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Agencies vs. Consultants: What Does the Future Hold for Marketers?

24 Nov


pro vs con
Have you formed an opinion yet on the battle between traditional advertising agencies and management consulting firms for marketing and advertising supremacy?

Many have, citing profound differences between these two types of professional services providers. The basis for the beliefs are centered on a range of characteristics attributed to each type of firm, including; company culture, strategic focus, business processes, talent pools, breadth of capabilities and ability to provide integrated solutions.

The question to be asked, as management consultants continue to push into ad agency territory (largely through acquisition) is; “Are the differences between these entities meaningful?” Or will the blending of these two types of firms ultimately result in a level playing field among the large agency holding companies and international consultancies?

Most pundits suggest that the differences are very real, with consultants largely grounded in a strategic focus on how to boost a company’s performance, and agency services centered on building brands by leveraging traditional media channels and touchpoints. Clearly both perspectives are valuable in their own right. Along with these differences, other complicating factors are at play that will determine the ultimate outcome.

  1. Marketers seem to be increasingly focused on improving in-market performance, which is becoming the principal means of validating the efficacy of their advertising programs. Metrics such as awareness, consideration and brand purchase intent are all well-and-good, but at the end of the day organizations are more interested in topline growth, market share expansion and bottom-line profits.
  2. There have been profound shifts in consumer purchase behavior and questions raised about the validity of the traditional purchase funnel used by marketers to map a consumer’s progression from awareness to action. In today’s digital-centric world of transacting business the path to purchase is not as linear as it once was.
  3. Research among younger shoppers suggests that marketers can no longer pre-suppose that brands matter. Certainly not to the extent that they once did. In an industry where it is projected that companies will spend in excess of $1.0 trillion on marketing services in 2017 (source: GroupM, 2016 “Global Ad Expenditures Forecast”) this is quite alarming. According to Havas Worldwide’s 2015 annual index of “Meaningful Brands” it was determined that “only 5% of brands would truly be missed by consumers U.S. consumers.” Driving this trend has been the emergence of the 75 million plus U.S. millennial target segment, whose trust in brands has been eroded as have their perceptions of genuineness and brand authenticity.

These trends may point to a larger shift, where consumer purchase behavior is more readily shaped by relationships, peer input and social influences rather than by branding. Thus the ad industry’s model of pushing brand messaging through a variety of media channels as a way of creating awareness and consideration in the hope of driving purchase intent may not yield the results it once did. It is likely that this traditional approach will be supplanted by social engagement and social selling as consumers take control of the pre-purchase learning and competitive evaluation portion of the purchase decision making process.

This could allow management consultancies to curry favor among marketers under pressure to drive performance in the short-term. The consultancies ability to offer integrated end-to-end solutions including; organizational design, transformational strategy development, user experience design, data analytics, technology support and increasingly branding and marketing expertise is considered to be quite compelling to many Chief Marketing Officers.

With so much at stake, it is certain that the agency holding companies and global consulting organizations will continue to invest in transforming their businesses to better serve marketers seeking to evolve their approach to achieving in-market success. In the words of Jeff Bezos, Founder of Amazon:

“We expect all our businesses to have a positive impact on our top and bottom lines, Profitability is very important to us or we wouldn’t be in this business.”

Economic Growth Projections Raise Concerns for Ad Industry

25 Aug

economyAdvertising agencies are finding that organic growth will be a difficult objective to achieve in the near-term.

One contributing factor comes in the form of marketing spending constraints on the part of advertisers. Why? Organizations are feeling pressure to control costs in the wake of lack luster market conditions that are limiting growth and reducing margins.

The key economic indicator driving advertiser concern is “slow growth” which is impacting many sectors of the economy:

  • GDP growth of 1.2% during the 1st quarter and 2.6% in the 2nd quarter (short of the sustained 3%+ growth rate promised by the White House).
  • U.S. retail sales, excluding auto and gasoline, rose 0.5% in July ’17.
  • Fast-Casual restaurant sales fell more than 3% in the first quarter of 2017.
  • U.S. automotive sales have fallen for seven straight months (Jan. – Jul.).
  • Homebuilder confidence sank, posting HMI’s lowest reading in over 6 mos.

