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The Ad Industry is Metamorphosing

30 Jun

dreamstime_xs_83082522It was the best of times; it was the worst of times…” Most of us are familiar with the opening line from Charles Dickens in his epic work A Tale of Two Cities. Many marketers may even consider it an apt description of both the current state of the advertising industry and the challenges that they face in sustaining brand relevance and driving growth.

Phoenix risingSo, who will marketers count on to assist them with the tasks of deepening brand engagement with core target segments, revitalizing sales and profits in a low-growth environment and in differentiating their brands for competitive advantage?

Over the course of the last few years, many have opined on the viability of the ad agency model and what it portends for advertiser/ agency relationships going forward. And with good reason. Concerns cited include threats from non-traditional competitors such as management consulting and technology firms encroaching on their turf, talent recruitment and retention challenges and margin compression due to downward pressure on fees and expanded scopes of services.

It may be as some predict that management consulting firms will leverage their capabilities in the area of strategy and integration to pirate work from ad agencies and that ad-tech providers will enable marketers to take certain tasks in-house. The question remains, how will marketers adjust to this dynamic and the evolution of their agency networks to potentially include consulting, data and ad-tech firms? There are already very real challenges related to agency stewardship today due to under-resourced client marketing staffs.

The aforementioned challenges, combined with the rate of digitization and the emerging role of artificial intelligence occurring within the ad industry, certainly pose challenges for advertising agencies and could serve to lessen their stranglehold on the marketing and advertising sector. In a recent McKinsey article entitled; “The Global Forces Inspiring a New Narrative of Progress” the authors note that “disruption is accelerating.” They opine that this dynamic is raising serious concerns for many organizations relating to the question, “How long can their traditional sources of competitive advantage survive in the face of technological shifts?”

That said, in spite of these risk factors and other marketplace developments, ad agencies are doing just fine:

  • Agency holding companies have continued their aggressive acquisition drives, supporting both their horizontal and vertical integration strategies. While overall M&A activity is down from 2016 levels, WPP and Dentsu have consummated twenty acquisitions with a combined value of $700 million through the first 4 months of 2017. (Source: R3’s “State of Agency M&A report” for January – April, 2017).
  • While down from 2016’s 5.7% growth rate, global ad spending is projected to grow 3.6% in 2017 (Source: Magna Global, June, 2017). Of note, this is higher than the International Monetary Fund’s projected increase for global GDP growth.
  • Even though 1Q17 Advertising Industry gross margins fell to 44.15%, the industry itself is healthy. For instance, within the services sector, the Advertising Industry achieved the highest gross margins, net margins, EBITDA margins and pre-tax margins for the quarter (Source: CSIMarket.com).
  • Some 86% of mid-sized ad agencies are confident that this year will be better than last in terms of profitable growth (Source: Society of Digital Agencies (SoDA) survey).

Importantly, since the demise of the “good ole days” of full-service agencies and the fifteen-percent commission remuneration model, agencies have demonstrated a unique ability to not only keep up with industry changes, but to take the lead from both a thought leadership and innovation perspective. They have been able to scale, attracting more clients and deeper talent pools, they have invested in emerging technologies to deal with increasingly complicated, data driven processes and to pioneer the use of algorithms and artificial intelligence to efficiently execute deliverables ranging from digital media investment to creative adaptations… all while dealing with evolving client expectations.

Further, it bears noting that the publicly traded holding companies; WPP, Omnicom Group, Publicis Groupe, Interpublic Group of Cos. and Dentsu, had combined estimated worldwide 2016 revenue levels of $60.7 billion (Source: Advertising Age, June 2017). When one considers the pre-dominance of the estimated billing process and agency remuneration schema that includes direct labor and overhead cost reimbursement plus guaranteed profit margins of 14% to 17% or more, one must also respect the financial clout that these publicly traded entities wield.

Is there a need for near-term belt tightening to offset softer 2017 ad spending levels? Yes. Do the holding companies need to consolidate agency brands and realign capabilities to boost the efficacy of their service delivery models and generate much needed efficiencies? Yes. Will agencies need to improve their talent recruitment and retention practices, across a diverse range of specialties? Yes. But no business is immune from these challenges, including management consultants, ad-tech platforms and publishers.

The big question the industry in general and marketers will need to assess is related to whether these players will be able to boldly transform their current business models, repositioning their firms to deliver integrated, multi-specialist services in a nimble, cost efficient, on-demand manner.

