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Marketing MathTM

Category Archives: Advertising Agencies

Seeing Their Way to Digital Media Growth

21 Mar

visionDigital advertising spend will surpass television in 2017. This according to eMarketer, which is forecasting that digital ad expenditures will grow to $77.3 billion, while spending for television will increase to $72.0 billion.

This growth comes in spite of continued advertiser concern regarding transparency and the fact that 40% to 60% of their working digital media dollars are being absorbed into inventory margin.

With this as a backdrop, we have noted a couple of interesting trends in the digital media space, that directly and positively addresses these concerns.

First and foremost, there have been a number of agencies that have embraced a more transparent model when it comes to digital media planning and placement. They are looking to directly appeal to advertisers’ opacity-busting inclinations and their desire to improve working media ratios.

What are they offering? In short, they are structuring their service and financial management models to eliminate the hidden fees, double charging, rebates, kickbacks and media arbitrage practices employed by a host of traditional media agencies operating in the digital space.

The common link among these progressive agencies is to take more of a consultative approach to working with their clients to solve for the best method to drive brand engagement and to improve consumer experiences. These shops fundamentally understand the importance of integrating customer relationship management (CRM) and online media to create personalized customer interactions across each stage of the marketing lifecycle.

Recognizing the rapid advances occurring on the data analytics and ad tech fronts, they are agnostic when it comes to their role as a full-service or managed service provider. These agencies have come to realize the importance of integrating first, second and third party data and that from a privacy and data governance perspective advertiser ownership of such data may be a more appropriate path forward.

Additionally, they are open to working with their clients to help facilitate direct relationships between advertisers and technology providers to eliminate duplicate costs and boost transparency. They have a comfort level with direct-bill third-party media payment processing models which afford advertisers the opportunity to see exactly what the net media cost is.

For advertisers’ who are comfortable using the agency’s technology stack, no problem. For those that are interested in migrating that ownership in-house, they will consult and work to design and implement an approach that will work best for their clients. This could include everything from identifying DMP, DSP and ad server options to suggesting viewability optimization, fraud prevention and modeling tools. This new breed of agency recognizes that cutting out the middlemen from these areas can greatly enhance an advertiser’s working media ratios.

The benefit of this approach is profound when one considers that according to a recent survey by Technology Business Research (TBR) among 240 ad technology users in North America and Western Europe, they found that “only about 40% of digital advertising budgets are currently going toward working media” and that “the second biggest allocation – 31% of budgets – was going to pay for technology” with the balance being applied to “pay for agency services.”

The second trend that is having a meaningful impact in the digital advertising space is the continued expansion of services offered by technology consultants including IBM, Deloitte, Accenture and McKinsey. These firms have made strategic acquisitions and or built resource bases in the creative design area which allow them to complement their technology integration offerings and provide comprehensive end-to-end solutions. These firms’ gains will likely be to the detriment of traditional advertising agencies as the roles of data management and digital media continue to grow in the coming years.

As Jon Suarez-Davis, Chief Marketing and Strategy officer for Krux recently stated: “Marketers want absolute transparency across the value chain.” Mr. Suarez-Davis’ opinion, based upon his experience on both the ad technology and client-side, where he managed digital media for the Kellogg Company, is that advertisers “would like to have the technology and other non-working costs (that aren’t related to impression delivery) separated.”

As the comedian Bill Hicks, so accurately opined:

We are the facilitators of our own creative evolution.”

The agencies and consultants that understand this dynamic and have a willingness to morph their service delivery and compensation models to address advertiser desires in these areas will be well positioned to boost their relevancy and revenue growth potential in the coming years. Those that don’t may struggle to keep pace as advertisers take a more proactive approach to optimizing their digital media investment.

Is the 4A’s Action on “Transparency” a “Tipping Point” for Client/ Agency Relationships?

17 Feb

Tipping PointMuch has been written about the content of the American Association of Advertising Agencies (4A’s) recently released “Transparency Guidelines,” less about the potential impact of the 4A’s decision to break rank from the cross-industry task force with the Association of National Advertisers (ANA) and to act unilaterally.

For the record, from both an advertiser and agency perspective, we believe that the guidelines proposed by the 4A’s have the potential to do irreparable harm to client/ agency relationships. The guidelines appear to driven by greed and a certain naiveté about the source of agency leverage… namely their clients’ advertising budgets. Let’s face it, in the context of a principal-agent relationship there is no logical way to rationalize a guideline which states:

The agency, (agency group and holding company) may enter into commercial relationships with media vendors and other suppliers on its own account, which are separate and unrelated to the purchase of media as agent for their clients.”

