Marketing Math Blog

Does Commerce Media Work? How Should Brands Fund This Investment?

By Marketing No Comments

mediaGood article in Digiday on what is a unique challenge for clients as they assess overall marketing budget allocation.

In the ever swinging pendulum of power between retailers and brands, large retail organizations, with retail networks can certainly leverage their position to secure brand investments in this area.

The question for brands is at what expense? Can they reduce their trade promotion investment to fund such initiatives? Will they shift dollars from brand building to support their RMN investment? And, in the end, does an investment in RMNs correlate with the potential to drive retail sales? Or does increased spend in this area risk diminishing brand strength in the long-term? … Read the Article Here

Who Should Be Responsible for Agency Performance Management?

By Advertisers, Advertising Agencies, Marketing Accountability, Supply Chain Optimization No Comments

Assurance CollageAgency performance management is an essential element in building an effective, highly productive network of marketing partners that includes an advertiser’s media, creative, experiential, shopper marketing and PR firms.

While important, agency performance management is sometimes an afterthought for many organizations. Structured properly, a formal performance monitoring and evaluation program can yield meaningful and actionable results on a range of critical topics:

  • Contract Compliance & Financial Management
  • Audience Delivery & Measurement Validation
  • Brand Safety Guideline Adherence
  • Regulatory Compliance Verification
  • Billing & Fee Reconciliations
  • Scope of Work Completion Assessments
  • Agency Compensation & Staffing Reviews
  • QBRs & Annual Performance Evaluations

With an advertiser’s agency partners managing tens if not hundreds of millions of dollars on their behalf, too few organizations have implemented the appropriate controls and processes in this area. Experience suggests that without effective verification controls, advertisers rarely have a clear understanding of how well their advertising investment is being managed.

To achieve this end, it is essential that an organization assign responsibility and allocate a budget to conduct proper oversight of the performance of its agency partners. Some organizations are fortunate to have marketing operations teams or experienced marketing procurement peers and or engage external specialists to consult, audit and improve financial effectiveness in this area. However, this type of structure or process is not employed as often as they should be given the material nature of marketing spend. As a result, most advertisers simply leave the management of their agency network to the marketing team.

Why could this be an issue?

First, marketing’s primary responsibility is to build brands and drive revenue, which is how most marketing departments staff and develop their internal teams. With finite resources, adding marketing personnel with the requisite experience or skills to handle financial, compliance, regulatory, and operational oversight may be a luxury. Given that the average tenure of a CMO is 40 months, the lowest rate in a decade (source: Spencer Stuart, December 2021) it may not be reasonable to expect senior marketers to care too much about monitoring below the line agency performance details or to conduct financial compliance reviews. As an aside, CEO’s have an average tenure of more than two times that of CMOs… 85 months.

Second, despite the level of budget allocated to marketing, conforming to corporate governance standards in this area has not become a priority in many organizations. Without the financial leadership team applying appropriate pressure and installing a strict requirement to improve transparency and accountability regarding a firm’s marketing spend, agency performance vouching simply does not receive the necessary attention. Often procurement, finance or internal audit have an interest in engaging outside support to undertake independent reviews of agency performance or to verify compliance in these areas but, they typically do not have the budget. They in turn must secure the buy-in and funding from their peers in marketing, which heretofore has not been required to comply with such initiatives. In fact, often, marketing will often block or defer any such attempt to review agency performance or compliance with the organization’s desired controls citing concerns regarding timing or available funds or signaling that everything is under control.

One solution to the current quagmire is for organizations to adopt the mindset that a company’s ad agency network is a corporate resource, deserving of cross-functional support. As such, budgets should be established to formalize strategic supplier performance reviews of those agency partners and the appropriate responsibility for monitoring financial, legal, regulatory, and operational performance should be established. Such an approach would allow marketing to remain focused on brand building and demand generation, while engaging qualified personnel (i.e., procurement, finance, internal audit, external specialists) to help establish the desired controls and to monitor agency compliance with those guidelines and processes. This would yield millions of dollars annually per company in the form of reduced ad budget waste due to fraud and process inefficiencies, while also yielding future savings.

In the end, all stakeholders both corporate and agency will benefit from a formalized performance oversight program that aligns all parties’ interests… optimize the client’s return on marketing investment. As Benigno Aquino III once said: “With proper governance, life will improve for all.”