Broadly speaking, all participants are facing challenges as the ad industry undergoes its current metamorphoses. We believe that it is too early to predict winners and losers or to suggest that marketers adapt an attitude of empathy toward any of their marketing supply chain partners. After all, it is their marketing spend that has built this sector into a $457.4 billion global machine in 2017 (Source: Statista, 2017). And they must vigilantly safeguard and optimize that investment.

Below is one of the closing lines from A Tale of Two Cities, one that many may not be as familiar with:

“It is a far, far better thing that I do, than I have ever done…”

With this parting thought, Dickens’ suggests that the main character in his novel and the city of France will be resurrected, rising above their present strife and “made illustrious.”

Here’s hoping that the ad industry achieves similar transformative success.

 

 

Funding Accountability Initiatives

26 Aug

Accountability FinalThe desire on the part of many advertisers to extend their organization’s accountability initiative to marketing is high. This is due to the fact that marketing is both one of the largest indirect expense categories within an organization and, for those that believe in its ability to drive strategic outcomes, critical in driving brand value and demand generation.

One of the key challenges for Internal Audit and Procurement professionals in implementing accountability programs is that they typically do not have a budget to fund the projects. Rather, they are reliant on their peers in Marketing to “buy in” to the concept and to underwrite the investment associated with analyzing contract compliance, financial management and in-market performance across their agency networks. This dynamic can create a loggerhead that delays or prevents corporate scrutiny into marketing and advertising spending and its resulting business impact.

The irony is that relative to the millions of dollars invested in marketing, the cost of implementing an accountability program for this corporate function is much less than one-percent of total spend. As we know, applying the skills and capabilities of audit and procurement teams and outside consultants typically results in improved controls that mitigate financial and legal risks to the organization. Further, these efforts often uncover historical errors and overbillings, and always generate future savings and improved marketing return-on-investment opportunities that more than offset the cost of the program.

It has always been a mystery as to why more advertisers simply don’t formalize and legislate the marketing accountability program and establish the requisite budget to be administered by the CFO / Finance organization. A minority of our clients operate in this manner, but clearly a “win, win” situation is created where internal audit and procurement provide their support and apply their resources pro-actively and marketing doesn’t feel as though funding is coming at the expense of critical business building programs within their budgets.

From our perspective, the source of funding for extending a corporate accountability initiative to marketing is the last hurdle. The reason is that we have seen marketing’s appreciation for accountability support grow along with their respect for the audit and procurement functions and a recognition that such programs can improve the efficiency and efficacy of the organization’s marketing spend.

The advertising industry is a complex; rapidly changing, technology-driven sector fraught with opacity challenges and risks such as digital media fraud and non-transparent revenue practices employed by agencies, ad tech providers, ad exchanges and media sellers. In light of these dynamics, organizations truly understand the benefit of monitoring the disposition of their marketing investment and the performance of their advertising agencies and third-party vendors.

It has been over 140 years since Philadelphia merchant John Wanamaker offered the following perspective on his ad spend:

Half the money I spend on advertising is wasted; the trouble is, I don’t know which half.”

Yet, with the passage of time it would be difficult for the industry to suggest that much has changed with regard to a marketers ability to accurately assess the efficacy of their advertising spend.

There is no time like the present to proactively develop; implement and fund transformative accountability programs that can optimize planned business outcomes, while safeguarding marketing spend at every level of the advertising investment cycle.

Interested in learning more about marketing accountability programs? Contact Cliff Campeau, Principal at Advertising Audit & Risk Management| AARM at ccampeau@aarmusa.com for a complimentary consultation on the topic.

Two Words That Represent Accountability’s Biggest Obstacle; “Who’s Budget?”

24 Feb

Accountability FinalMany organizations want to implement an accountability program. Virtually all Internal Audit directors would like to extend that accountability initiative across the enterprise and most certainly want to provide coverage for categories with a significant spend, such as marketing.

Yet, in spite of the good intentions, U.S. companies have been slow to embrace independent compliance and performance auditing of their marketing supply chain partners. Ironically, the reason emanates from the answer to a very simple question, “Which departmental budget will be tapped to fund the initiative?” More often than not the answer to that question, in the context of a marketing and advertising spending review, is “Marketing.”