Two CPG giants have announced dramatic moves, which reflect the nature of this challenge. Unilever signaled its intent to reduce the number of agencies on its roster by 50%, while cutting the quantity of ads produced by 30%. Procter & Gamble Co. indicated that it would trim $2 billion in marketing spend over five years as part of an enterprise wide expense reduction initiative.

It is worth noting that there are motivations beyond “cost reduction” driving these decisions by advertisers. Consider fast-food giant McDonald’s, which earlier this year trimmed the number of agencies that it works with from 60 to fewer than a dozen. Their goals included streamlining marketing and improving the consistency of their output… in addition to reducing expenses.

Unfortunately, the impact of slower spending by advertisers is being felt on Wall Street. According to an August, 24 article in the NY Times, WPP which had earlier cut its revenue forecast saw its share price decline by 10.9% in London, with Omnicom Group and Interpublic Group falling 7% and 6.3% respectively in the U.S. and media stocks are generally lower as a sector.

Interestingly, advertisers have made a conscious decision not to fuel marketing spend to counter slowing sales, but to cut spending to protect margins, which is particularly concerning to the ad agency community.

With increased competition from non-traditional players (i.e. management consulting and technology firms) and the continued fall-out from an industry transparency crisis, the lack of confidence on the part of marketers regarding advertising’s ability to drive profitable revenue growth is certainly a worry.

Whether or not this slowdown in organic growth on the part of ad agencies portends a slump, remains to be seen, but at the very least the macro-economic uncertainty will serve to increase industry volatility. Perhaps the industry can find some solace in the words of Yogi Berra the hall of fame catcher and manager of the New York Yankees: “Slump? I ain’t in no slump… I just ain’t hitting.”

 

 

3 Thoughts on Facebook’s Video “Watch Time” Issue

03 Oct

facebookFrom an advertiser’s perspective, there were three things that stood out in the wake of Facebook’s recent disclosure that it had mistakenly overstated average video watch times.

First and foremost, the miscalculation was not uncovered by the advertising agency community. Given the dollar volume being committed to Facebook, whose digital ad revenues will eclipse $6.0 billion, it would be fair to assume that ad agencies had a fiduciary duty to verify/investigate Facebook’s performance monitoring methodologies prior to investing their clients’ media dollars. The fact that Facebook had not embraced industry standards and asked the Media Rating Council (MRC) to accredit its performance metrics should have been the hot topic of conversation prior to Facebook’s disclosure, rather than after the fact. Ironically, in the wake of this disclosure, WPP stated that the mistake “further emphasizes the importance and need for third-party verification of all media — not only to verify trading terms but also to verify performance.” So if agencies truly felt this way, why wasn’t this standard not being applied here-to-for?

Secondly, it would appear as though the agency community is somewhat fearful of Facebook. Too many agency executives spoke to the trade media on the basis of anonymity rather than overtly stating their personal and or their company’s perspective on both the inflation of the viewing time metric and the need for accreditation. This seems an odd dynamic given the percentage of digital media spend represented by the “Big 4” agency holding companies. Advertisers might rightly expect that the scale of these entities would offer them some level of leverage and protection when interacting with media sellers. This is apparently not the case.

Thirdly, advertisers need to put a stake in the ground when it comes to media transparency and performance authentication. Self-reported performance indicators, such as Facebook’s average video watch time, cannot be the basis upon which they invest their media dollars. If a media seller has not had its delivery and performance metrics audited and accredited by an industry accepted resource such as the MRC, IAS, Nielsen or comScore for example, then they should be excluded from the media investment consideration equation.

The Association of National Advertisers (ANA) CEO, Bob Liodice appropriately addressed this issue when the ANA issued the following statement: “ANA does not believe there are any pragmatic reasons that a media company should not abide by the standards of accreditation and auditing” calling this important step “table stakes” for digital advertising.

The issue with the misstatement of the video ad watch times is not whether or to what extent the :03 second watch time threshold was utilized by ad agencies to assess Facebook’s performance. Quite simply, the issue is that self-reported performance metrics are unequivocally no substitute for independently audited outputs.

For anyone to suggest that the miscalculation is really no big deal, because it is a metric that is not utilized when considering the purchase of video advertising on Facebook, is misguided. The lack of transparency, further compounded by the media seller’s lack of adherence to industry standards when coupled with the self-reported inflated viewing times can and did wrongly influence agency and advertiser decisions. Thus, raising the all-important question: “Absent an independent audit, what portion of Facebook’s self-reported performance metrics can an advertiser trust?”