Is Your Influencer Marketing Program Compliant?

By Advertisers, Advertising Regulation, Government Regulation, Influencer Marketing No Comments


“Let’s make it simple: Government control means uniformity, regulation, fees, inspection, and yes, compliance.” ~ Tom Graves

In 2022 advertisers spent over $16 billion globally on influencer marketing, an 18.8% increase over the prior year. Fueling the growth of this sector is the purported return on investment, which claims an average of $5.20 for every $1.00 invested (source: Influencer Marketing Hub).

Influencer marketing is when advertisers engage influencers for endorsements or product placements in an online setting. As a result of their perceived authority, knowledge, celebrity status and social influence, these individuals can impact consumer perceptions of a brand and affect purchase decisions.

However, it is just not marketers who are interested in this emerging sector of social media marketing. Regulatory organizations, such as the U.S. Federal Trade Commission (FTC), have started to scrutinize practices in this area to protect consumers from deceptive advertising practices. The FTC is regulating endorsements and influencer marketing under section 5 of the FTC Act. Notably, advertisers, as well as intermediaries (e.g., marketing agencies) and individual influencers, can be liable for violations of this Section.

The FTC’s position is that influencer marketing is subject to the same rules that apply to any other type of advertising. Influencer endorsements, therefore, require “clear and conspicuous” disclosure when there is a “material connection” between the influencer and the brand. This means that if marketers offer anything of value to an influencer, they should assume that there is a material connection with that influencer, which necessitates disclosure of the relationship. Of note, while brands and influencers share responsibility for adequate endorsement disclosures, thus far the FTC has focused its enforcement efforts on the advertisers, not the influencers.

On October 13, 2021, the FTC warned 700 major consumer product companies and national advertisers that any future violations of the FTC’s endorsement and testimonial guidance could result in civil fines of up to $43,792 per incident.This action served as a follow-up to a lawsuit filed by the FTC against Teami for false or unsubstantiated claims, including endorsements from social media influencers about the efficacy of its products and a failure to disclose the material connection between Teami and its influencers who provided endorsements. In addition, the FTC alleged that Teami failed to adequately disclose that its influencers were paid to endorse its products, and the company and the FTC entered into a $15.2 million settlement.

Thus, marketers must learn and understand the potential legal pitfalls associated with their influencer marketing programs such as lack of data security, fraudulent influencers, fake followers, copyright infringement, problematic content, and the failure to disclose the relationship between a brand and its influencers. To assess the regulatory compliance of their influencer marketing programs, marketers may want to consider an audit of their current approach such as:

  • Have you drafted a formal set of influencer marketing guidelines and shared them with all relevant stakeholders (i.e., influencers and agency partners)?
  • Do you routinely verify influencer reach and engagement rates?
  • Have you validated whether your influencers are publishing content disclosure notices (“material connection disclosure”) to publicly disclose they are being paid to provide content related to your brand(s)?
  • Does your organization utilize an influencer marketing agency? Or contract directly with influencers? In either case, do your agreements with those agencies and influencers contain language requiring the influencer to comply with all FTC rules and guidelines, and mandate that posts disclose the connection between the brand and influencer?
  • Does your agreement language include indemnification for violations of all other laws governing deceptive or false advertising?
  • Do you categorize your influencers as employees or independent contractors? Have you clarified this relationship in the agreement, including payment terms and language stipulating that the brand cannot control the manner or means by which the influencers’ services are rendered?

In conclusion, while influencer marketing can be effective, it is critical for marketers to take the proper actions to avoid potential legal risks in this emerging sector of social media marketing.


Successful Marketing Spend Management: It Takes a Village

By Advertisers, Advertising Agencies, Government Regulation, Marketing, Marketing Agency Network No Comments


client-agency relationship success“Half the money I spend on advertising is wasted; the trouble is, I don’t know which half.”

John Wanamaker, American Merchant

More than one hundred years have passed since Mr. Wanamaker shared this perspective on his firm’s advertising investment and his words are as true today as they were when he uttered them in 1919. One could rightly argue that the accelerating rate of change, the dizzying array of message delivery choices, advances in technology, the growth in ad fraud, and an increase in regulatory oversight have further complicated the challenge of optimizing marketing and advertising spend.