One, the notion that the potential for financial gain would not introduce a level of bias that could influence an agency’s recommendations to its clients is unrealistic. Two, pooling client dollars to use as collateral in cutting side deals with media vendors and suppliers for its own benefit is inappropriate.

From our perspective, we believe that the 4A’s and any of its members that support the association’s guidelines on transparency have made a serious error in judgment. Yet, it should be noted, that not one agency has spoken out against the 4A’s action or the composition of its “Transparency Guidelines” nor has one agency seceded from the association. Thus, one might assume that all of the 4A’s members support the position taken.

At a time when issues such as transparency, trust, talent and compensation are posing serious challenges to the length and efficacy of client/ agency relationships, the 4A’s action on the topic of transparency will not serve their members well in the long-term. Why? There are, we believe two reasons.

First of all without clients, agencies have no means for existence. On the other hand, as it stands today, some may view agencies as a luxury, not a necessity for advertisers. Without agencies, clients still have a number of options for marketing their firms, brands and products. These options range from dealing direct with suppliers that are today considered “third-party vendors” such as; production companies, photographers, content developers and curators and media owners. Additionally, one must consider an advertisers option to create in-house capabilities rather than outsource all or some elements of their advertising.

The second reason is that absent an underlying level of trust, agencies can never hope to recover the coveted position of “strategic partner” that they once enjoyed. In our opinion, the 4A’s action has relegated their member agencies to “vendor” status whose goods and services an advertiser might choose to avail themselves of, without being beholden to the agency in a meaningful way.

In Malcolm Gladwell’s book; “The Tipping Point” he suggested to readers; “Look at the world around you. It may seem like an immovable, implacable place. It is not, with the slightest push – in just the right place – it can be tipped.” Think about that statement in the context of some of the trends our industry is experiencing today:

  • Growing impact of social media in shaping consumer views and behaviors
  • Rapid expansion of programmatic media buying
  • Advances in ad technology, impacting many facets of the message creation & distribution cycle
  • Increasing prevalence of advertiser/ publisher direct relationships
  • Rise of non-traditional alternatives to ad agencies (i.e. IBM, Deloitte, Accenture)

Surely the 4A’s is aware of the aforementioned trends and the moves in recent months by advertisers such as P&G, Facebook, Google, Netflix, Expedia, L’Oreal and Wal-Mart to either move certain aspects of their advertising in-house ranging from creative to programmatic media buying; or are purported to be actively investigating “alternative models.”

Do the 4A’s and their members believe that they are impervious to such trends? What were they hoping to gain by breaking ranks from the ANA and the joint transparency task force? Perhaps more importantly, are 4A’s members prepared for the potential impact of the association’s actions? According to Mr. Gladwell:

“That is the paradox of the epidemic: that in order to create one contagious movement, you often have to create many small movements first.”

For the sake of the advertising agency community, let’s hope that their recent action on the topic of transparency isn’t the “small movement” that fuels the “epidemic” which forever tips their once favored status as trusted confidants to alternative vendors of commodity like marketing services.

Linking Agency Fees to Outcomes

14 Dec

contractThe topic of agency remuneration is one that the advertising industry has wrestled with for the last few decades, since the 15% standard agency commission went by the wayside. 

Agencies want to be paid fairly for their services and clients want to earn a fair return on their agency fee investment… at least theoretically. In reality, agencies want to earn as much money as possible on each of their accounts and clients want to pay as little in agency fees a they can. 

Unfortunately, both stakeholder groups’ true intentions can at a minimum negatively impact perceptions one side may have of the other and in a worse case scenario, drive bad behavior. This can include an advertiser focusing on continually ratcheting down agency fees, with little consideration for the relationship between agency fees and the scope of services. In turn, this is a perfect breeding ground for an agency’s decision to pursue non-transparent revenue sources to shore up perceived inequities at the expense of the advertiser. Ultimately, these actions can serve to undermine trust and eventually the stability of the client/ agency relationship. 

Thus the question remains; “How can both parties bridge the divide when it comes to the agency remuneration discussion?” 