Given this dynamic, it is often a challenge for companies to implement an “unbudgeted” audit project once the fiscal year planning process has been completed, even if results dwarf its cost. Additionally, while many CMO’s have come to value the feedback and insights provided from the independent testing of supplier contract compliance and performance, there are others that still do not embrace audit or accountability initiatives. As a result, unless mandated by the C-Suite, independent accountability testing may never make its way into the budget, causing a huge assurance gap governing that company’s multi-million marketing investment.

There is good news however for procurement, finance and audit executives seeking to remove these obstacles and manage associated risks. Namely, that in addition to the opportunity for process improvements, performance monitoring, contract language enhancements and better controls, these engagements yield hard dollar returns resulting from various financial true-ups and future savings opportunities; far exceeding the fees necessary to conduct the review.

Positive financial returns aside, the costs associated with an audit of an advertiser’s agency network partners is miniscule when compared to the tens of millions or hundreds of millions of dollars being expended in this area.

Perhaps best of all, independent assessments of marketing agency compliance and third-party vendor billings sets a tone of the desired financial stewardship and accountability behavior that the client would like to see employed across its marketing supplier base. In turn, the very act of performing an independent audit, provides a powerful incentive for an agency to diligently self-police itself by tightly adhering to the processes and guidelines agreed to and memorialized in the Client/ Agency Master Services Agreement. In the words of the noted English author and speaker, Simon Sinek:

Actions speak louder than words. All companies say they care, right? But few actually exercise that care.

Interested in learning more about fielding a marketing agency network accountability initiative at your company? Contact Cliff Campeau, Principal at AARM | Advertising Audit & Risk Management at ccampeau@aarmusa.com to for a complimentary consultation on the topic today.

 

 

 

Is Agency Ownership of Audience Measurement Providers a Good Idea?

13 Feb

transparencyRecently, WPP indicated that they were planning to take a large equity stake in comScore, one of the world’s largest online campaign measurement providers. This is in addition to WPP’s recent investment in Rentrak, a television audience measurement service, an organization in which WPP is now the largest institutional shareowner.

With WPP’s continued push into the campaign measurement space, advertisers may begin to question the consequences of an agency holding company’s ownership of audience delivery measurement resources. After all, these campaign measurement service providers gather and analyze data and publish ratings which are utilized to assess the efficacy of the agency’s media purchasing efforts on the advertiser’s behalf.

More broadly, based upon the business activities in which the agency holding companies now routinely engage in, one might legitimately question whether or not the designation of “agent” is even an apt description of the role which advertising firms play in support of their clients. Activities such as media arbitrage or reselling if one prefers, joint media and technology ownership deals with publishers, participation in AVB or volume rebate programs offered by media owners to agency holding companies tied to transactions entered into on behalf of their clients, all raise a legitimate question about “Whose” interests agencies are beholden to.

What recourse do advertisers have? After all, there are often distinct advantages to utilizing large agency holding company brands. Independent agencies, which while unencumbered by questions regarding their fiduciary focus, sometimes lack the scale or depth of resources required to perform in certain situations. Enlightened protectionism in the 21st century requires advertisers to aggressively push for enhanced transparency, improved controls and the unimpeachable right to audit their agency’s contract compliance and financial management performance. In the oft quoted words of President Ronald Reagan; “Trust, but verify.”

As a sound first step, it is essential for advertisers to understand their agency partners’ affiliate relationships. Secondly, it is imperative for advertisers to fashion contract language which requires their agencies to provide full disclosure when an agency affiliate is being utilized on their behalf, how that affiliate is compensated and by whom and whether or not the rates charged by that affiliate are competitive with comparable providers in the market. Whether in the context of ad serving, programmatic buying, trading desk operations or campaign measurement, an advertiser has a right to know when their agency has engaged an affiliate firm. This affords client stakeholders the opportunity to raise any questions or concerns they may have regarding such a selection and its impact on the agency’s objectivity. 

Once affiliate firms have been identified, tracking what percentage of an advertiser’s budget is being spent collectively at the agency holding company level can prove enlightening. More importantly, understanding the value of their account to the holding company based upon total revenues enhances an advertiser’s negotiating position when considering agency remuneration options going forward. 

As the ad industry has grown in size, generating approximately $521.6 billion in revenue in 2014 (source: MAGNA GLOBAL), it has also grown in complexity which is due in large to the rate and rapidity of technological change. Thus, it comes as no surprise that relationships among industry stakeholders have evolved, becoming more complex in their own right. The industry has begun to come to terms with the plurality of such relationships where partners may simultaneously be competitors or buyer agents may also function as sellers. However, “coming to terms” doesn’t mean blind acceptance. Rather it requires a new level of discourse and enhanced controls to protect advertisers and their investment.

