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Advertisers: Buying Guidelines Matter

25 Jan

compliance-rulesAdvertisers and their media agency partners spend countless hours, invest significant energy and apply a wealth of creativity in crafting their initial media plans and updating those plans to address internal issues, marketplace opportunities and or competitor moves over the course of a budget year.

The question is: “Do advertisers and their media agency partners spend enough time ensuring that those plans are actually executed to their fullest during the investment phase of the media buying cycle?”

In our experience, the direct answer is “No.” The hand-off from media planning to media buying and the accompanying media process controls, forms and reporting are often inadequate as is the level of oversight applied on a post plan approval basis.

Advertisers, if you’re wondering whether or not this is the case with your organization, it may be worth reviewing the following processes, forms and reports for their thoroughness and the extent to which they are reviewed and monitored over the course of a media campaign:

  • Buying Guidelines – When was the last time you reviewed your organization’s buying guidelines? Did you approve them? Are they current? Are they comprehensive enough to safeguard your interests and optimize your message reach? Have they been created for each media channel purchased or for TV only? How are these guidelines communicated to media sellers? Does your agency monitor and or report on buying guideline adherence? What are the consequences to the agency and or the media sellers if these guidelines are not complied with? Too often we find that this important communication bridge between media planning and media buying has not been satisfactorily completed or is so lacking in detail and or coverage across media that it is ineffectual. This is a critical mistake. Buying guidelines represent the explicit instructions from the agency planning team to their associates in buying and ultimately to the media sellers for how the client-approved plan is to be executed, stewarded and its performance assessed. Shortfalls in this area negatively impact media delivery and marketing ROI in a very direct manner.
  • Request for Proposals (RFPs) – Whether sent manually or digitally by the agency to media sellers, this process is often fraught with shortcomings. These include insufficient time afforded publishers to effectively respond to the RFP requests; and not enough information provided on the advertiser and or their specific goals to facilitate the publisher to tailor their proposal to the advertiser’s needs. From an advertiser’s perspective, often times these documents fail to ask for feedback on important issues such as whether or not digital publishers employ third-party vendors for website traffic sourcing. In other instances, RFPs fail to communicate critical performance standards such as viewability standards for digital media or in establishing the advertiser’s position on whether or not they will pay for non-human or fraudulent traffic. It would be a worthwhile practice for Advertisers to periodically review the level of detail contained in their media agency’s RFP templates and review completed RFPs to understand the basis for why certain RFPs were accepted or acted upon and others rejected.
  • Insertion Orders & Buy Confirmation Letters – The primary focus with these important control documents is to establish the specific tenets of the deal (i.e. audience delivery, performance guidelines, basis for evaluating performance, make good policies, etc.). Unfortunately, in our media agency compliance audit practice, we regularly discover incomplete documentation in this area that fails to establish enforceable delivery thresholds or basic qualitative standards to safeguard an advertiser’s media investment. In this era of “Big Data,” it is important for agencies to assert their clients’ data access and ownership rights. This relates generally to the audience modeling and transactional data generated as part of their media investment, and in the case of programmatic media buys, specifically to items such as winning bid log files and the associated meta data from all suppliers, including DSPs. Ensuring these types of data access and ownership rights are essential for advertisers if they want to have a clear line-of-sight into impression level pricing prior to the addition of the myriad number of fees and mark-ups charged by third-party suppliers. These documents also present an excellent opportunity for agencies to reinforce the agreed upon advertiser data protection guidelines such as how an advertiser’s data will be siloed, how long it will be stored and the extent to which the suppliers will limit other advertisers and third-parties access to such data.
  • Post-Buy Performance Reporting – There are three primary concerns in this area, aside from whether or not performance reporting is even being conducted. First, how are media buys monitored and stewarded while underway? What is the agency doing to monitor campaign delivery and to optimize performance in-flight? Second, is the agency monitoring performance across all media? More often than not we find agencies conducting television post-buys or digital media performance analysis, but totally ignoring other media elements altogether. Third, are the post-performance reports provided in a timely manner and include the level of detail necessary to hold media sellers accountable and provide meaningful insights that shape future media plans and buys?