The best solution, obviously, would be to structure a compensation system which is fully transparent, fair to both parties, encourages good behavior and fosters a relationship based upon mutual respect and shared goals. As Sam Walton, founder of one of the world’s largest companies once said; 

“We’re all working together; that’s the secret.” 

In our experience as contract compliance auditors, we have found that the most effective compensation programs link to agency fees to outcomes. We have seen more beneficial results when this is the case compared to fixed retainer fees that have no link to a mutually agreed upon foundation. Typically, these outcomes fall into one of three categories: 

  1. Agency deliverables
  2. Agency time-of-staff investment
  3. Qualitative and quantitative outcomes, those controlled/ influenced by the agency and KPIs tied to the success of the client in-market

It should be noted, that remuneration programs often combine elements from each of the aforementioned categories. In many respects, this is an ideal scenario, particularly in the context of agency-of-record relationships, where the nature of the client/ agency relationship is more akin to a partnership than a buyer/ vendor interaction. 

Regardless of the mode of compensation ultimately selected, value-based, direct-labor driven or performance based, we believe that there are two critical components, which must be negotiated in advance of focusing on the level of remuneration. 

First and foremost is the development of a tight scope-of-work (SOW) collaboratively constructed by the client-side marketing team and the agency account services team. At a minimum, the SOW should explicitly identify all projects, expected outputs, the quantity and timing of those outputs and some indication of whether those items must be created versus modified or adapted. Ideally, the SOW will also address issues with regard to project component complexity and the number of rounds of input/ review per project component to assist the agency in assessing the required time-on-task and to assist the client in establishing project briefing and approval processes which are consistent with desired project outputs. 

Secondly, with a mutually agreed upon SOW, the agency should be asked to provide a detailed staffing plan, one which identifies the names, titles and functional responsibilities of the specific individuals who will work on the business along with their utilization rates. The staffing plan should also identify the base number of hours utilized to calculate a full-time equivalent (i.e. 1,800 hours per year) and at a minimum, a blended hourly rate by department or by function for use in pricing out-of-scope work and or in reconciling fees relative to the agency’s time-of-staff investment if and when necessary. 

The time invested by both parties on the front-end to clearly establish the client’s desired outputs, timing requirements and qualitative expectations and to assess the resource investment required by the agency to deliver on those anticipated outcomes will yield significant dividends. 

Additionally, tracking monthly progress project status and the agency’s time-of-staff investment will allow both parties to stay on track and within budget… while eliminating any surprises.

In the words of Henry Ford; “Coming together is a beginning; keeping together is progress; working together is success.”

 

 

 

 

 

 

 

 

 

 

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.

 

In the Wake of PepsiCo’s Marketing Procurement Decision

16 Nov

OversightOn November 12, Ad Age reported that PepsiCo had made the decision to eliminate its Marketing Procurement department. As a result of the decision, the company will shift responsibility for marketing procurement activities to their brand executives.

PepsiCo’s move is consistent with its philosophy of shifting responsibilities to their brand teams with the goal of allowing those decision makers to “more quickly balance cost value and quality in all of their decisions.” While the company acknowledged the potential risks associated with the move as it relates to financial due diligence and contract compliance, it believes that it will be able to leverage its procurement experience, practices and processes to support the brand teams in this endeavor.

As industry participants know all to well, the role of procurement in marketing has been a contentious one over the last decade or so. Thus, it is likely that this decision will spark much dialog among marketers, procurement professionals and their agency partners. Some advertisers will evaluate the merits of a similar approach for their business and many in the agency community will weigh the impact of this decision on the broader topic of procurement’s role in marketing going forward.

We believe that regardless of one’s perspective, periodic introspection on seminal topics such as marketing procurement is helpful and continued dialog between advertisers and agencies on the practice is healthy. That said, we do not view PepsiCo’s decision as the beginning of a trend away from enterprise accountability and its application to the marketing function.

In our agency contract compliance practice, we work with advertisers that have highly developed, actively involved marketing procurement teams and we also work with advertisers that have not yet involved procurement on the marketing portion of their business. Regardless, each organization is mindful of the accountability and oversight obligation they have when it comes to their marketing investment. After all, advertising and marketing spend is one of the largest line items on a company’s P&L, and is critical to brand building over the long-term and demand generation in the near-term.