Interested in learning more about agency network “affiliate management?” Contact Cliff Campeau, Principal at Advertising Audit & Risk Management, LLC at ccampeau@aarmusa.com for a complimentary consultation on the topic.  

 

What is the Key to Client-Agency Success?

2 Dec

client-agency relationship successCollaboration? Two-way communication? Transparency? Respect?  Certainly.  But these positive relationship traits are present in many client-agency relationships that fail to withstand the test of time. Thus there must be another reason that the average tenure once measured at 7.2 years in 1984 and 5.3 years in 1997 and pegged by many at less than 3.0 years today continues to wane. 

The factors often cited for this decline include; client-side marketing turnover, shortened tenures of CEOs and CMOs, agency leadership turnover and clients outgrowing an agency’s capabilities to support their marketing needs.  There is no question that these events can play a contributory role in changing the dynamics of an advertiser’s relationship with its agencies.  However, these are also factors which have been effectively dealt with by advertisers and their agency partners enjoying long-term relationships.

Think about the typical start to a client-agency relationship:

  1. Review conducted
  2. Agency selected
  3. Contract negotiated
  4. Work commences
  5. Both parties settle in to the day-to-day pattern of creating and distributing ad messaging

Most experienced marketers and agency executives have seen this routine repeat itself time and time again.  The common denominator is that events progress from a competitive review to initial campaign development in short-order at the expense of a deliberate, considered on-boarding process.  Out with the “old” partner and in the “new” with virtually no transition overlap or time for the new agency to truly get up to speed on a client’s business.

So what is the missing link?  Most advertisers have not embraced the discipline of supplier relationship management (SRM).  Too often, advertisers invest few if any resources in strategically planning for and managing the interactions with each of their agency partners or in clearly identifying the roles and responsibilities of each agency in their marketing services vendor network.  

Letters of agreement, statements of work, agency staffing plans and remuneration agreements are necessary relationship management tools which provide guidance to both advertisers and agencies in the area of contractual expectations, controls and reporting.  However, few would consider these items as a replacement for sound operational planning that clearly lays out a governance framework, the tenets of organizational interactions, expected behaviors, ground rules for collaboration and a definition of what constitutes success in the context of the relationship and in-market performance. 

When one considers the size of an organization’s marketing budget and the importance of that investment in the areas of demand generation, brand building and share accretion it is curious that the industry hasn’t more readily adopted SRM. 

Changing agencies is costly and can be fraught with risks to an advertiser’s market position and financial performance.  Thus it stands to reason that an organization should be prepared to make the requisite investment in its marketing supply chain to develop solid, long-term agency relationships predicated on the effective and efficient stewardship of their marketing spend to attain superior results. 

Given the potential benefits of SRM to marketing agencies, it is a wonder that they are not leading the charge on this front as a means of extending their tenure and enhancing their positions as strategic contributors to their clients’ business.  Regardless, the benefits to stakeholders on both sides of the client-agency relationship are to numerous and meaningful to ignore. 

So, if you’re contemplating a change in agencies, use the event as a starting point for the application of SRM to your organization’s agency network.  In so doing you just may reap the benefits of the words intoned by Henry Ford;

“Coming together is a beginning.  Keeping together is progress.  Working together is success.” 

 

 

 

 

Contract Compliance Matters

3 Jun

contract compliance auditingAs an agency contract compliance auditor too often we see client-agency agreements that are one-sided, lack the requisite terms and conditions and generally fail to provide the advertiser with the controls, reporting and transparency necessary to effectively monitor their advertising investment.  Surprisingly, in many instances the agreements are not even executed by both parties. 

Ironically, when we do come across well written agreements which contain the detail, clarity and exhibits required for both the client and agency to protect their legal and financial interests and to promote a health relationship it is rare that those rights and controls are enforced.  There are many reasons for this oversight, none of which are valid and each can create risks for the advertiser. 

In our experience, the chief barrier for advertisers in negotiating a letter-of-agreement (LOA) that integrates the language, terms and conditions that ultimately protect their interests is that an advertiser’s in-house counsel and or procurement team often does not have deep experience in or knowledge of the marketing services space and industry “Best Practices.” 