Perhaps the biggest challenge posed to marketers is the evolution from full-service ad agency partners to the use of multiple specialist service providers engaged by most organizations. Long gone are the days when a single agency worked in tandem with an organization’s marketing team to develop strategy, craft content and deliver messaging to target audiences. Today, an organization’s agency network can include over a dozen specialist firms ranging from creative and media agencies to PR, graphic design, shopper marketing, social media and experiential marketing firms.

The question to be asked is: “Have advertisers’ agency networks grown in size and complexity to the point where managing them efficiently cannot reasonably be achieved by today’s marketing teams?” A key consideration for all advertisers is determining how they want their marketing teams to invest their time and effort. Building brands, driving revenue, capturing leads, optimizing customer lifetime value? Or vetting third-party invoices, assessing agency contract compliance, testing consumer data privacy regulation compliance, evaluating emerging technologies, and measuring the efficacy of audience delivery across a myriad of media alternatives?

Few organizations have marketing staffs large enough, with the diverse skill sets and breadth of experience to perform the tasks necessary to truly optimize agency efforts across the network. While some advertisers are fortunate to have engaged, proficient procurement and or marketing operations teams working hand in hand with marketing to address each of these areas, others may be falling short in this area.

In addition to dealing with the question posed by Mr. Wanamaker regarding “which half” of one’s budget may not be effective, the level of financial risk associated with increased regulatory activity poses additional challenges that can negatively impact brand reputations and company balance sheets. For example, as it relates to regulatory challenges, advertisers have already been fined tens of millions of dollars for failure to comply with consumer data privacy guidelines issued by the GDPR. Further, in October of 2021 the Federal Trade Commission (FTC) issued letters to over 700 advertisers of its intent to enforce and monitor regulations governing the activities of social media influencers, with a per occurrence civil penalties of over $43,000. This following a lawsuit brought by the FTC against tea and skincare marketer Teami, which alleged among other things that its social media influencers failed to disclose that they were paid to endorse Teami’s products. The suit was settled for $15 million.

Optimizing marketing spend and mitigating regulatory risk can both be achieved with the proper level of oversight. Monitoring and periodically testing agency processes, controls, reporting, and performance can go a long way to the attainment of this goal. If internal resources are limited, engaging independent consultants with the necessary subject matter expertise can yield tremendous value in the form of future savings, cost recovery and regulatory risk avoidance.

Given today’s environment and the strains being put on marketing budgets, fine tuning one’s agency network and enhancing the performance of each individual service provider should be a strong consideration for all advertisers.

Consumer Privacy Protection Regulators are Ready. Are You?

By Advertising Regulation, Consumer Data Privacy Protection No Comments

time for actionData regulation isn’t new, but many marketers are at risk because of incomplete and or inadequate processes to comply with consumer privacy regulations. This is despite much publicized notifications and warnings related to regulatory enforcement and the levying of fines for non-compliant activity.

Marketers have been tasked with collecting, utilizing and sharing consumer data more responsibly. This means providing consumers with the ability to understand whether data is being collected from them, what data is being captured and the purpose for which that data is being used. Further, marketers must provide consumers with the ability to request that their personal data be deleted and made unavailable for specific purposes.

The challenge has been that there is no omnibus global or federal law that covers all geographies, business sectors or data types. As a result, most marketers are focused on the two broadest-reaching, most comprehensive laws:

  1. General Data Protection Regulation (GDPR) – Adopted by the European Union which went into effect May 25, 2018.
  2. California Consumer Privacy Act (CCPA) – Went into effect January 1, 2020. Coverage expanded with the passage of the California Privacy Rights Act (CPRA), which went into effect January 1. 2023.

Regulation covers a myriad of personal information types including personal identifiers, commercial information, internet or other electronic network activity and other data such as geolocation, biometric, audio, visual, thermal, olfactory or similar information, professional or employment-related and educational information.

Failure to comply can be costly. CCPA infractions will cost marketers $2,500 per violation and $7,500 if the violation was deemed to be intentional. So, for marketers with consumer databases containing tens of millions or hundreds of millions of names, the risks are real. Consider the fines levied by the European Union for GDPR violations:

Top 5 GDPR Fines (Source: Enzuzo)

  1. Amazon – $780 million
  2. WhatsApp – $247 million
  3. Google (Ireland) – $99 million
  4. Google – $66 million
  5. Facebook $66 million

Note: Sephora was fined $1.2 million in November of 2022 for CCPA violations. This was the first CCPA settlement. Risks accelerate as the July 1, 2023 “Enforcement” data nears for the CPRA.