Financial accountability related to marketing can be viewed as falling into the following categories:

  1. Formalizing and centralizing key aspects of the agency relationship lifecycle: agency selection, on-boarding, performance monitoring, optimization, and transition when necessary.
  2. Leveraging the agency investment, by brand and across the organization as a whole. Decisions in this area can include both agency remuneration system development and overall composition of the agency network. Do we draft and engage disparate agency brands? Select agencies from a particular holding company? Or do we build a dedicated shop at the holding company level (i.e. WPP’s Team Detroit serving Ford Motor Company or Garage Team Mazda).
  3. Financial stewardship oversight and implementation of controls to safeguard the organization’s marketing spend at each stage of the investment cycle.

In our experience, the best tactic for aiding management of an agency network is the use of a standardized but customizable “Master Services Agreement” template. Formalizing the legal and financial terms and conditions necessary to protect an advertiser’s monetary investment and intellectual property rights is a critical first step on the path toward accountability. This is closely followed by the need to identify representatives from select functional areas of the organization that have would have involvement in the contracting, compensation system development and performance review portions of the agency relationship management program.

Organization’s that have implemented Strategic Relationship Management (SRM) initiatives will undoubtedly have an edge when it comes to leveraging their agency fee investment across brands, divisions and geographies. These companies will likely already have pre-determined agency selection protocols and established compensation guidelines or at a minimum maintain a database of information that can be accessed by client-side executives responsible for agency relationship management to help shape their decision making in this area.

Finally, whether an advertiser has a formalized marketing procurement department or not, independent agency contract compliance and performance monitoring support will typically satisfy an organization’s oversight and transparency requirements.

Many will suggest that PepsiCo’s decision will lead the industry down the path of rethinking the role of or need for marketing procurement. To the contrary, we believe that procurement’s role in marketing has been and will continue to be a highly individualized decision for advertisers. While important, we believe that procurement is but one piece in the overall puzzle for advertisers seeking to optimize their return on marketing investment.

Programmatic: Promising, but is the Benefit to Advertisers Real?

19 Oct

cautionIn 1997 rock legend David Bowie told his fans at a Madison Square Garden concert; “I don’t know where I’m going from here, but I promise it won’t be boring.” While his comments were a reflection on life after his 50th birthday, they could just as easily be used to describe the future of programmatic media buying.

Put yourself in an advertiser’s position and consider your reaction when your media agency approaches you with this enticing proposition;

Through our proprietary programmatic buying platform we have the ability to deliver quality, targeted inventory to precise segments of your target audience at a time and in an environment when they’re most receptive to your message and at rates that are a fraction of market pricing.” 

For many advertisers, the response to this enticing offer has been “sign us up.”

The programmatic revolution began with digital media, evolved to print and OOH and is now being implemented in the television marketplace. Many industry pundits consider programmatic to be one of the advertising industry’s most prominent developments. This algorithmic based method of connecting media sellers and buyers to conduct inventory transactions in an automated, real-time manner clearly holds much promise.

Benefits to advertisers are said to include; rate efficiencies, advanced targeting, message personalization and enhanced access to premium content. For media sellers the benefits allegedly include the ability to move less desirable remnant inventory and optimize CPMs across their inventory portfolio. Ad tech firms, such as demand side platforms, sell side platforms and ad exchanges, which here-to-for never existed earn transactional fees on programmatic activity and or licensing fees from organizations that utilize their technology tools. Agencies are able to leverage their clients’ “Big Data,” do more with fewer people and when programmatic buys are executed through their trading desk operations, there is incremental revenue to be gained from media arbitrage (buying low, selling high).

Assuming that each stakeholder realized the aforementioned benefits ascribed to this approach, programmatic buying, irrespective of the issues experienced to date in the digital media market, certainly holds the potential to be a win, win scenario for all of the players.

Unfortunately, the underlying technology behind programmatic buying is not fully understood by many in the industry. To be fair, programmatic digital media buying is a highly nuanced and complex process. It greatly impacts digital display ad spending in general and mobile in particular. It can involve real-time-bidding (RTB) or programmatic direct, where advertisers can still secure inventory guarantees, it can be applied in an open exchange or private marketplace and can include traditional banners or non-standard rich media and video.