 

 

Improving Analysis With Analytics

28 Mar

analysisBy Rich Lanza

In Marketing, with thousands or millions of transactions (especially in digital) occurring each year, analysts have an inherent need to select population samples to draw conclusions and make decisions, or do they? Sampling is performed because it often appears impossible to gather data from the entire population, but what if you the analyst could gather 100% of the requisite data for a given business process?

A good point of reference is evidenced in the movie, Imitation Game. The actors were trying to stop a device named Enigma that changed its code every 20 minutes. There were 159 million, million, million possible Enigma settings, and each one needed to be tried. If 10 people checked one setting a minute for 24 hours, every day, how many days do you think it would take to check each of the settings? Well, it’s not days, its years. 20 million years. To stop Enigma, the team would have had to check 20 million years worth of settings in 20 minutes.

It is mathematically impossible to manually test and provide assurance for every marketing transaction or media buy. Understandably, it may seem easier to simply pick a small sample and rely on statistics to extrapolate trends, ROI and error rates. However as analysts, as in the movie, we measure activity and outcomes and we rely on ongoing computerized assistance. In our current age of “Big Data” and advancement of digital and social marketing, too many still rely on antiquated approaches, sampling and manual reviews. It is almost as if we use sampling as a more simplistic means of testing a business process, even if a better solution is staring us right in the face.

That solution is to analyze as much of the business process data with analytics. This methodology can be generally referred to as 100% auditing (or data mining). Data mining allows the analyst to visualize and understand financial accounts. It is not a far stretch to imagine at least half of the current procedures where sampling is applied could be turned into an analytic. Please note that many times a business process may not have computer readable data but isn’t that an issue unto itself?

100% auditing is utilized by AARM in working with large advertisers and their agency partners. When a client engages a 100% sampling methodology to continually monitor marketing expenditures, the investment pays dividends in all future years.

Once established, analytic-enabled testing is completed in seconds and can be scheduled to run on a recurring basis. This is much faster than any sampling approach and, as in the Imitation Game, requires very little human resource requirement. Rather, the analyst can be focused on the exceptions and interpreting of results to help improve the marketing process. At AARM, years ago this systematic capability was developed, and named AArmor AnalyticsTM. Our clients have embraced 100% auditing to monitor efficiency and effectiveness of their vast array of marketing expenditures and the financial practices.

Interested in learning more about the use of AArmor Analytics at your company? Contact Don Parsons, Principal at AARM | Advertising Audit & Risk Management at dparsons@aarmusa.com for more information.

Sourcing Your Programmatic Buying Partner

14 Dec

programmatic agency sourcingWritten by Peter Portanova, Project Analyst for Source One Management Services

The concepts of reach and frequency have long guided the way marketers approach advertising, and when multiplied, they provide the calculation for Gross Rating Points (GRPs) to measure and evaluate the success of your campaigns. However, the rise of programmatic ad buying (automated buying based on real time data analysis of competitive rates) forces marketers to reconsider their historical understanding of success in marketing, and encourages the consideration of new and potentially more effective metrics.

GRPs are hugely important across a variety of marketing channels, exclusive of programmatic buying. The ideology that more GRPs means greater success is severely flawed, and by using such a calculation in a highly targeted and customized solution like programmatic buying, one misrepresents the technology’s true value.  However, instead of arguing the utility of GRPs, it is more critical to consider alternative means of success in marketing and how embracing programmatic can revolutionize your approach to online advertising, while driving a variety of critical KPIs.  

Programmatic buying is growing quickly, and is responsible for billions of dollars in digital media placements. Programmatic buying is the intersection where data and advertising truly meet, with engineers, traders, and data-management platforms replace traditional sales planners. Agencies would like you to believe that their programmatic efforts reduce overall costs, but the truth of the situation is that, when viewed holistically, programmatic buying is actually more expensive.

Implementing programmatic buying efforts does have its merits, and agencies are quick to note that initial costs can be negated quickly. However, for programmatic buying to reach its maximum potential, marketers and advertisers must learn to move past the traditional reach and frequency mindset, and consider the long-term advantages of highly targeted placements. In fact, industry experts note that using programmatic buying to place more advertisements decreases transparency, which can lead to fraudulent placements. In using programmatic buying to deliver a highly targeted message to the right individual at the right time, brands are able to increase their visibility to the appropriate segments, increasing potential brand engagement.