Without a solid media stewardship process that incorporates sound control documents, continuous monitoring and comprehensive post-performance analysis, even the most thoughtful and compelling media plans will fall short of their potential. Advertisers could well benefit from conducting periodic reviews of their media agencies approach and performance during this phase of the media investment cycle. In the words of W.B. Sebald, twentieth-century German academic and author:

“Tiny details imperceptible to us decide everything!”

 Interested in learning more about the role of media buying guidelines and controls in safeguarding your media investment? Contact Cliff Campeau, Principal at AARM | Advertising Audit & Risk Management at ccampeau@aarmusa.com for your complimentary consultation on this topic. 

 

Key to Media ROI: Chief Media Officer or Compliance Auditing Support?

14 Aug

AccountabilityIn the wake of this spring’s Association of National Advertisers (ANA) “Media Transparency” study, conducted by K2, many in the industry have suggested that advertisers add a Chief Media Officer to staff to assist them in navigating what is clearly a complex, rapidly changing industry. For those advertisers that have the financial wherewithal to support such a position, the benefits could be significant when it comes to strategy development, planning and stewardship of their media agencies and extended supplier base.

That said, the dynamics which impact media return-on-investment require resources that go well beyond the reach, and sometimes knowledge, of a Chief Media Officer and create an entirely different set of challenges even for those organization’s that do have the luxury of adding a seasoned, media executive to their staff.

The findings of the ANA/K2 study dealt with non-transparent media agency practices effecting advertisers such as: rebates taken at the agency holding company level and not passed through to advertisers, media arbitrage, value banks, related party transactions and inappropriate mark-up on both media and non-media expenses. The economic and relationship impact of these practices, and the continued adverse effects of digital ad fraud and viewability challenges besetting the industry, all serve to greatly reduce the efficacy of an advertiser’s media investment.

Experience suggests that the key to resolving these issues is more likely rooted in the development of a sound, broad reaching media accountability program. One which focuses on improving client/agency contract language, client/ agency focused communications, financial and legal controls and enhancing advertiser transparency rights that allow clarity into the disposition of their funds at each stage of the media investment cycle.

This is not an easy task in an industry still largely reliant on an estimated billing model, with inordinately long campaign closing/reconciliation processes and multiple third-party vendors and middlemen, which all serve to negatively impact working media ratios.

Add to this the fact that the C-Suite within many advertiser organizations simply doesn’t pay much attention to media, in spite of the materiality of spend in this important area. Consider the results from a July ANA study, conducted by Advertiser Perceptions, following the release of the ANA/ K2 study:

Only one-quarter (25%) of advertisers surveyed were aware of the ANA’s media transparency study.

We believe that advertisers do care about how their media funds are being managed. However, we also know that very few organizations know what happens to their money, once an agency invoice has been paid.

It is for this reason that we believe strongly in the vast benefits that a structured, agency compliance and financial management auditing program. One that can also assist advertisers by providing a context for understanding the scope of the risks they face when it comes to building mitigating controls to optimize their media investment.

At present, few advertisers undertake such testing and even fewer have the requisite industry experience and specific media-based accounting, auditing and fraud examination experience represented in-house. Additionally, we have yet to evidence a client organization that has implemented the requisite software in their media function capable of processing and catching media billing discrepancies and performing other detailed financial analysis on their media investment.

We have learned over the years that the implementation of such controls yields tangible value far in excess of the cost to support such efforts.

The combination of financial loss related to approved but unspent media funds, earned but unprocessed credits and rebates, billing errors, unreconciled pass-through expenses and related party transparency issues can range between 2.0% and 5.0% of total agency billings. Once aware of the causes, savings are realized year-over-year by implementing improved process changes and treasury management.