While many marketers have updated “Privacy” and “Data Collection” notices on owned websites, this is nothing more than table stakes in this privacy focused era. Marketers must create platforms, systems and processes that provide a full view of their data, where it’s stored, what it’s used for, where it was gathered from and whether the proper permission was secured. Understanding “Consumer Rights” under these laws is a good starting point for developing such protocols:

Consumer Rights Under the CCPA

  • Know that personal data is being collected on them
  • Know what personal data is being collected
  • Know if their data is being shared or sold and to whom
  • Ability to opt-out of their data being sold
  • Personal access to their data
  • Option to request that businesses delete their personal data
  • Protection against discrimination for exercising their privacy rights
  • Extra protections from data collection if they are minors

It should be noted that the regulations apply to all marketers, whether they’re focused on Business to Consumer (B2C) or Business to Business (B2B). At present, the CCPA broadly defines “consumer” to include “individuals acting as representatives of their employers.” While there are B2B exemptions that cover certain verbal or written communications with a consumer, the amendment (AB 1355) is highly nuanced and worthy of marketers securing legal guidance.

Beyond the notification of consumers and the provisioning of viewability and opt-out mechanisms, businesses will be tasked with protecting personal data in a safe and secure manner addressing threats to the confidentiality, integrity and access to the personal information in their databases. In addition, marketers will want to review and likely update agreements between their organizations and third-party data processors. These updates should include language requiring such suppliers to maintain data inventories, use due diligence questionnaires, provide records of processing actions, require the syncing of consumer response processes, allow for onsite assessments and audits, and require the mapping of any data elements shared with any party… including data that was sold.

While marketers await regulatory standardization within select markets, near-term it behooves marketers to understand that privacy requirements vary by geography and by sector and that a best practice would be to structure compliance programs to satisfy the strictest legislation, which should cast the broadest net when it comes to complying with other guidelines.

This article was written for informational purposes and not meant as legal guidance.

Fraud and the Lack of Transparency. What Actions are you Taking?

By Ad Fraud, Contract Compliance Auditing, Media Transparency No Comments

fraudsterReflecting at the end of 2022 there were two articles that piqued my interest (links below). The articles dealt with two issues that have plagued the ad industry for years now… the monetary impact of ad fraud and the lack of transparency surrounding programmatic digital media. According to Nick Swimer, an Entertainment and Media Partner at Reed Smith, LLP; “The lack of transparency is costing businesses millions and driving false impressions, which in turn is undermining trust in the industry.”

Advertisers, on the whole, currently invest more than half of their budgets in digital media. A high percentage of this activity is purchased programmatically. Based upon a review of these articles, the monetary impact and attendant risks faced by advertisers in this area are eye-opening. This is on the heels of the 2020 study by the ISBA and PwC which found that only 51% of spending in this area made it to publishers. Of the remaining 49% balance, 15% of total advertiser spend could not even be tracked or attributed.

Given the economic climate and the negative impact on marketing budgets, it is natural to wonder why there isn’t a greater proclivity for action on this front among marketers.

Support for industry trade associations such as the ANA, IAB, and their key initiatives (i.e., Trustworthy Accountability Group (TAG), regulatory outreach and lobbying efforts, etc.) are important steps in this area that will yield results for marketers over the long haul. However, immediate action is required if marketers want to safeguard their investments sooner than later.

Near-term, there are a few key steps that marketers can take to mitigate the negative economic impact that fraud and non-transparency related risks can have on their budgets:

  1. Update media agency contracts to secure comprehensive audit rights, establish a principal-agent relationship and clarify expectations regarding the agency’s fiduciary responsibilities.
  2. Conduct periodic contract compliance, financial management, and performance audits of media agencies.
  3. Assess and tighten media controls including Media Authorization Form language, Buying Guidelines, campaign monitoring and post-buy reporting, agency-generated third-party vendor insertion order language, and client sign-off requirements before using agency affiliates or Inventory Media buys.

Too much time has elapsed since these issues originally surfaced. And while there has been much talk about corrective measures, these trends have continued unabated. It feels as though now is the time for action, not indifference. What do you think?