Given that programmatic buying is still in its infancy, one might logically assert that a greater level of refinement is required to support programmatic buying’s current share of digital media spending, prior to even considering expansion of programmatic buying to other media. Supporting this perspective are some of the challenges which the industry is grappling with to improve the programmatic experience for digital media:

  • Reducing the level of non-human traffic and fraud
  • Minimizing the % of ad spend accruing to “facilitators” or middle-men
  • Serving up environmentally relevant programmatic creative across devices
  • Improving advertiser transparency

We agree that programmatic media buying holds much potential. However, the industry’s experience to date suggests that advertisers have born the bulk of the risk involved with this emerging technology and its application in the digital market.

So when the talk turns to the expansion of programmatic to other media segments one has to wonder if advertisers are ready to embark upon another investment spend scenario in media segments with much steeper learning curves and higher degrees of risk.

Relative to the digital market sector, television, OOH and print are much more complex when it comes to the variety of non-digital assets, lack of uniform inventory management processes and disparate mainframe environments. Throw in the fact that there are multiple ad tech providers already offering a variety of non-standard platforms/ technologies in an attempt to solve for these considerations and the near-term prospects appear quite challenging.

In a recent article in MediaPost, Joe Mandese shared insights on some of the pioneering work being conducted in programmatic/ addressable TV by Mitch Oscar, Programmatic TV Strategist for US International Media (USIM) and his peers. During the interview, Mr. Oscar shared results from one client’s programmatic TV ad buys, which suggested they had generated “improved results and efficiencies” relative to conventional TV buys.

Compelling to be sure, however, one must pause to consider the observation that the data shared by Mr. Oscar indicated that the “mix of networks and dayparts were all over the place and it was difficult to find meaningful patterns from it.” Further, when USIM asked the programmatic TV suppliers to document what actually ran, “it generated a report with 163,866 lines of code covering 3,563 pages, something most traditional TV buyers and advertisers might not consider practical to evaluate.”

Hopefully advertisers, agencies and media property owners take a more measured approach to expanding programmatic buying to other media segments to avoid some of the pitfalls currently being experienced in digital media. Perhaps we can all benefit from the words of St. Jerome, the Catholic priest, historian and theologian, who once intoned:

“The scars of others should teach us caution.”

 

 

Compensation: One Key to Improved Digital Media Transparency

10 Sep

loyaltyLong troubled by the concept of ad agencies as media re-sellers, it has been my belief that the agency trading desk model and the resulting media arbitrage mode of compensation employed by most trading desk operations is one of the key drivers of advertiser transparency concerns with regard to digital media.

To be completely candid, our bias is that any activity in which ad agencies are engaged, that challenges the notion of a principal-agent relationship between advertiser and agency, is detrimental to establishing meaningful trust and mutual respect. Non-transparent agency revenue sources such as media arbitrage, AVBs and the awarding of jobs to related parties, without the appropriate level of due diligence or client awareness create a serious schism when it comes to marketing accountability. As importantly, they often form the basis for “me first” behavior on the part of agencies, which is not in the best interest of those clients that have entrusted them to act as their fiduciary partners with the goal of optimizing the advertisers return-on-marketing-investment (ROMI).

When it comes to digital media, there are too many competing forces focused on selfish financial interests, rather than those of the advertiser. Publishers, ad networks, exchanges, demand side platforms and agencies all seeking to optimize their share of an advertiser’s digital media investment.

Consider WPP’s recent second-quarter 2015 earning release in which the organization announced a first-half revenue gain of 6.8% and a profit increase of 51.7%. What was most telling was the following statement, within the release indicating that “net sales growth, which excludes inventory, purchased and resold to clients directly, was 5.2%.” So while media reselling makes up a relatively small portion of the agency holding company’s revenue base, it obviously contributes significantly to agency profitability. To WPP’s credit, it is the only agency holding company which breaks out organic net sales growth. 

During the spring of 2014, the Association of National Advertisers (ANA) raised concerns on behalf of its members with regard to the lack of media transparency and cited issues related to “programmatic digital buying and agency trading desks” in particular. Supporting the ANA’s perspective was information from the World Federation of Advertisers (WFA) and DataXu, which suggested that “only 55¢ of every media dollar in programmatic digital buying ends up with publishers,” with the rest going to “agencies, trading desks, demand-side platforms and ad networks.”  

Unfortunately, the odds are stacked against advertisers in this equation. Further, absent a principal-agent relationship to govern the interactions between advertisers and advertising agencies, one can legitimately ask; “Who is looking out for the advertiser’s interests?” 