With this as a backdrop, imagine an organization investing tens of millions or hundreds of millions of dollars on media. The resulting financial benefits, combined with improved controls, enhanced risk mitigation and transparency most assuredly will secure the attention of the C-Suite and their support for media agency compliance auditing.

Interested in learning how to start improving your media transparency today? Contact Cliff Campeau, Principal at Advertising Audit & Risk Management at ccampeau@aarmusa.com for your complimentary consultation.

Decision Time for Advertisers in Wake of ANA Study on Media Rebates

5 Jul

time to decideU.S. advertisers have long suspected their presence and agencies have steadfastly denied accepting rebates in the U.S. market. Depending on which side of the ledger one fell on, the ANA/ K2 study on media transparency may not have swayed your perspective on the topic one iota.

If such is the case, that is too bad. As the noted Irish playwright, George Bernard Shaw once said:

“Progress is impossible without change, and those who cannot change their mind cannot change anything.”

The study was thorough, insightful and shed light on some of the non-transparent sources of revenue available to agencies. These range from AVBs or rebates and value banks consisting of no-charge media weight to the spread earned by agency trading desks from the practice of media arbitrage or “principle buying” as it is often called. The source of these findings were agency, ad tech and publisher personnel that participated in the study in exchange for the ANA and K2 protecting their anonymity. Of note, not one representative from an agency holding company or ad agency was willing to go on the record and participate in this study.

We believe that the study should serve as a wake-up call for advertisers and agencies alike to engage in serious discussions regarding the level of disclosure desired by clients when it comes to the stewardship of their media investment. In the wake of the 4A’s shortsighted, premature withdrawal from the joint task force dealing with this topic and their subsequent challenges of the ANA/ K2 study methodology and findings, these discussions will have to occur on a one-on-one basis. Which, candidly, is the best means of affecting near-term change.

In most instances, it is not illegal for agencies to generate non-transparent revenue and is likely not even a violation of the agreements, which have been signed with their clients. Why? The contracts are lacking in the requisite control language to protect advertisers and agencies are masters at interpreting “gray areas” within those agreements and bending the rules in their favor. This coupled with the fact that only a small percentage of advertisers audit their agency partners and it is easy to see how such practices could exist.

Thus, as an industry we should not cast blame for the emergence of non-transparent revenue as an important element in agency remuneration programs… even if not sanctioned by advertisers. Nor should we accept the agencies excuse that client’s driving fees down somehow makes it acceptable for agencies to pursue non-transparent revenue to counter remuneration agreements, which agencies have knowingly signed on for.

Agencies are not suffering financially. Consider that in the first-quarter of 2016 the “Big 4” holding companies all saw increases in revenue ranging between 0.9% – 10.5%. WPP achieved a 10.5% increase on an 8.5% increase in billings, OMG saw net income per diluted share increase 8.4% and IPG achieved operating margins of 33.8%. Between these performances and media inflation outstripping GDP growth or increases in CPI and PPI it is easy to see how advertiser investments are fueling the trend of continued acquisition by these holding companies as they snatch up ad tech firms, content firms, digital agencies and traditional ad shops. Not to mention the fact that WPP’s chairman has an annual compensation package, which tops $100 million per year.

The focus of clients and agencies should be on returning to a principal/agent relationship predicated on full-disclosure. This is the surest path to rebuilding trust and establishing solid relationships focused on objectivity, transparency and a mutual focus on maximizing advertiser return-on-media-investment. Secondarily, both parties need to evaluate how to minimize the number of middlemen in the media buying loop, particularly for digital media, rethinking the role of ad tech firms, exchanges and publishers and the cut that each takes, lowering the advertisers working media ratios.

