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Marketers That Don’t Have Formal Assurance Programs Are At Risk

27 Sep iceberg risk

For most companies, marketing spend can be considered a material expense, often running at 5% or more of annual revenue. Yet, a majority of these organizations have not included marketing in their corporate governance and risk mitigation efforts, conducting limited or no supplier compliance, financial management and performance testing.

Given the complex nature of the marketing and advertising space, the less than ideal levels of transparency and the murkiness of advertiser supply chains, this creates a precarious situation.

It must be noted that this is an industry which is largely predicated on the concept of “estimated billing,” where advertisers are invoiced in advance for approved activity by their agency partners. These funds are then disbursed over time by the agency to third-party vendors or realized as agency revenue in accordance with remuneration agreement terms. An underlying tenet of this billing model is  that estimated costs are “trued up” to reflect actual costs incurred once a job is closed, supplier invoices tallied, and an agency’s time-of-staff investment is fully posted. However, reconciliation efforts do not always occur and approved but unused funds, for which advertisers have been billed, are not always returned in a timely manner or at all.

Many Client/ Agency contracts contain solid control language to protect the advertiser and to provide explicit financial management and reporting guidelines to their agency partners. That said, many agreements are outdated and do not contain the requisite terms and conditions necessary to adequately safeguard an advertiser’s marketing spend. Ironically, good contract or not, too few organizations review supplier compliance with agreement terms or conduct financial and performance reviews of their agency partners… even though most agreements provide advertisers with the right to audit the agency to review the financial documentation that supports the agency’s billings.

In our experience, advertising agencies expect their clients to conduct periodic compliance and performance testing. The fact that more companies are not following through on their audit rights is a mystery. Why should testing be performed? Because periodic compliance reviews drive accountability and improve transparency, addressing questions such as:

  • Did we get what we paid for?
  • Were we charged the appropriate rates for the work performed?
  • Were third-party expenses billed on a pass-through basis, net of any mark-up?
  • Did the agency reconcile fees to reflect its actual time-of-staff investment?
  • Were third-party vendors paid in a fair and timely manner?
  • Were agency and third-party vendor billings accurate?
  • Are future projects being estimated and approved using accurate historical information?

Beyond providing financial management assurance and recoveries, compliance testing identifies gaps in control, yields recommendations for improving contract language and reporting and can drive process enhancements that result in future savings.

In the end, sound Client/ Agency agreements backed by a formal risk mitigation program can protect a company’s marketing investment, converting risk control measures into business growth opportunities. This, while driving accountability and providing company stakeholders with a sense of trust and confidence that its marketing team, agency partners and third-party suppliers are properly stewarding the funds entrusted to them.

Compliance Programs Can Transform Marketing

24 Jun

compliance-rulesCompliance is a cost of doing business, and companies invest appropriately in compliance and risk management programs and policies. Many have even been successful at elevating compliance to “cultural ethic” status.

That said, few organizations have risk-management frameworks in place for their marketing and advertising spend. Why?

Consider that the marketing and advertising expenses are material to the financial statements. Further, marketing represents a critical link to building brands and driving revenue. If not managed properly, dollars invested are lost to fraud and non-transparent advertising supply-chain practices, lowering working dollars and leading to declines in marketing efficiency. These factors help to underscore the necessity for compliance risk mitigation coverage in this area.

Allaying risks aside, we have been fortunate enough to witness the transformative power of compliance audit work and financial management oversight programs for advertisers. Benefits have included financial recoveries, cost reductions, improved efficiencies and enhanced revenue generation.

Best of all, technology advancements combined with sound compliance frameworks and proven audit work processes afford organizations the opportunity to efficiently conduct comprehensive, periodic reviews of their marketing services agency network. In our experience this is readily achieved without disruption to client-agency workflows or performance.

Aside from the financial benefits, a structured marketing and advertising compliance program can instill a sense of confidence among all stakeholders that advertising related risks are being monitored and continuously mitigated. Additionally, concerns, questions and the unknown regarding a marketer’s ad agency network, are replaced with a sense of trust and confidence. This is a compelling outcome given the important role that an advertiser’s agency partners play.

In the wake of the COVID-19 crisis, marketers will face a myriad of challenges in meeting their organization’s performance expectations. The combination of an uncertain future regarding the consumers’ return to “normal” consumption patterns and behaviors and budget reductions will require a disciplined approach to planning and resource allocation efforts… not to mention the need for flawless execution.

Embracing compliance and extending enterprise initiatives in this area to include marketing and advertising will mitigate risks and boost the return on marketing investment. In the words of former U.S. Navy Seal and NY Times bestselling author, Brandon Webb:

“Being a Navy SEAL and sniper taught me all about risk management. Take away all the risk variables under your control and reduce it to an acceptable level. The same fundamentals apply in business.”