On the contract compliance front, once an LOA has been executed it is not atypical for that agreement to find its way to an obscure “Legal” file in “someone’s” office without the instrument having been properly socialized with representatives from Marketing, Finance and Internal Audit.  Layer in employee turnover, transfers and office moves and the LOA and its relationship governance framework are often lost and or forgotten about.  As a result, the reporting, controls and behaviors required as part of the LOA go unmonitored and, in the worst case, aren’t complied with. 

A structured marketing services agency contract compliance program can assist clients in addressing these issues, mitigating the potential risks to their organizations and in optimizing the performance of their agency networks.  The benefits of such a program to an advertiser begin with the contract formulation stage of engaging an agency partner and can encompass a range of activities including: 

  1. Implementation of contract and agency remuneration system “Best Practices” 
  2. Standardization of a Marketing Services agency LOA template
  3. Transparency enhancing control, reporting and reconciliation clauses in LOA
  4. Periodic independent agency contract compliance audits
  5. Ongoing contract compliance monitoring and performance assessments
  6. Financial reconciliations (i.e. agency fee, agency billing, 3rd party vendor billing)
  7. Agency transition audit support

Given the number of agencies which often comprise an advertiser’s marketing services supplier network, and the level of the marketing investment being managed by those agencies, “contract compliance” should be considered an essential element of an advertiser’s strategic relationship management effort. 

“Knowledge is the true organ of sight, not the eyes.” ~ Panchatantra 

Timely, thorough contract compliance and performance monitoring is an excellent means of incenting positive behavior both within an advertiser’s organization and across its agency partners.  The net result can be stronger client-agency relationships built on a foundation of trust and aligned expectations.  In turn, an engaged and motivated supplier network can help client organizations increase their return-on-marketing-investment.     

Do you know where your agency LOA’s are?  If you would like to discuss the potential benefits of agency contract compliance, feel free to contact Cliff Campeau, Principal of Advertising Audit & Risk Management at ccampeau@aarmusa.com for a complimentary consultation.

Take Stock of Your Marketing Supplier Network

26 Apr

marketing agency networkWhether viewed in the context of the marketing dollars that flow through an advertiser’s marketing services agencies or their respective roles in building an organization’s brands and driving revenue, a marketing supplier network is a valuable corporate asset.  So how much do you know about the agencies which comprise that network?

Boosting supplier visibility within the C-suite of an organization can yield significant strategic and economic benefits.  The process begins with taking an inventory of those suppliers, their corporate lineage, resource offering, skills, pricing and historical performance on behalf of the company.  Without this knowledge it will be a challenge to optimize the investment made in maintaining this network.  Constructing a database with pertinent details on your supplier organizations is a pre-cursor to assigning roles and responsibilities across an advertiser’s agency base and for determining internal oversight responsibilities.

If this is an activity the organization has yet to undertake, there is a high likelihood that there is a significant degree of overlap across the supplier base and a less than optimal utilization level within a select group of marketing agencies.  Why should an advertiser care?  Because there is an attendant cost to contracting with marketing agencies and to retaining them on the advertisers agency roster… whether those agencies are being effectively utilized or not. 

Additionally, it is quite likely that the controls that are in place vary greatly from one supplier to the next.  This begins with the master services agreement (MSA) that is in place, whether or not such contracts have been executed and or kept current and extends to the resulting statements-of-work (SOW), agency staffing plans and remuneration programs.  While there is an obvious need for customizing MSAs and SOWs by agency type, there are certain terms and conditions ranging from “non-disclosure” and “non-compete clauses” to “right to audit” clauses, “document retention” policies and “intellectual property rights” assertions which provide critical controls that should be present in each MSA.  The question is; “Are they?” Further, once an MSA and or an SOW has been reviewed, updated and executed these documents should be retained in a central database for “ready access” by authorized representatives from Marketing, Procurement, Legal, Finance and Internal Audit.

Cataloging agency costs is another important step in constructing a marketing supplier database.  Armed with a deeper understanding of agency bill rates, overhead rates, direct and indirect expenses and multipliers an organization will be able to construct agency remuneration packages that are fair to the agencies and which generate savings for the advertiser.  One of the important bi-products of this information is the ability to benchmark supplier costs across agencies and makes for some interesting comparisons for those advertisers working with multiple agencies owned by the same holding company.

