What does transparency mean in agency-client relationship?

DUBAI: Every year, advertisers spend millions of dollars on their advertising and marketing activities through their media agencies. This makes the relationship between an advertiser and agency hugely important.

As the advertising ecosystem grows more complex, so does the relationship, with transparency increasingly playing a greater role.

Highlighting the importance of transparency in the agency-client relationship, the US-based Association of National Advertisers (ANA) has updated its media agency contract template to include new provisions and revised definitions.

The growing importance of transparency, in both media buying and agency-client relationships, has led to the growth of independent auditors and compliance specialists.

Arab News spoke to Stewart Morrison, managing director for the Middle East and Africa (MEA) of FirmDecisions, an independent global marketing contract compliance specialist, to learn more about the meaning and evolution of transparency in an increasingly complex advertising environment.

Firstly, what is meant by the term transparency?

Transparency from an advertiser point of view is the full disclosure of where an agency charged fees, expenses, how it calculated and reimbursed rebates and discounts, provided detailed receipts and evidence of what an advertiser’s money was spent on, and finally prove that the media purchased actually went live.

This includes, amongst others, who the marketing and media suppliers and subcontracted intermediary companies are – both direct and third parties – in providing services to an advertiser under the terms of an advertiser-agency contract.

Importantly, it also includes clearly identifying the fees charged by each intermediary company, any discounts or rebates received in return, monies held but not paid out by the agency, and reconciling this with the agreed deliverables under the terms of the contract.

In the conversation about client-agency transparency, the focus is usually on clients getting their money's worth.

How are agencies affected by the lack of transparency – especially independent agencies that often complain of not being paid fairly and/or not being paid on time?

There are two issues here. First, receiving fair compensation for work.

The problem in the advertising industry is threefold: Advertisers being unclear of the full details of the scope of work from the outset; agencies providing proposals with opaque costs and lacking clarity of deliverables even when the scope is clear; and sometimes the agency model or commercial model in place does not suit the advertiser’s scope and needs.

The challenge is reconciling what advertisers want to achieve and their budget with the agency’s interpretation of resources and costs required to do it.

Secondly, being paid in a timely manner. This is arguably a large problem not only in the Middle East and North Africa (MENA) region but globally.

Advertisers are increasingly pressuring agencies to take longer payment terms from 45 days to 120 days and sometimes longer to win contracts; in effect, asking agencies to bankroll their advertising while at the same time improving their own cashflow.

How do you ensure transparency in the digital media ecosystem especially with regard to programmatic media buying and social media advertising?

To understand the advertiser’s digital ecosystem, the advertiser should undertake a contract compliance audit on their agency providing the programmatic service and managing contracts with social media platforms.

This will provide the advertiser with an understanding of which companies are in their ecosystem and what they cost them. There are 7,000-plus intermediary companies involved in the provision of programmatic buying all of which charge fees.

Only by auditing can advertisers identify the weaknesses in their contracts, ensure full disclosure of the intermediaries and fees being charged and renegotiate to ensure rigor in the contracts they sign. This also applies to being able to see the contracts agreed between the agency and social media platforms.

How has the growth and evolution of big tech companies affected transparency as well as the agency-client relationship since clients can directly work with the likes of Facebook, Google, etc.?

The decision by advertisers to buy directly from the big tech companies is one of company choice and internal capability. In our experience, we are seeing both direct deals between advertisers and big tech companies as well as spends via agencies.

Certainly, spend that does not go via the agency is a loss of revenue for the agency and these (social media) companies are a significant percentage of the advertisers’ digital ad spend. However, it does require the advertiser to be capable and knowledgeable.

So, the decision to go direct versus via an agency is not necessarily a simple one, although big tech is certainly trying to make it easier for advertisers to work direct.

Advertisers often also do direct deals with these big tech companies, so they have transparency on costs but still use their agencies to manage the execution of these deals and ensure KPIs (key performance indicators) are met.

How have marketing activities and budgets, and consequently agency-client relationships, been affected by the coronavirus disease (COVID-19) pandemic?

There have been a number of pressures put on both advertisers and agencies in recent years and arguably this began before the pandemic – the pandemic has just accelerated this.

On the advertiser side, there is no doubt the pandemic has led to the loss of jobs in MENA, which in turn had a significant impact on consumer buying power. This naturally leads to reduction in revenue for advertisers, which means reduced marketing budgets.

The MENA region was forecast to experience an advertising spend cut by 19 percent in 2020 according to information and analytics company WARC – an estimated loss of approximately $600 million.

As a knock-on effect of these advertising budget cuts, agencies naturally feel the pinch on their revenue.

So, there is considerable pressure on the agency-advertiser relationships. Advertisers will be reassessing their priority campaigns and putting money behind those that they forecast will yield strong returns.

As part of this process, they will also be reassessing their agency needs, operating models, and commercial models to determine what type of agency support they need. Reassessing core markets, number of campaigns, target consumers and media plans will impact this relationship.

Some advertisers will take an evolutionary approach to their agency relationships, choosing to renegotiate their existing contracts as they search for savings and efficiencies.

Other advertisers will go much further than this and use it as an opportunity to start afresh, rethink their agency requirements, and go to pitch, with 2021/2022 looking set to be a year when many advertiser accounts change hands.

What are the specific challenges in the MENA region and the potential solutions?

MENA is unique for large regional advertisers in that the revenue is derived from 20-plus markets and therefore the advertising budget gets spread thin across these markets.

Additionally, in the Gulf Cooperation Council (GCC) states, there is a significant expatriate population consuming media from their home nations. So, marketing directors have increasing challenges in determining the most optimal media channels.

With increasingly educated consumers, creative content needs to resonate with local consumers, as they increasingly demand to be communicated to in their own dialect with content that is meaningful.

We observe low levels of agency auditing taking place by local advertisers in the region and while the smartest local advertisers are beginning to do this, it is not yet on a par with the global multinationals.

It is also important to enforce the results of the audit to maintain trust and build a partnership. Trust is crucial to the relationship in selecting, retaining, and growing business with agencies.

An advertiser going to pitch is disruptive to both the advertiser and the agency business. It is far better to understand the issues and work through the misunderstandings of scope and recover erroneous costs by both parties.

This article was featured in Arab News.