 

Impossible: 1 + 1 Can’t = 3

23 Mar

dreamstime_xs_6452736Late last week a group of marketers filed an amended lawsuit against Facebook alleging that it knowingly overestimated audience reach levels.

Court papers filed in the suit indicate that:

“Facebook’s internal documents show that Facebook personnel knew for years that the Potential Reach metric that it provides to Facebook advertisers on its advertisement purchasing interfaces (including on Ads Manager and Power Editor) was inflated and misleading.”

The evidence for these actions was identified in the original complaint and was based upon analysis conducted by independent groups, including the Video Advertising Bureau. In their 2017 report, the Video Advertising Bureau found that Facebook’s purported reach in every state in the U.S. exceeded their populations. A red flag to be sure.

Not excusing Facebook’s alleged behavior, one would think that an observant marketer or agency media buyer would question reach levels that are greater than the population of a given market(s) and raise questions, long before such revelations are made in relation to a lawsuit.

The irony is that reach estimates apparently were not questioned by agency planners or clients during the media planning process, nor at the time of post-campaign performance summary meetings. The seminal question is, “Why not?” Further, if and when suspicions were raised, wouldn’t it be reasonable to expect media buyers to exclude any publisher suspected of inflating reach levels from consideration to begin with, and cease allocating client media funds to that entity moving forward? The answer is obviously “no.”

When one sees examples of this type of lackluster media stewardship, it is easy to understand why the C-Suite might question the efficacy of their organization’s advertising investments.

The fact of the matter is that Facebook has seen its annual global ad revenues grow from $1.8 billion in 2010 to over $69.5 billion in 2019 (source: Statista, 2020). Along the way, there have been publicly aired concerns about the accuracy of Facebook’s user base, culminating with the platform’s acknowledged purges of 3.3 billion “fake” accounts in 2018 and another 5.4 billion in 2019.

Certainly, as part of the heralded duopoly, media professionals have been keenly aware of the share of digital ad spend which Google and Facebook have accounted for as part of the digital media sector’s meteoric growth. eMarketer estimates that the duo represented 56.3% of total U.S. digital ad spend in 2019, with Facebook accounting for 19.2% of the total.

During this period of increased digital ad spend, advertisers paid their digital agency partners plenty in the way of fees and commissions to provide consultation, planning support, buy stewardship and oversight. So why did it take so long to identify the fact that a media seller’s reach exceeded the audience universe?

“The obvious is that which is never seen until someone expresses it simply.” ~ Khalil Gibran

Accenture Exiting the Media Auditing Space Creates an Accountability Gap

17 Feb

Acc_Logo_Black_Purple_RGBIt was a move many industry pundits saw coming. With a focus on expanding its interactive marketing services business, which accounted for $10 billion in revenue in 2019, Accenture made the announcement that it was going to “ramp down” its media auditing, price benchmarking and pitch management business by the end of August.

Advertising agencies and competitors within the media audit space were quick to celebrate the news, for differing reasons.

Agencies for their part have long felt that as Accenture grew its interactive marketing services practice, their audit services represented a conflict of interest. Afterall, how could a marketer trust the objectivity of the advice of an audit firm reviewing an incumbent digital agency, when the parent company offered services that were competitive to the incumbent? One fear among agencies was that Accenture could leverage the information taken in on the audit side and generate competitive insights that would yield an unfair advantage when pitching their digital capabilities to advertisers.

Media audit firms, which stand to gain business as Accenture winds down media audit activity, point out that Accenture’s approach to auditing, pitch management and media rate analysis, which relies on its proprietary rate benchmarking pool was dated and less relevant than in the past.

While there may be merit to both group’s perspectives, Accenture’s decision creates a major resource gap when it comes to global media accountability and transparency.

Make no mistake, there are a number of experienced, highly reputable independent media audit firms that will help to fill the void left by Accenture. That said, most lack the scale and or depth of resources to truly backfill this resource gap. This perspective was echoed by Rob Rakowitz of the World Federation of Advertisers’ (WFA) Global Alliance for Responsible Media, who stated that at a time when the “media supply chain needs more clarity” Accenture’s decision to exit the audit space “creates a hole” when it comes to independent oversight.

Interestingly, the holding companies have focused their commentary in the wake of Accenture’s announcement on the “competitive conflict” aspect of the discussion. However, some holding company financial executives, who know full well the impact of independent oversight on their media agency bottom lines, are likely breathing a sigh of relief. Since the Association of National Advertisers (ANA) 2016 report on media transparency, scrutiny of media agency practices and the resulting downward pressure on margins tied to curtailing some of the non-transparent agency revenue practices cited in the ANA’s report have been costly to agencies.