If a Tree Falls in the Forest…

By Advertisers, Contract Compliance Auditing, Marketing Accountability No Comments


This past December the former COO/ CEO of global PR firm Weber Shandwick was sentenced to prison after pleading guilty to embezzling $16 million from the firm and ultimately its holding company, Interpublic Group, over a 9-year time frame. The fraud was perpetrated in part through the generation of “false and misleading invoices.” 

Aside from the individual’s character, this news should raise concerns for not just Weber Shandwick’s clients, but all agency clients. The lack of solid internal controls at an agency and holding company over such a prolonged period raises obvious questions. “Does my agency have lax controls, and if so, how have they impacted our business? Have any illicit charges been posted to our accounts?” So, if it happened at one agency, it could be occurring elsewhere.

Because of the advertising industry’s practice of billing in advance based on estimates and submitting final/reconciled agency invoices to clients without accompanying third-party invoices, it seems that marketers are remiss if they are not conducting periodic contract compliance and financial management audits to assess their agency’s financial stewardship practices, mitigate financial risks and dispel potential concerns and embarrassment.

In the words of Norman MacDonald, author of Maxims and Moral Reflections: “Though we may not desire to detect fraud, we must not, on that account, endeavor to be insensible of it, for, as cunning is a crime, so is duplicity a fault…”

Offsetting Marketing Budget Reductions

By Advertisers, Marketing, Marketing Agencies, Marketing Agency Network, Marketing Budgets No Comments

Budget Cut

“Price is what you pay. Value is what you get.” ~  Warren Buffett

If you’re like many marketers, 2023 budgets have either been frozen at last year’s level or reduced considering what many organizations believe will be a soft economy in this year. That said, company expectations relating to brand development, customer acquisition and revenue generation goals can seem daunting.

The good news is that five key steps can be taken to offset budget reductions and refuel marketing budgets:

  1. Review and revise annual Scopes of Work – Working in conjunction with your agency partners, representatives from the marketing and procurement teams should reassess project deliverables relative to approved spend levels and make the requisite adjustments. Focusing the extended team’s efforts on strategies and tactics that are critical to attaining the organization’s core business goals is the top priority. Out-of-scope work should be prohibited and, at a minimum, tightly controlled and non-essential programs postponed until business conditions improve or additional marketing funds are allocated.
  2. Evaluate and improve Client/ Agency work processes – The opportunity for efficiency gains in this area are numerous, particularly in longer term relationships where too often bad habits, that drive costs up or limit market timing opportunities have become the status quo. Key areas to review include the creative and media briefing and client-side approval processes. Inefficient approaches to these basic tasks wastes time and increases project costs. Conversely, tightening brief development and streamlining the approval process can reduce fees associated with agency rework costs and decrease the time required to execute certain tasks.
  3. Right size your agency network – Over time, an organization’s roster of agency partners can swell to unwieldy levels, leading to management challenges, overlapping resources and duplicative costs. Internally reviewing each agency’s roles and responsibilities to identify opportunities for focusing each agency’s resource offering and reducing overlap. Longer term, consider the creation of broadcast and digital production and content curation and production centers of excellence, consolidating activities in this area to generate scale economies and reduce agency fee outlays. Additionally, work with your agency partners to identify opportunities to remove links from the marketing/ advertising supply chain. In short, reduce the number of intermediaries involved in the production, placement, and trafficking of your advertising to reduce unnecessary fees and costs.
  4. Review agency financial management practices and contract complianceAuditing agency compliance and financial stewardship can lead to the identification of billing errors, earned but unprocessed credits, unbilled media balances that should be returned, the application of unauthorized mark-ups and agency time-of-staff under deliveries that could result in financial recoveries. Additionally, the independent review of project management, job initiation and reconciliation processes can lead to cost avoidance strategies that result in meaningful savings.
  5. Reconsider the “Estimated Billing” process – As interest rates have increased, so too has a company’s cost-of-capital. One key tenet of any organization’s treasury management practice is to retain control of its money for as long as possible. However, when it comes to advertising outlays, the industry tends to work on an “estimated billing” process where each agency bills for work to be done, services to be procured or media to be purchased upon approval, with the pledge to reconcile estimated costs to actual once a job has closed or a campaign completed. Unfortunately, this results in an advertiser’s funds being held and managed by others, with no economic benefit (e.g., interest income) and some level of financial risk. Consider reworking estimated billings terms that are more favorable or moving to a “final billing” process whereby invoices are submitted by the agency for payment once services have been rendered and third-party costs validated. In turn, advertisers should be prepared to tender payment upon receipt of these invoices, so that none of its agency partners is required to go out-of-pocket to compensate third-party vendors.

