Maximising marketing agency contracts
The world of media and marketing is increasingly complex – and increasingly valuable. Within Africa, Nigeria is one of the largest advertising markets with advertising revenue estimated to have reached $483m in 2020.
With this level of investment shared across different media comes multiple agency relationships and additional intermediaries to manage. Of the $483m overall investment, the most used media are TV – which dominates with $177m, out of home on $131m and digital at $99m. By 2021, ad revenue is expected to grow another 5-6%.
So, while agency contracts don’t necessarily rank as the most exciting part of a marketer’s life, they are an essential part. And the past year and a half have only added to that. The Covid pandemic has spanned almost every area of business and the marketing industry has had to contend with significant changes to consumer habits that have impacted brands in multiple ways.
Marketers have had to re-evaluate their strategies and the best media channels to reach customers; as the pandemic has pushed more people online, brands have had to move to a digital-first mindset. And with that has been a need to rethink the brand-agency contracts – to change the scope and remuneration models while delivering increased transparency and efficiency – to ensure those marketing dollars are spent in the best possible way.
This means ever closer scrutiny of agency agreements – to monitor fees, rebates and mitigate against ad fraud. In a recent study we carried out in the US, we found that almost 63% of brands planned to review their agency capabilities in the next 12 months and 42% planned to audit their agency contracts for compliance and contractual terms.
One of the biggest challenges is that the detail, quality and breadth of these agreements varies considerably. From two brief pages to hundred-page documents, marketing agency contracts come in many forms and are often largely forgotten about once they have been signed. Everyone gets on with their jobs and forgets refer to the contract.
But by reviewing and auditing the agreements, brands can keep better tabs on the compliance of ongoing work. This can lead to agency pitches and new and more robust contractual arrangements being put in place – ensuring greater accountability, efficiency, performance-based remuneration and spend transparency.
Greater transparency and validation are central to this process. With Google starting its Google partners program and out of home typically fragmented across sites operated by multiple players, brands are now looking to ensure that advertising ran across media as stated in the marketing plans. In the days when brands were only dealing with TV slots and newspaper and magazine print ads, knowing the ad was reaching people was never a consideration. But with digital media, there is the added layer of having to ensure that the ad was placed on a genuine site, viewed by real people.
The combination of this and the general fast pace of change in the advertising industry means we are increasingly seeing brands using audits to identify areas of weakness in their contracts and obtain objective information about how their media, creative and merchandising agencies have fulfilled their contractual obligations.
So, for brands in Nigeria there are three areas they should consider from the outset:
- Are the scopes of work and operational models in my marketing agency contracts fit for purpose? Do they have a clear scope, the right level of fees being paid and the right level of talent in place with the KPIs to measure performance?
- Does my contract give me good enough effectiveness and efficiency with full disclosure of media supply chain costs, talent cost and volume rebate deals?
- Is my contract flexible enough to adapt to my brand’s changing needs and enable me to audit?
Once these broader aspects have been addressed, it is easier to drill down into specifics. For instance, checking the detail of remuneration and bonus schemes so that all payments are clear and accounted for. The contract should show how any rewards are measured and when they will be paid.
Similarly rebates, discounts and AVBs (agency volume bonus) should be set out in all the agreements. These payments should be passed back to the client – even when they are made to an agency group or associated companies of an agency. With the rise of digital media, there has been an associated rise in rebates – either as cash or free inventory – so if these aren’t clearly set out in the contract, advertisers can lose out.
To keep on top of all the aspects above, it is vital to make sure contracts are reviewed annually. The media landscape is constantly evolving, and the contract detail needs to reflect that, or it will quickly become outdated.
There also needs to be an option to amend the contract to reflect any changes in the scope of work and fees – such as expanding the channels or regions the agency works in for the client. The people writing and agreeing the contract may change, or not be so involved in the day to day running of the account, so clearly documented agreements are essential to avoid misunderstandings.
Change is an inevitable part of the marketing industry given the proliferation of new media channels and global tech disruption. In addition, considering the speed of change in Nigeria, brands need to make sure they have marketing contracts that give them complete transparency and knowledge. Trust and clarity are vital for all business relationships and with auditing, marketing agency relationships are more flexible, transparent and able to adapt their scope and fees to meet the changing circumstances – which benefits everyone.
Featured in The News Nigeria.