The good news is that there has been progress since the issuance of the ANA report four short years ago. Client/ Agency agreement language has improved, more advertisers have conducted contract compliance and performance audits and media supply chain transparency initiatives have gained traction. The global fraternity of contract compliance and media performance auditors, along with advertiser trade associations such as the ANA, WFA and ISBA have all played an important role in ushering in reforms tied to improved accountability and transparency practices.

Now is not the time for less oversight and one can only hope that the loss of Accenture Media Management and the $40 billion of annual global media spend coverage it represented will not impede industry media accountability efforts. Advertisers can ill afford further reductions in their working media.

 

Supply Chain Optimization: A Concept Whose Time Has Come for Marketers

28 Jan

Supply Chain Management word cloud, made with text only.Much has changed since the diminished role of the full-service agency in the 1980’s. Decoupling and specialization initially swelled the size of marketers’ agency networks, then the meteoric rise of digital and social media further expanded the ranks of specialist agencies and gave birth to the adtech and martech industries. In the end, all served to significantly expand the advertising supply chain, adding complexity and cost.

A biproduct of these events is downward pressure on marketers’ working dollars, as an increasing portion of the budget is funneled to agency fees and underwriting the growing costs of advertising related technology. Thus, a key challenge faced by marketers today is evaluating how to reduce supply chain related fees as part of their efforts to improve efficiencies, drive revenues and build strong brands.

Strategies for addressing this challenge include; consolidating supply chain partners, reducing the number of agencies and intermediaries in the roster, and establishing distinct roles and responsibilities among agency and intermediary partners to eliminate redundancy and clarify deliverable and KPI ownership. Along the way it’s important to seek better alignment between agency remuneration programs, resource allocation needs and business outcomes.

Scrutinizing and monitoring supply chain partner performance, in the context of the client/ agency agreements that govern the relationships, is a necessary ingredient for successful implementation for each of these strategies. Establishing a formal marketing supplier accountability program also mitigates supply chain related risk while providing a foundation for improving supply chain efficiency.

Unfortunately, too often there is no clear organizational “ownership” around marketing supply chain accountability. While marketing clearly serves as the relationship management lead with suppliers, their principal focus is and should be on brand building, customer acquisition and demand generation.  Therefore, it may be unrealistic to expect marketing executives to serve as the “principal in charge” for supplier accountability. This is particularly so considering the number and nature of obligations that comprise an accountability program, including but not limited to the following:

  • Agency contract compliance reviews
  • Agency remuneration reviews
  • Annual agency fee reconciliations
  • Annual marketing supplier billing reconciliations
  • Annual 360-degree supplier performance evaluations
  • Supplier performance reviews
  • Supplier pricing reviews and competitive bidding
  • Supplier contract and SOW reviews

Based on experience, we firmly believe that involvement and support from corporate groups such as; Procurement, Finance and Internal Audit are critical to marketing supply chain optimization. Involving individuals and leadership from these groups to shoulder responsibility for the accountability program is important to drive supply chain efficiency – or at the very least these individuals can support Marketing’s efforts, ease Marketing’s burden, and bring cross-functional perspectives to bear.

At the end of the day, there are two overriding goals for any marketing supply chain optimization program:

  1. Strong supplier relationships
  2. Optimized use of corporate marketing budgets

In a growing, complex, rapidly changing market sector which represents over $1.3 trillion in global marketing and advertising spend (source: PQ Media) the need to embrace supply chain optimization has never more clear, nor the associated benefits more meaningful.

 

 

Brand Suitability vs. Brand Safety

29 Nov

Many Brands One Unqiue Best Brand Sphere Top ChoiceAmused, yes. Concerned, potentially. Shocked, no longer when it comes to the cavalier attitude exhibited by some in the digital media supply chain when it comes to an advertiser’s digital media investment.

That said, I have been intrigued by the nuanced manner in which agencies, ad tech providers and publishers now address the topic of brand safety. Interestingly, many in the digital media supply chain have begun to differentiate between “brand safety” and “brand suitability.” Ultimately, marketers will have to weigh in on whether or not there is a difference and why they should give any provider relief when it comes to protecting the brands that they steward.

Recently, Integral Ad Science (IAS) released the results from a research study which they conducted that suggests that while approximately one-half of those surveyed understood that there was a difference between these two perspectives, 27% of the digital media buyers surveyed were unaware of the difference. To be fair, as defined, the differences are subtle to be sure. One deals with controls to mitigate potential damage to a brand’s reputation and the other with targeting parameters such as viewability and content adjacency.

