmDecisions is to ensure that contractual agreements, particularly as to the financial terms, have been honored.

I offer you a three-point plan for continual improvement:

1– Take an active interest in the benchmarking sessions. If they don’t cover what you need, or they are not clear enough, please say so.
2–  Ask tough questions – of your agency, of your consultant, and of your marketing team.
3– If in doubt, ask a genuinely independent media consultant any advertising or media-related question.