Perhaps the simplest way of shifting the balance of power is to better align the roles and responsibilities of advertisers and agencies. This process should begin with a review of the media scope of services and the resulting agency remuneration system. Secondly, as part of this process, we believe that advertisers should seek to eliminate media arbitrage as a source of agency trading desk revenues. Why? To return to a fiduciary standard, where a principal-agent relationship is the hard and fast rule. 

To be fair, clients will need to consider a compensation schema, which offsets, at least in part, the revenue currently being generated by their agency partners under the current system. Such an approach could very well incorporate incentives tied to performance based criteria including but not limited to; inventory quality, CPM rate optimization, timeliness of digital buys and programmatic creative development and frequency cap/ curve management to reward extraordinary agency performance. 

Revising compensation is perhaps the quickest and most effective means available to revitalize advertiser confidence in their digital agency partners and in removing any agency qualms with regard to fully disclosing comprehensive digital media buy details to advertisers. Executed in combination with contract language dealing with the disclosure and disposition of other potential non-transparent revenue sources, such as rebates, AVBs and volume discounts and advertisers will have eliminated a couple of key items that have caused some within the client organization to question the loyalty of their agency partners. 

“Where the battle rages, there the loyalty of the soldier is proved.” ~ Martin Luther

Ready to Embrace Full-Service Agencies Once Again?

24 Aug

full service advertising“Back in the day” is a catch phrase that many of us who came up in the ad business during the full-service agency, 15% commission era are accustomed to using when discussing the state of affairs within the industry today.

Things were simpler then for both marketers and ad agencies. Agencies were valued strategic partners, with C-Suite access that were tasked with developing brand positioning architectures, target segmentation schema and the creation and stewarding of brand communications across customer touchpoints. Marketers managed one full-service agency to handle all of the “above the line” branding and activation activities and maybe one or two “below the line” shops to handle tasks such as sales promotion and yellow pages advertising.

Fast forward to the here and now and the concept of “generalist” agencies, as full-service shops are often derogatorily referred to, has given way to specialization. As a result, marketers have seen the depth of their agency rosters swell in number to represent several to several dozen shops, each responsible for some, but not every aspect of a brand’s interaction with some, but not all segments of that brand’s target audience.

In the current “specialization” model, the challenges for marketers, particularly for those with limited staff resources, that don’t employ a full-service agency-of-record, are many. There are critical tasks and hand-offs which need to be addressed within the client organization and across their agency network, such as:

  • Who is responsible for marketing communications strategy development?
  • Who is on point for the integration and coordination of the communications program across touchpoints? Across media? Across target segments? Across geographies?
  • Who owns the agency relationships?  

Factor in the challenges caused by evolving dynamics including organizational silos (i.e. digital versus traditional media), cross-channel marketing and attribution, big data and ad technology and the level of complexity, which marketers face grows to an almost dizzying height.

As to “who” is responsible, the obvious answer is that ownership of these tasks clearly resides with the client-side marketing team. This might help to explain why marketers are feeling stressed out, with many actually expressing a lack of confidence in their team’s ability.

Two short years ago Adobe conducted a survey of 1,000 U.S. marketers and found that only 40% of those surveyed felt that their company’s marketing efforts were effective. This same survey indicated that 68% of marketers were feeling “more pressure to show a return on investment on marketing spend” (ROMI). Earlier this year, Workfront surveyed 500 marketers and found that 25% felt “highly stressed” and 80% stated that they felt “overloaded and understaffed.”

It should go without saying that this is not a healthy dynamic for marketers and doesn’t seem to bode well for organizations seeking to optimize their ROMI.

One might realistically ask the question, “Are such organizational and or workload challenges impacting brand/ customer relationships? Some industry experts, such as Liz Miller, SVP of Marketing at the CMO Council have suggested that consumers in fact have a disjointed perspective of certain brands, resulting in part from inconsistent experiences across touchpoints. In a recent interview with Marketing Daily, Ms. Miller suggested that the key issue facing marketers was delivering a “holistic, connected customer experience.”

Thus it would seem that in this era of specialization, deep agency rosters, headcount pressures on both client and agency organizations, rapidly evolving ad technologies and an empowered consumer, with a wide array of choices a return to “simpler” times would be welcome.

In our experience, advertisers that are successfully navigating this complex, rapidly changing market have done three things that are contributing to their success:

  1. Reduced the size of their agency rosters.
  2. Deputized an Agency-of-Record partner to share in the responsibility for developing joint strategies and orchestrating marketing activities to deliver a holistic brand experience.
  3. Placed a high premium on effective, collaborative communications with their agency partners and internal stakeholders to gain buy-in to the organization’s marketing communications efforts and to provide regular performance updates. 