Candidly, it is fair for marketers to ask the obvious question, “Why isn’t content adjacency considered a risk to brand safety? Why the need to segregate this important variable from overall brand safety efforts?” It would seem that the industry should view any threat to the integrity of a brand as a brand safety issue. The cynic in me can’t help but believe that parsing this issue, creating a sub-category for brand suitability is simply a way to mask the industry’s inability to determine where an advertiser’s digital ads are served and to maneuver around the enhanced controls and stricter guidelines that marketers have attempted to enact to protect their brands.

It should come as no surprise that industry participants cannot agree on whether or not the 4A’s Advertising Protection Bureau (APB) guidelines issued in 2018 are adequate or too restrictive… assuming they were even aware of the guidelines to begin with. This also helps to explain why only 9% of the IAS survey participants indicated that they were “very” satisfied with the digital ad industry’s overall efforts when it came to brand safety. 

For a marketer, there is nothing more important than the sanctity of a brand, the relationship it enjoys with its customer base and the long-term value, which that represents to the organization. Any attempt to subjugate the topic of brand safety for the convenience of being able to scale a campaign, extend campaign reach or to enhance supply chain participant revenues, is simply not appropriate.

Questioning the efficacy of or the need for brand safety policies, whitelists, blacklists and or the money being invested by brand marketers to monitor ad placements and adherence to these guidelines comes across as extremely self-serving and contrary to the notion of brand safety. Brand safety should not be an either or proposition.

While progress has been made, the digital ad industry must be pressed by its advertising base to remain vigilant to protect the sanctity of their brands. When it comes to the philosophy of brand safety and the industry’s commitment to it, marketers cannot allow their supply chain partners to relax their standards on this front for any reason. The industry should never forget that it is the brand marketer that bears all of the risk when it comes to challenges to brand safety.

Time for a Financial Review?

26 Jul

knowledge and ignorance puzzle pieces signdreamstime_xs_53502419

Really?

No triple bid.

No staffing plan.

No reconciliation.

Fixed fee

100% advanced billings.

Slow job cost reconciliation.

Poor Agreement language.

Old Agreement.

No examples / templates.

No breakout of retainer vs. out-of-scope fees.

No agency reporting of costs / hours.

Programmatic supply chain not understood.

Use of in-house agency services, no rate sheet.

Use of in-house agency services, not reconciled.

Freelance billed at full retainer rate.

Interns billed at full retainer rate.

Credits held.

Low Full Time Equivalent basis.

High Rate per hour.  No fee detail.  Non arms-length use of affiliate.

Mark-up applied.

Float.  Kick-back.  Favored expensive suppliers.

Duplicate charges.

Time reported doesn’t match time system.

Overpayments.

Luxurious Travel.

Gifts.

That’s the short list.

Don’t let this happen to your critical marketing dollars.

Update and lock down financial terms in Agreement.

Tighten up definitions.

Enhance Agency reporting required.

Perform routine spot checks.

Follow the money to the ultimate end user.

Vet Agreement with ANA template.

Ask the Experts.

Maintain consistence of control and visibility across the Marketing supplier network.

Maintain trust but validate Agency financial activity.

Strengthen the Agency relationship through understanding and alignment.

Really.

 

Come On in, the Water’s All Right

17 Jan

jawsOver the last several weeks, there have been many pronouncements from ad tech providers, publishers and agencies that ad fraud and transparency concerns, which have beset advertisers for the last several years, have largely been addressed and that it is safe for advertisers to resume their programmatic digital real-time bidding (RBT) media activities.

What? Sounds a bit like the movie Jaws where a profit minded Mayor, Larry Vaughn attempts to convince Sheriff Brody to keep the beaches of Amity Island open for the 4th of July holiday, when tourists will flock to the Island, driving tourism revenues.

Granted, there have been positive developments including the efforts of the Trustworthy Accountability Group (TAG), the adoption of Ads.txt, the implementation of fraud solutions by ad tech providers and agencies and the involvement of the FBI, which has successfully busted a number of email, digital and cyber fraud operations over the course of the last year.

However, it would be a mistake for advertisers to let their guards down and assume that ad fraud has been solved and non-transparent practices have been cleaned up. Sadly, invalid, unviewable and non-human traffic continues to plague the industry and requires continued vigilance.