Taking some or all of these actions will help to offset the impact of budget reductions or freezes. As importantly, an open-minded review of a marketer’s partners and processes will generate financial recoveries and future savings that will improve your return on marketing investment.


Ad Industry: Lack of Transparency Limits Trust & ROI

By Advertisers, Contract Compliance Auditing, Marketing Accountability, Marketing Agency Network, Media Transparency, Programmatic Buying, Right to Audit Clauses, Supply Chain Optimization No Comments

Trust“Trust is the glue of life. It’s the most essential ingredient in effective communication. It’s the foundational principle that holds all relationships.” ~ Stephen Covey

The question often asked of senior marketers by their C-suite peers and in turn by marketers of their agency partners is: “Are we getting optimal value in return for our marketing investment?” This is a simple question, but one that is not easily answered given the breadth and intricacies of an advertisers marketing communications investment.

Let’s face it, with the pervasiveness of non-transparent fees and AVBs throughout the supply chain along with the number of intermediaries involved in service delivery (often without the advertiser’s knowledge), the strains on working ad dollars are many and can be profound. Combine this with the industry’s “estimated billing” methodology that rarely ever provides third-party vendor invoices to support their billing to clients and it is easy to understand the difficulty advertisers have addressing the question of “did we get what we paid for?”

While the challenges to building trust between advertisers and the myriad of suppliers that touch their business are real, the means of addressing this issue is clear… the industry needs to commit itself to providing full transparency at every level.

Marketers will need to take the first step, reviewing all marketing services agency agreements to ensure that there is adequate language granting them audit rights, establishing record retention criteria and extending these guidelines to not just their agencies, but to third and fourth-party vendors. Further language regulating the appointment and monitoring of “interested parties” by their agency partners and limits to the use of principal-based buys must be incorporated into all agreements. Also, clear reporting and invoicing guidelines must be established with each agency partner to provide advertisers with a clear line of sight into the disposition of their marketing spend at each stage of the investment cycle.

Importantly, marketers will need to invoke their audit rights to conduct periodic reviews of agency compliance with these contract terms as well as validate each agency’s support of their billings to the client. This is a cost of entry for marketers if they’re truly interested in evaluating the efficacy of their marketing investment.

Consider but one aspect of advertising spend, digital media.

  • Digital media represents more than 50% of client ad spend.
  • Programmatic buying represents better than 90% of all digital display ad buying.
  • Publishers only receive 51% of advertiser programmatic ad spend.
  • Costs such as DSP fees, SSP fees and technology costs represent between 15% and 35% of advertisers’ spend in this area.
  • An “unknown delta” of one-third* of programmatic supply chain costs could not be identified.

*Source: Incorporated Society of British Advertisers (ISBA), Association of Online Publishers (AOP) and PwC “Programmatic Supply Chain Transparency Study.”

While alarming, these statistics may represent a “best case” scenario when one considers the poor visibility that exists in the layers of intermediaries between advertisers and publishers, including but not limited to agencies, DSPs, SSPs, Ad Exchanges and data verification vendors… each charging a fee for their involvement. The Association of National Advertisers (ANA), which earlier this year commissioned a study on programmatic transparency, estimates that of the $200 billion plus in programmatic digital media spend “70% doesn’t reach the end consumer.” Where does it go? According to the ANA “it goes to fraudulent or non-viewable impressions, non-brand-safe placements and unknown allocations, as well as being spent on ad fees.”

Take SSPs for example, they typically bundle fees with media costs once an auction is won and an impression purchased. Thus, advertiser visibility into SSP take rates, revenue share deals with publishers, margin realization rates and the number of hops is obscured.

We do not want to belabor the point, but similar examples of limited transparency exist across the entirety of the marketing communications supply chain.