While a return to the “good ole days” may be nothing more than a fanciful wish, the concept of simplification remains a viable means of steadying the ship and allocating both advertiser and agency resources in a more efficient manner. 

As American computer scientist Alan Perlis, once said;

“Fools ignore complexity. Pragmatists suffer it. Some can avoid it. Geniuses remove it.”

 

Building a Relationship and Managing to Scope Are Not Mutually Exclusive

04 Aug

project scopeAdvertisers are comfortable paying their agency partners for services performed and the work product which they deliver. Conversely, agencies are comfortable billing for the services provided and work which they complete. More often than not, advertisers and agencies have contractual agreements, which specify how the agency is to be remunerated for such work.

So what is the root cause contributing to continued industry concerns over agency compensation and profitability?

Consider that, most agency compensation systems establish guaranteed profit ranges of between 10% and 20% with the opportunity for additional incentives tied to performance. Further, most client-agency relationships begin with fairly well defined “Scopes of Service” and “Agency Staffing Plans” which serve as the basis of the agency remuneration program. The obvious answer has to be that regardless of both parties good intentions, actual practice must not mirror the agreed upon contractual terms.

From our perspective, the answer comes down to one key aspect of any professional service provider’s business model… the ability to align staff investment with the scope of services required by their clients. As a contract compliance auditor and marketing accountability consultant we have had the good fortune to analyze a broad range of client-agency relationships, across industries and around the globe. In virtually every scenario where an agency asserts that they are not being adequately compensated on a given client, these two items are misaligned. The only acceptable instances we’ve come across are in the context of an agency knowingly investment spending to assimilate a new client and or on a particular aspect of a client relationship.

The primary issue for ad agencies is that their time-keeping practices are less than optimal and their systematic ability to accurately track time at a project or task level is often times poorly setup or woefully lacking in capabilities. This is frequently compounded by inadequate controls and reporting, making it extremely challenging for agency management to have the proper information necessary to course correct on a real-time basis. Finally, even if the agency does have the proper tools and is aware of any shortfalls, agencies often aren’t comfortable engaging their clients in meaningful discussions surrounding project burn rates, inefficient processes, demands exceeding the original agreed to scope, or variances in planned staff mix and utilization levels. Consequently, these issues are often left unresolved until the year-end relationship evaluation meeting, leaving the only option for the agency but to approach their client with a plea for additional remuneration to offset its over investment of time. Not surprising, the timing of these discussions are such that it is often too late for the client to even consider such a request. In the words of Roman statesman and philosopher, Seneca:

“When a man does not know what harbor he is making for, no wind is the right wind.”

Fortunately, this scenario is easily remedied through improved controls and good communications.

For starters, agencies must educate their employees and contractors on the purpose and importance of accurately tracking their time by client, project and or task, in fifteen minute increments and the need to submit their time sheets on at least a weekly basis. Ideally, these guidelines along with any other agency or client specific requirements, should be published and reviewed periodically with the agency staff.

Secondly, time-of-staff reports should be issued to clients on a monthly basis and should incorporate staff investment detail by person, by department and should be compared back against the total hours and utilization rates identified in the staffing plan along with an explanation of any noteworthy variances. This should be supplemented with a quarterly meeting between agency and client executives to review progress against the contractual Scope of Services and to discuss the agency time-of-staff investment to-date and, if necessary, any actions required to realign the two going into the next quarter.

While the agency will usually be the direct beneficiary of this approach, clients will genuinely appreciate and respect the timeliness and thoroughness of this “no surprises” process. Simple? Yes. Straight forward? No doubt. Who’s responsible for taking the first step… the agency. This methodology is part and parcel of every professional services provider’s responsibility to their clients and shareowners. Importantly, it allows agencies to effectively build rapport and manage their client relationships on a profitable basis.

 

 

 

 

What if Advertisers Suspended All Digital Media Spend?

23 Jul

committeeSound preposterous? Perhaps not when you consider how much of an advertiser’s investment is siphoned off by digital fraudsters and criminals. One has to wonder if the efficacy of a reallocated media mix would really hamper in-market performance.

