Are we entering a new era of marketing contract compliance?

It’s more than four years since the U.S. Association of National Advertisers (ANA) shone the spotlight on media transparency in the global advertising market. Since 2016, there’s been good progress in improving transparency in media trading, helping advertisers get what they pay for more of the time, according to the contracts they have with their media agency partners.

Media is the biggest single cost in most brands’ marketing budgets, so priority action here was long overdue and necessary. It would be an over-reach to suggest that all media trading is now fully transparent – particularly in a market increasingly dominated by automated, programmatic trading and dogged by issues including inventory media – but the industry is headed on the right track here at least.

In what can feel like a game of financial cat and mouse, however, many brands are now finding that securing contract compliance in one area only reveals a lack of transparency in others. The same opaque, value-eroding practices that afflicted media are now becoming apparent in sectors as diverse as creative and production, influencer and key opinion leader marketing, print management, merchandising, field, and web/app development.

On one level, it should come as no surprise that advertisers are now finding the issues surfaced by the ANA are prevalent in other marketing services disciplines. For many of the non-media businesses in the marketing ecosystem are owned by the same holding companies, with the same legal and financial, back-end support structures. What’s more, the ANA set up a Production Transparency Workforce in late 2016, and its 2017 report helped to focus attention on transparency in non-media investment.

Common challenges advertisers face in non-media, marketing service providers include:

  • Contracts: either there are no contracts in place or they’re unfit-for-purpose, as investment in new areas has outpaced the conditions for which contracts were originally established
  • Widespread application of unapproved, uncompetitive, studio rate cards
  • Unspent balances being retained by the agency and not returned to advertiser. This is increasingly prevalent for projects cancelled because of COVID-19
  • External supplier discounts, rebates, and benefits not passed on to advertisers
  • Billing to estimate, failure to reconcile spend against estimate, agencies not returning the difference
  • Staffing levels under-delivered versus contracted commitments, including billing for senior staff when work was actually carried out by junior staff
  • Duplicate billing, where staff are included in the fee as well as billed on jobs
  • Transferring unbillable costs to recover them on unrelated jobs
  • Big rigging: inviting related parties to pitch but treating them as independent third parties
  • Inadequate job cost systems, managed manually or through non-dynamic tools like Excel

In some markets in APAC – particularly in small-to-medium, independent marketing services agencies, where finance systems and infrastructure are relatively immature and they often rely on manual reconciliation – the same errors are made time and again. It’s true that brand spend in many of the newer, non-media disciplines is comparatively modest, and such spend often flies under the procurement radar. When subjected to rigorous audit, however, many advertisers are finding new categories of investment are subject to serious slippage, with marketing dollars routinely misspent without their approval or knowledge. We know of one global brand that recently reported up to 40 per cent of their key opinion leader spending was being retained by its agency partner as an undisclosed ‘management fee’ and not invested in influencer talent as planned.

Advertisers are now finding that value erosion is just as material in marketing services as it is on the media side, with the margin of error and deviation even more severe. With the rapid increase in demand in APAC for non-media services, advertisers need to work with agency audit specialists to help them get financial management in order fast and extend best practice and learnings from recent years beyond just media.

Summing up

Media typically only accounts for up to a third of all marketing investment, and brand owners need to drive transparency into all aspects of their marketing spend. To ensure contract compliance across all aspects of the marketing supply chain, now is the time for advertisers to audit their non-media supplier relationships, too. It’s only by applying the same high standards they apply to media that they can understand whether their agency partner ledgers are clear and if all appropriate job reconciliations have been performed. To fail to do so echoes the head-in-the-sand behaviour of the past and is an industry mistake not worth repeating.

Featured in Bandt.