Implementing a systematic marketing supplier performance review program to be followed by the advertiser’s marketing department and marketing suppliers will provide a layer of qualitative data to further assess the effectiveness of each agency and to proactively identify potential weak links within the network.  Laggards can be targeted for performance improvement actions and or replaced in the event of continued sub-par results.

Ironically, the most valuable benefit of a marketing supplier database is the role it can play in advancing an organization’s collaborative supplier management (CSM) initiatives.  Aside from boosting agency performance and marketing ROI a well-orchestrated CSM program will enhance supplier satisfaction, longevity and fuel supplier motivation to invest in the client-relationship.  In the words of former Federal Reserve Chairman, Alan Greenspan;

“I have found no greater satisfaction than achieving success through honest dealing and strict adherence to the view that, for you to gain, those you deal with should gain as well.”

Interested in learning more about supplier visibility systems?  Contact Cliff Campeau, Principal at Advertising Audit & Risk Management at ccampeau@aarmusa.com for a complimentary consultation. 

 

Advertising Financial Monitoring

30 Dec

????????????????????????????????????????What is it?  Should a marketer consider it?  Should it be done out-sourced or done in-house?  Three great questions as it relates to a growing aspect of marketing accountability.  

Let’s start with a brief overview of the advertising financial monitoring function and its role.  Marketers have historically made significant investments in advertising ranging anywhere from 1.5% to 5.0% of gross sales, depending on their category, market position and growth posture.  Many organizations have struggled to establish a causal relationship between this investment and in-market performance results; overall, by product, by marketing mix element and or by agency partner.  The goal of advertising financial monitoring is to provide timely, relevant feedback on the stewardship of advertising investment across geographies, brands, agencies and disciplines. 

An effective advertising financial monitoring program provides a streamlined framework for timely capture and analysis of data to yield insight into handling of the organization’s marketing budget and performance of agency partners.  Corporate strategy and accountability protocols serve as the basis for developing the processes to be employed.  And the advertiser’s individual contracts with agency partners establish the performance metrics to be tracked and reported on.  

How many marketing services agencies does your company employ?  It is not atypical for an advertiser to utilize dozens of agencies to formulate and execute the advertising and marketing plan; Full-Service Agency-of-Record, Creative Services Shops, Media Agencies, Diversity Shops, Digital Agencies, Public Relations Firms, Social Media Shops, Regional Marketing Firms, Shopper Marketing Specialists, Event Marketing Agencies, Direct Response Shops, Sale Promotion Agencies, etc…   

In our contract compliance, fee reconciliation / billing, and agency performance review experience, one of the biggest shortcomings is a lack of clarity around “Who Owns” the agency relationship.  A weakness often resulting in overlapping agency responsibilities, limited agency oversight or control, lack of performance monitoring and limited transparency into an agency(s) stewardship of client resources.   

What is your annual marketing spend?  $75 million?  $650 million?  What would efficiency gain in the range of 1.5% to 9.0% mean to your organization?   This is a typical return-on-investment for improved and focused accountability.  Beyond financial yields, benefits are derived from a streamlined data gathering process and a constant flow of process improvements.  Most importantly, advertising financial monitoring will positively shape agency behavior for resource investment and in-market performance.  In the words of Michael Josephson: 

“What you allow, you encourage.” 

Outsource or Build?  It’s the same old discussion – most organizations don’t have the requisite technology or resources to architect, implement and manage such programs in-house.  As well, there is the significant benefit of having access to niche counsel which compliments in-house marketing, procurement, and finance team knowledge. 

As a result, each stakeholder in the marketing planning and investment cycle becomes awakened to the potential for achieving heightened levels of performance.   That is a good thing. 

Interested in learning more about the benefits of an “Advertising Financial Monitoring” program?  Contact Don Parsons, Principal at Advertising Audit & Risk Management at dparsons@aarmusa.com for a complimentary consultation on this topic.

What is the Outlook for 2013

22 Oct

marketing spend forecastAccording to the International Monetary Fund’s world economic outlook, the “risks for a serious global slowdown are alarmingly high” in the coming year.  So how will the economic uncertainty impact the advertising industry? 

Marketing budgets are already under pressure as the U.S. economy plods along at steady, but lackluster growth rates and international markets struggle with the uncertainty surrounding the European Union.  Like it or not, Europe is an important part of the “growth” conversation.  Why? Europe accounts for approximately one-fifth of both the U.S.’ and China’s total exports.  Thus, if the economic situation in Europe takes a downturn, the repercussions on the world’s two largest economies could be significant.