Honest, in-depth conversations between advertisers, their agencies and ad tech vendors should be ramped up before advertisers eschew the safety of private marketplaces (i.e. programmatic direct, premium, reserved, private auctions) to reallocate funds to RTB. Discussion topics should include, but not be limited to:

  • Determine whether or not the agency and ad tech vendors are using TAG Certified channels.
  • Assess if these same entities are screening programmatic domains to eliminate those that have not yet adopted Ads.txt from consideration.
  • Scrutinize the efficacy of the fraud and brand safety software solutions being deployed on the dvertiser’s behalf.
  • Confirm whether the advertiser is being provided a direct line of sight into the fees being charged for data, technology, and campaign management for both the demand and sell side of the ledger.
  • Verify whether the agency and ad tech verification vendors are examining 100% of the advertiser’s programmatic impressions for suspicious activity or whether they are instead sampling.
  • Check if agency and ad tech vendors are retaining log level files and if so, substantiate they will make them available to the advertiser or their auditor.
  • Assess how the agency and or ad tech vendors identify platform auction methodologies (i.e. second-price, first-price, header bidding) and adapt their bid strategies to optimize the advertiser’s investment.

We would counsel that it should be the results and learnings from these conversations, rather than self-serving proclamations, that the “water is all right” that influences an advertiser’s decision as to whether and when to jump back into the RTB marketplace. In the words of the Roman writer Publilius Syrus:

“It is a good thing to learn caution from the misfortunes of others.”

 

Who Says Advertisers Don’t Want Transparency?

26 Nov

transparency“No one wants full transparency.”

It was alleged that this intriguing pull quote echoed the sentiments of agency buyers at a gathering of agency executives dealing with the topic of “Transparency in Media Buying.” The event, hosted by Digiday in London, provided participants with complete anonymity with regard to their name and or company affiliation in order to encourage an open exchange of information on the topic. Understood.

Participants shared a range of thoughts as to why advertisers weren’t truly interested in media transparency. The ideas proffered by this group included:

  • A belief that advertisers were concerned about the costs associated with revamping how digital media is purchased.
  • Advertiser concern related to the impact of “overhauling how much” they spend on media.
  • A general lack of advertiser interest in the “mechanical” detail that underlies the media acquisition and delivery process.

There are two major problems with this perspective.

The first is the belief among digital media supply chain participants that advertisers should bear the financial burden related to the poor decisions made by agencies, ad tech vendors and publishers with regard to how media buys were executed, tracked and reported on. For years these intermediaries knowingly shirked their fiduciary responsibility to serve the advertiser’s best interest and to safeguard their media investment. To come back now and suggest that if advertisers want a return to normalcy it will cost them more in fees and the actual rates paid for media inventory is preposterous. Did these firms reduce their fees and costs to advertisers while they were participating in media arbitrage and purchasing low quality, high risk inventory (often without the advertiser’s knowledge)? Of course not. They padded their respective bottom lines at the expense of advertisers.

Secondly, the notion that advertisers aren’t interested in the mechanics and science behind the planning, buying, stewardship and performance analysis of media buys seems to be misguided. Or at the very least, not representative of the views held by a majority of advertisers, many who have cited media transparency as one of their most important concerns in industry survey after industry survey. Additionally, Gartner Research recently released the results of its “CMO Spend” survey and noted that chief marketing officers at advertiser organizations in the U.S. and UK were focused on areas such as email marketing, online media management and digital analytics as their top tech priorities. This further underscores advertiser interest in leveraging technology to improve transparency and drive media performance.

Perhaps the clients represented by the agency personnel at the Digiday event are different than those with whom we interact with on a regular basis or those who participate in industry surveys.

Or perhaps the more accurate sentiment is that no one on the agency, ad tech or publisher side wants full transparency. Either way, if the media supply chain doesn’t recognize and begin to address client concerns and the corrective actions that advertisers are already taking the risk of revenue contraction and ultimately disintermediation is real.

One only needs to read the Association of National Advertiser’s (ANA) October, 2018 study; “The Continued Rise of the In-House Agency” to understand the cost to intermediaries of not taking advertisers’ best interest to heart:

  • 78% of ANA members surveyed had an in-house agency in 2018 versus 58% in 2013 and 42% in 2008.
  • 90% of the survey respondents indicated that the workload of their in-house agencies had increased in the past year, including 65% for whom the workload had increased significantly.

Media supply chain stakeholders may want to heed the words of 20th century Russian-American writer and philosopher Ayn Rand:

“We can ignore reality, but we cannot ignore the consequences of ignoring reality.”

 

AARM Formalizes Its Relationship with the ANA

1 Nov

thAARM | Advertising Audit & Risk Management becomes a member of the Association of National Advertisers (ANA), joining more that 1,000 leading suppliers, agencies, law firms, media companies and consultants as a Marketing Services Provider (MSP).

 

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