From our perspective there are four steps, which advertisers can take to address these issues:

  1. Revisit client/ agency Master Services Agreements to tighten terms and conditions, which deal with disclosure, financial stewardship and audit rights.
  2. Undertake constructive conversations regarding agency remuneration, with the goal of ensuring that your agency partners are fairly compensated, removing any incentive for non-transparent revenue generating behaviors.
  3. Pay more attention to the proper construction of statements of work (SOWs), establishing clear deliverables and review/ approval processes against which your agency partners can assess the resource investment required to achieve such deliverables. This will assist both client and agency in aligning remuneration, resources and expectations.
  4. Monitor agency performance, resource investment levels vis-à-vis the staffing plan and audit contract compliance to ensure that contractual controls and the resulting levels of protection and transparency are being met.

The ANA/ K2 study can and should serve as a platform for advertisers and their agency partners to work through any concerns or expectations regarding media transparency, both in the U.S. and across the globe. Experience suggests that progressive organizations will use the insights gleaned from the study as a launch pad for improving contractual controls, working media ratios and client/ agency relations.

For the industry, it is important to dispatch with concerns regarding media transparency quickly. This will allow all stakeholders to focus on tackling the myriad of issues that dramatically impact media effectiveness including ad fraud, cross channel audience delivery measurement, viewability and attribution modeling.

 

Seeing Their Way to Digital Media Growth

21 Mar

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

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

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

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

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

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

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

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

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

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

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

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

 As the comedian Bill Hicks, so accurately opined:

We are the facilitators of our own creative evolution.”

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

Why Working Media is Still a Relevant Ratio

20 Jul

In the decades since full-service agencies unbundled and the 15% agency commission fell by the wayside, advertisers have sought ways to assess the efficiency of their overall advertising investment.

One of the more reliable measures of efficiency had been the ratio of working media to non-working media. Working media being defined as the percentage of an advertiser’s budget spent on distributing their message to the intended audience (media pass-through costs). Conventional wisdom held that non-working media expenses (i.e. production, studio charges, agency fees, etc.…) should fall between 15% and 20% of an advertiser’s total spend.

The media landscape evolved to include digital, social and mobile channels, which have garnered a greater percentage of media spend, leading many industry pundits to suggest that focusing on working media ratios as a measure of efficiency is irrelevant. Why? Partly because of the increased focus on content creation, analytics and the expansion of an advertiser’s roster to include a host of specialty agencies. All of which have served to fuel non-working media costs.

Stop. While applying a 15% to 20% benchmark may no longer be appropriate, that doesn’t nullify the need to assess the efficiency of advertiser spending.

One must remember that there have also been developments within the industry to increase efficiencies and offset the justification for a rise in non-working media as a percent of total spend. Digital media asset management systems, production centers of excellence, offshoring and programmatic buying are but a handful of items which have leveraged technology to wring costs out of the system.

Advertisers have no choice but to establish goals and benchmarks for monitoring the efficiency of their overall advertising investment. No one is suggesting that this be done at the expense of creating brand relevant, distinctive, effective content. Quite the opposite, trimming unproductive non-working media expense is a necessary means of boosting that effectiveness. Perhaps this is why major advertisers such as Unilever and PepsiCo publicly share their goals and performance as it relates to the non-working media ratio.

The fact is that advertisers’ agency rosters and third-party vendor networks have expanded dramatically. This in turn has created additional layers and redundancies across many of their agency network partners, which can serve to fuel non-working media expense. A few short years ago the World Federation of Advertisers (WFA) conducted research, which found that a majority of advertisers surveyed felt that their agencies had added layers of costs when it came to one important aspect of their advertising spend… media buying.

So why shouldn’t advertisers monitor non-working media spend in addition to the analytics utilized to assess effectiveness? In the end, eliminating waste is part of a marketing organization’s fiduciary responsibility to their enterprise.

The good news is that advertisers can establish their own internal guideposts for monitoring working media ratios. It is relatively easy to look back on expenditures by category to provide a historical perspective to calculate this particular measure of efficiency. Importantly, this will also allow advertisers to establish firm goals to assist them with their resource allocation decisions.

 

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