In spite of the challenges posed by the global economic situation, from a marketing perspective, Zenith Optimedia is forecasting a 4.5% spending growth rate in 2013 to $524.7 billion.  Of note, a majority of the growth will occur in the United States.  Zenith’s CEO commented that while marketing spend levels are “solid,” companies are “seeking to ensure that any expenditures are delivering strong return on investment.”

With demand generation a desired, but uncertain outcome for marketers, the role of marketing accountability increases in importance to help keep all stakeholders focused on performance.  Establishing clear marketing KPIs that are aligned with an organization’s business goals, and translating those KPIs into specific performance criteria for each agency in an advertiser’s marketing services agency network, is a critical first step in any accountability program.

Once performance goals have been established, everything will fall in place, right?  Not necessarily.  Advertisers may want to evaluate agency remuneration programs, staffing plans and statements of work to insure that these foundational elements of an agency stewardship system are properly constructed and conducive to aligning their agencies’ resource investments with the desired outcomes.  Layer on a continuous monitoring program which provides all stakeholders with the requisite information for assessing progress and adjusting resource allocations on a timely basis and the chances for improving the efficacy of one’s marketing investment will be significantly enhanced. 

While there are no guarantees when it comes to ROMI, experience has shown that a deliberate systematic approach to marketing resource management can boost results.  In the words of Sir Edward Coke the noted English barrister;

“Precaution is better than cure.”

In a slow growth environment, with budgetary pressures likely for the foreseeable future, this may very well be the “cost of entry.”  In our Agency Contract Compliance & Performance practice, we see the results of marketer commitment to sound accountability practices first hand.

Interested in learning more, contact us for a complimentary consultation on, “Building a High Performance Marketing Agency Network.”  Simply contact Don Parsons, Principal at dparsons@aarmusa.com to schedule a convenient time.

The Future of Marketing is Now. How Will You Optimize ROMI?

9 Oct

key to marketing futureWe’re all familiar with the key trends that have shaped the last several years within the advertising sector; media convergence, fragmentation, consolidation, data proliferation and emerging media.  Now that it is clear that these are not passing fads, the question faced by marketers across the globe is “How can we focus our efforts and resources in a way that acknowledges the fundamental changes which have occurred and leverages our opportunities?” 

In a recent article in AdAge entitled “Marketing’s Next Five Years: How to Get from Here to There” author Matthew Creamer shares a compelling perspective on how marketers can use the knowledge gleaned in the recent pass to chart a path forward.  When one considers the growth of internet and mobile as a percentage of ad spending, much of it at the expense of traditional media, marketers will need to adjust both their resource allocation decisions as well as their performance expectations with regard to crafting and delivering their brand messages to the intended target audience. 

One of the most intriguing changes is in the area of audience measurement and media attribution and the role it will play in influencing marketing strategy.  Consider for example television, which is and will remain the largest ad spending category.  Today, it is estimated that less than 2% of the advertising on television is “data-denominated with guarantees of GRPs and sales attribution.”  As second-by-second audience ratings data continues to proliferate, the impact on addressable TV will be profound.  The role of TV will shift from a cost-efficient means of reaching the masses to that of a media which has the ability to micro-target specific consumer segments to delivery specific or niche product messages in a very direct manner.  

Needless to say, defining the roles of each medium in an ever evolving media set will require the ability to process and analyze “big data” to generate insights that drive an advertiser’s creative and media delivery decisions.  Data analysis will also factor heavily into the establishment of campaign performance criteria, which will likely be more “outcome” focused and the real-time monitoring of progress toward an advertiser’s demand generation and brand development goals.  

These trends will clearly impact the client-agency relationship and the subject matter expertise that will be required of an advertiser’s marketing services agency network.  The clear delineation of roles and responsibilities, the need to harness technology and tap the services of data and consumer strategy and insight specialist and, yes, how agencies are compensated will be seminal issues that need to be addressed within client-agency letters-of-agreement. 

That being said, it is an exciting time to be in marketing whether on the client-side, at an ad agency or working in the marketing accountability field.  According to Mr. Creamer; “even the worst-case forecasts have our economic malaise nearing an end” and a “true recovery taking shape with low unemployment and revitalized consumers.”   Interested in learning more?  Check out the article in its entirety in AdAge.

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