Marketers must begin to understand programmatic buying from a holistic perspective. Why is this more expensive? Does it involve fewer people? Most marketers are shocked that programmatic buying proposals suggest fewer advertisements at a greater cost. While inventory is cheaper in programmatic buying compared to manual buying, there are substantial costs of doing business to implement and manage these efforts. In an article on AdAge, a media agency executive said, “Five full time employees are needed to spend $100 million national broadcast budget, while the same number would be needed for a $5 million programmatic buy.”

Understanding the discrepancy in FTEs and costs becomes more complicated when you also factor agency commissions into the equation. The employees required to manage a programmatic buy are in far greater demand, having a unique skillset that commands salaries 50-100% greater than manual buyers. The technology and the platforms do not eliminate the need for human input, and therefore it is critical to entice highly skilled employees for retention. Traditional full-service agencies have seen these employees move quickly to digital agencies that have a greater focus on new technologies, including programmatic buying. 

The true cost of programmatic buying becomes noticeable when considering agency commissions that are charged to simply breakeven. The same agency executive interviewed by AdAge stated that, with a budget of $100 million, break-even points begin at 1% with TV, and quickly jump to 10-12% with programmatic. It is also worth noting that the 12% commission is only the break-even, with many agencies charging a rate of around 20%, to turn a meager profit.

There is a substantial cost of placing media through a programmatic partner. AdAge refers to these costs as an “intermediary tax” which accounts for all the transactions that take place to make a programmatic buy occur. With 7% to 20% taken by ad exchanges, another 10% to 20% taken by automated software providers, and then another 15% for the data-management platforms, there is potential that only $.50 of every dollar will reach the publisher. While these rates may seem expensive, there is value in using programmatic buying; however, the marketer should be fully aware of the intended use of programmatic, with no expectation that they are receiving a more targeted solution for a lower price.

While so far we have discussed mostly the potential benefits (and drawbacks) of programmatic buying, there is always a need to manage costs. Consider the following best practices when working with your agency to ensure greater transparency in your agreement.

Contract Language

  • When contracting with your programmatic buying partner, ensure that language exists around specific rates. Furthermore, consider a period where you can renegotiate these rates to be more favorable.

Redundant Services

  • Prior to considering your programmatic needs, understand the services you require and what you may need outside of traditional manual buying. When working with multiple vendors (which is common with programmatic buying), there is potential to be charged for the same service multiple times.

Liberate your Data

  • Unless specifically outlined, your data may not belong to you after working with a particular partner. If you are unable to retrieve your data during any part of the process, the supplier immediately gains tremendous advantage.

Understand your Options

  • Do you need managed service, or do you need self-service? In a self-service agreement, the vendor charges for the use of their technology, but does not charge for any resources associated with operating the platform. A managed option typically has charges for not only the technology, but also the management fees associated with run and execute a campaign.

Consolidate

  • Find a partner capable of providing you with a variety of services, and consolidate your marketing to that one agency. Using separate agencies to plan and execute your manual and programmatic buys is inefficient, and unless information is shared freely across agencies (it probably will not be), the effectiveness of both operations will be hindered. Consolidation also allows for better reporting and recognition of opportunities across channels.

As for the future of programmatic buying? It’s only anticipated to grow. EMarketer predicts total programmatic buying spend to exceed $20B in 2016. When it comes to digital marketing, there is no “one size fits all.” While programmatic buying is typically more expensive than other traditional tactics, there’s no doubt the method offers significant ROI in the form of operational speed and efficiency and increased scale and targeting. Like any other agency sourcing engagement, do your due diligence when looking for the right partner for your programmatic buying requirements.  Beyond assessing agency scale, technology and data analytics, and skillsets, take steps to establish a strategic client-agency relationship. This begins with strong contract language that drives further value from your programmatic efforts and continues with fostering ongoing communication and transparency with your agency.

Peter Portanova is a marketing category enthusiast and Project Analyst for Source One Management Services. He is an expert at developing RFPs and executing strategic sourcing strategies for clients in a wide array of industries, specializing in navigating the complexities of the Marketing spend category. Click to learn more about Source One’s Marketing Category expertise.

 

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