Time to expand the audit trail as investment in POS grows

Marketing budgets have traditionally been dominated by advertising, both by the creative agencies that make the ads and the media agencies that buy the space where the ads appear. As a result, many advertisers now run regular compliance audits in these areas to ensure that their creative and media agency partners are delivering against their contractual obligations. With brands keen to regulate and hold agency performance to account, it’s natural that most audits have concentrated on where investment is greatest.

Thanks to advertisers’ focus on contract compliance in media and creative, agency performance has improved in these areas and frameworks have been put in place. As they invest more in an ever-greater array of marketing disciplines, it’s time for brands to assess other areas of spend that are complex, growing in importance, but are typically audited much less often. Audit activities should mirror the scale of investment.

The rise of point of sale

One area of marketing spend that is taking an increasing share of budgets is point of sale (POS). This is especially important in a range of different categories, from consumer goods to food service and hotels, as well as brands that operate physical stores and branches. POS activities have matured significantly in recent years. Historically, POS was created and executed market-by-market and produced locally. Many of the players were very ‘single item’ focused, meaning that the volume, complexity, logistics, and timeframes were simple.

Today, many below-the-line (BTL) and POS agencies provide a much broader range of services, generating larger contracts and assignments that are often multi-market or truly global. These are often outsourced to related, third-party contractors, often based in China. This can mean multiple third parties, significant shipping costs, long storage, additional production and studio costs, and more and complex tax and customs regimes to negotiate. By contrast, POS and BTL agencies are often smaller, independent operators. While this can mean more flexibility and better service, smaller agencies often operate with less rigour financially and with reduced transparency of how every dollar, pound, or euro is spent.

It all starts with the contract

Strong, fair, and transparent relationships with agencies of every discipline depend critically on modern, regularly-updated, in-scope contracts. Our experience is that POS/BTL agency contracts are often very old-fashioned and have limited transparency clauses. They also routinely fail to include properly-transparent net price clauses, meaning that not all discounts are passed back to the client as they should be. Beyond net price, it’s also vital to have overriding transparency into all third-party relationships and processes across the POS supply chain.

Here are five areas where advertisers should focus to ensure that their POS partners deliver best value and operate to the same standards to which their creative and media agencies are held to account. 

1. Update the contract

Review and update your contract to deliver full transparency, including a relevant net price clause. The easiest approach is to take the transparency and net pricing elements from media and creative agency contracts and replicate these in your POS agency contract. This approach will deliver full transparency and ensure that all items are delivered at the right net price, with all discounts and rebates passed back.

2. Specify the scope

It’s vital to specify and limit the scope of the services to the agency. As and when new areas are awarded – because of developments in technology or available real estate where POS messaging can be delivered – make sure that you make specific addendums to the contract that deal with new services and scopes of work. This way of working creates rigour in your organisation and also ensures that the client/agency contract is regularly reviewed and updated.

3. Address related parties

Your contract with POS agency partners should ensure that all related third parties are covered, delivering full transparency and guaranteeing that there are no mark-ups or commissions built up the value chain. For non-related third parties, make sure that there is always a pitch, competitive tender, or multi-party bidding process run for each project to manage pricing competition.

4. Manage logistics and taxes

Have clear agreements in place as to how logistics and taxes will be paid. Make it crystal clear how you will handle the cost of these services and the approval processes required for all activities. Often, it’s best to set up guarantees in the price proposal to avoid any subsequent hidden or additional charges.

5. Make the most of contract guarantees

In POS generally, and in dealing with bulk operators run from China in particular, so-called ‘prepayment’ discounts are often available. In many cases, these are not true prepayments, but more like options ‘not to pay too late or just a bit earlier than usual’ and these can offer substantial savings. Make sure your contract guarantees that such opportunities must be alerted to you so that you can take full advantage of them.

Summing up

By acting on these five keys areas in your contracts, agreements, and agency relationships, you can guarantee you will have better, cheaper, and more transparent partnerships. By implementing regular contract compliance audits of your POS agency partners, you can guarantee adherence to the agreement and good financial processes in the relationship. While these might appear to be time-consuming, the savings, benefits, and working relationship with the agency will deliver significantly better ROI in the ever-more important area of POS.

This article was featured in Advertising Week.