From our perspective the key point Andrew makes is one of transparency, which visitors to this website will know is one of our main themes here at Financial Progression: our work brings commercial and financial transparency to the relationship between brands and their agencies, so that both parties can work together more effectively.
With transparency comes trust. Trust coupled with a state of mind that looks for mutually beneficial outcomes paves the way for a great commercial relationship.
Andrew is right when he says that most Procurement just looks at driving down cost: most Procurement managers are measured on savings delivery against a baseline of last year’s spend or rates (I know, I’ve been there).
The enlightened Marketing Procurement Manager, however, knows that the Brand Managers he/she supports not only want to know that they are getting a good deal but also value to propel the brand forward. That’s often a tricky one to deliver alone because short term pressures on Procurement and Brand Managers too often get in the way of moving on to the value proposition. Most brands who want to get there bring in experts (and I would say this wouldn’t I!) with a proven track record of helping clients and agencies work better together using financial transparency as the starting point. Once the data and fact of where the money is being spent and how the agency is making money is clear (a significant number of brands do not give much thought to the income streams available to an agency), it is time to bring in specialists who know what marketing services ‘should cost’ (be it fees, TV production or whatever) and that is not just on the rate, but how many hours a task will take or the cost and quality implications of shooting a commercial in the US as opposed to South Africa.
In our experience, leveraging the talents of others gives the Marketing Procurement Manager the best chance of delivering cost savings and delivering value to the brands they support. It’s definitely achievable with the right team in place.
Here is the article in full:
“Too many contracts create the illusion of value for brands and force agencies to live on kickbacks.
As we set forth into Q4, and many of us lock and load for the Christmas rush, spare a thought for your humble media buyer.
You might have sales targets to meet, websites to keep online, customers to keep happy. But the media buyer has all that pressure and the requirement to squash your media into the boxes dictated by agency deals. If early placements went awry, now is the last chance to pull that position back; you might end up in some odd places if you’re not on the ball.
Small clients think they get better rates by being part of a big agency’s portfolio. They figure the overall average is so much stronger that they benefit even if they don’t get the sharpest prices. Big clients, on the other hand, generally do get the best pricing, but nevertheless agency dealmakers are past masters at playing ‘find the lady’, and even these advertisers often don’t know what they’re really paying.
The real value of agency deals goes to the agency, not the advertiser. Some agencies are rumoured to earn 150% of their profits this way, by retaining volume discounts passed back to them by the media owner.
While many client contracts demand these discounts be passed on, it can be pretty hard to identify them when they are run as separate income streams outside a client’s account. So these deals thwart transparency, creating the illusion of value for clients and allowing agencies to claw back margin.
It isn’t just the effect on agency/client business that makes these deals toxic.
Theoretically, a media owner knows that if it invests in the right content, audiences, and then advertisers, will follow. But agency deals at best introduce a lag to this, and at worst decouple this investment rationale; agencies might be more influenced by the kickback than the media opportunity, corroding the incentive for content investment by publishers.
When I said this last week on stage in a panel session, my observations were wafted away with the comment that this was an out-of-date view, and that ‘rebates now are more transparent’. Unfortunately, this dismissal was from the representative of an agency that just four months ago settled a EUR30m case brought by a client that accused it of retaining undeclared discounts.
Sir Martin Sorrell has rightly complained of uneconomic price competition in the media business, and nowhere has this been more keenly felt than in digital. Here, smart clients are shown a direct line between resources and return, where value becomes the key driver of a relationship.
Cost-cutting, however, has often proved more attractive to clients and procurement departments that struggle to sell this argument internally, and agencies have vied to reduce fees accordingly. This is a massive missed opportunity for clients that could be chasing real value, but instead chase illusory discounts. I’ve lost count of the number of procurement exercises that start with media costs and somehow never quite make it to value.
The reality is that the ‘poor exploited client’ story doesn’t stand up. If I bought a 40in TV in the pub for £50, the police would justly accuse me of knowingly receiving stolen goods, and I find it hard to believe that those clients with rock-bottom fees believe that’s how the agency earns its money. Five minutes with the back of a fag packet should suffice. This isn’t just passivity. I’ve been asked by clients to subsidise fees from media rebates and even other clients’ accounts; requests I’m sure were agreed to elsewhere.
Digital or offline, it’s time advertisers and agencies put probity back on the map, which won’t happen until clients respect agencies’ right to make a return.”