Let’s face it, in spite of the incessant level of press coverage, advertiser, agency and publisher posturing and the formation of numerous industry task forces, digital ad fraud has continued unabated.

In March of 2014 the IAB estimated that approximately 36% of all web traffic was fake, the result of bots. In December of 2014 a joint study by the ANA and White Ops, an ad security firm, estimated that digital fraud accounted for $6.3 billion out of a total estimated spend of $48 billion.

Various other studies have suggested that up to 50% of publisher traffic is bot related and that somewhere between 3% and 31% of programmatically bought ad impressions were from bots. During December of 2014 there was a research study done on FT.com which revealed that “in a single month, 72% of the ad impressions offered on open ad exchanges as being on FT.com were fraudulent.” The impressions were from sites pretending to be the FT and the ads appeared only on sites viewed by bots.

Ironically, in spite of the financial impact of these crimes, advertisers continue to spend an increasing percentage of their marketing budgets on digital media. According to Strategy Analytics, digital media will reach $52.8 billion in U.S. ad spending in 2015, accounting for 28% of every dollar spent, second only to TV. Further, while every other medium is either losing revenue or seeing low single digit growth, digital is anticipated to grow at 10% to 13% per annum over the next three years.

There are a number of industry stakeholders benefiting from the meteoric growth in digital spending, publishers, ad tech providers and agencies to name a few. For example, the major ad agency holding companies have seen revenues from digital media grow to represent up to 50% of their annual revenue base.

Thus it was with a slightly cynical eye that I viewed the recent press release from the Trustworthy Accountability Group (TAG) regarding their latest initiative to combat digital ad fraud. The focus of the release was straightforward enough, dealing with working to minimize “illegitimate and non-human ad traffic originating from data centers.” However, in the end it was about Google lending the group its blacklist of suspicious data center IP addresses for use in a pilot program.

As most industry participants know, TAG is the joint effort of the ANA, 4A’s and IAB launched in 2014 to work collaboratively with companies in the digital advertising space to combat ad fraud. While supportive of industry stakeholders teaming up to address key issues, one wonders how likely it is that TAG will be able to mitigate advertiser financial risks in the near-term.

Curiously, on July 23rd the 4A’s announced the formation of a committee that will focus on addressing “issues related to the digital supply chain.” Their press release pointed out that the newly formed committee will work closely with “other 4A’s committees and task forces, such as the Media Measurement, Data Management and Mobile committees, on policies and best practices.”

Have any of the existing task forces’ yet demonstrated tangible evidence of progress being made to combat digital fraud? It is difficult to imagine how the formation of yet another committee is going to make a difference. Do the organizations forming these ad hoc groups feel that the industry is so superficial and shallow that the news of a new committee will help advertisers feel better about the lack of measurable progress being made on this front? 

If the industry doesn’t make concrete progress in the near-term, there is a strong likelihood that we will be welcoming a new “alliance partner” to the team… regulators. We know that historically business in general and the ad industry in particular have never been fans of government involvement. However, if the industry’s self-regulatory approach doesn’t begin to yield results, Washington will assert itself and they should, advertisers are literally being robbed. This is white collar crime at the highest level when you consider that in the U.S. alone, $6.3 billion is being siphoned off by bad actors on an annual basis, 13% of total spending in this specific area.

While the industry struggles to bring order to the chaos surrounding digital media advertisers might rightly ask the question; “Does it really make sense to continue to allocate hard earned dollars to a medium with the audience delivery and viewability issues that currently plague digital?”

What if advertisers were to place a moratorium on digital ad spending until more concrete actions are taken by the industry to protect their investment?

An extreme position? Yes. Unlikely? No doubt. However, this is the type of dramatic action required to force reform and provide advertisers with the transparency and controls required to yield satisfactory returns on their digital media investment. If nothing changes, every incremental dollar invested in digital media will continue to line the pockets of the tech-driven criminals which are preying on advertisers. In turn, this rapidly growing revenue stream allows fraudsters to expand their capabilities at an even quicker rate than those trying to police them creating a “no win” situation for the industry.

From this writer’s perspective, while industry task forces and committees can play a role in furthering the dialog, they will not suffice. Traditional outcomes from these groups include recommended best practices, guidelines, advisory white papers and the formation of new committees to continue the fight… hardly enough to strike fear in the hearts of digital criminals.
In the words of noted businessman Ross Perot:

“If you see a snake, just kill it – don’t appoint a committee on snakes.”

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