In closing, we believe that the notion of trust is certainly attainable, but not until transparency reform becomes an actionable reality for advertisers. Near-term, advertisers have another reason to push for transparency and audit the financial management practices of their agencies… stagnant and or reduced budget are putting pressure on marketers to do more, with less. The knowledge gained, historical dollars recovered and future savings realized from a formal accountability program can help to refuel marketing budgets.

Ad Industry Trends Pose Real Risks to Advertisers

By Advertisers, Contract Compliance Auditing, Marketing Accountability, Right to Audit Clauses No Comments


“There are risks and costs to action. But they are far less than the long-range risks of comfortable inaction.” ~ John F. Kennedy

The advertising industry is an important, dynamic, complex, and rapidly evolving part of the global economy. As such, it is susceptible to the same challenges facing other business sectors… inflation, rising interest rates, recessionary pressures and geopolitical uncertainty.

However, there are unique aspects of this industry that pose challenges to advertisers, agencies, media owners and AdTech companies alike. If you’re a marketer and have not conducted a compliance and financial management audit of your ad agency partners, consider the following:

  • The global economic climate is uncertain for the coming year with economic growth projected to slow from 6.1% in 2021 to 2.7% in 2023 (Source: International Monetary Fund).
  • The economic slowdown is causing advertisers to reconsider and often curtail advertising budgets for the coming year, with ad spend growth projected to slow from 8.3% in 2022 to 2.6% in 2023 (Source: WARC “Ad Spend Outlook 2022-23” Study).
  • Media inflation is anticipated to grow by 6.2% or more in 2023 (Source: ECI Media Management).
  • Marketing and advertising expenditures are a material SG&A expense, with organizations spending between 7 – 8% of gross revenue in this area (Source: Deloitte CMO Survey – 2017)
  • The advertising industry works on an “Estimated Billing” basis, with advertisers paying their agencies in advance of expenses being incurred, with the understanding that estimated costs will be reconciled to actual outlays at the time jobs are closed.
  • Agencies can take months to close and reconcile production jobs and media campaigns, which delays the identification and issuance of credits to advertisers, impacting the accuracy of budgets and subsequent planning.
  • Final Invoicing from ad agencies that reconcile advance billings to actual costs incurred rarely, if ever, include copies of third-party vendor or affiliate invoices. Without documentation to support actual expenditures, your Finance and Marketing departments can only compare final billed amounts to an estimate.
  • Almost one-half of advertisers listed “Transparency” as their leading concern when it comes to their marketing investment (Source: WFA survey, 2017).
  • Digital will represent 61% of U.S. advertising spend in 2023 (Source: Statista).
  • In 2022, 90% of all U.S. digital display advertising ($123 billion) was placed programmatically (Source: eMarketer).
  • Marc Pritchard, Chief Brand Officer of Procter & Gamble referred to the digital supply chain as “murky at best, fraudulent at worst.”
  • In 2021 over 20% of programmatically served ad impressions in the U.S. were “fraudulent” (Source: Statista).
  • Digital ad fraud in the U.S. is forecast to be over $80 billion in 2022, representing 15% of U.S. digital media spend (Source: Statista).
  • Between 35% – 60% of U.S. marketers’ digital ad spend goes toward the “AdTech Tax” or the fees spent on each vendor or intermediary down the supply chain (Source: ANA Study)
  • The Association of National Advertisers (ANA) study on AdTech Transparency being conducted by PwC and Kroll, originally scheduled to be released this month, has been delayed until 2023. Digiday reporting cited “conflicted reporting methodologies,” vested interests,” a lack of full participation (i.e., Google and The Trade Desk are not participating in the study) and the complexity of tracking payments between “relevant parties” as contributing factors.
  • The annual agency employee turnover rate is estimated to be around 30% (Source: Association of National Advertisers and Forbes).
  • 96% of consumers “don’t trust ads” (Source: 4A’s 2019 study).

The preceding stats are alarming to both an organization’s stakeholders and shareholders. A marketers’ ultimate leverage and truth lever is the “Right to Audit” clause contained within the client/ agency agreement. Enacting that right, conducting a formal compliance and financial management review of your agency partners to validate actual costs and time-of-staff along with assessing third-party billings makes good business sense. Such reviews result in financial recoveries, future savings, stronger controls, improved supplier alignment, and enhanced levels of trust in a marketers agency network.

Best of all, each of these outcomes has a positive impact when it comes to optimizing your organization’s advertising investment.