4 Appropriate Limitations On Agency Remuneration

12 May

fourIt is our belief that agencies, consulting firms, contractors, employees and yes, even auditors, are entitled to earn as much money as they can in return for services rendered. Further, we are agnostic when it comes to the mode of remuneration, whether those fees are predicated on a resource based, outcome-based or value-based pricing model.

We also recognize that client organizations have the intelligence and wherewithal to negotiate professional services agreements that satisfactorily address both their needs and their budgets.

That said, experience has taught us that sound Client/Agency agreements should also place limitations on the revenue earned by an advertiser’s agency partners. In short, agency revenue should be limited explicitly to those forms and amounts of revenue that are intended and accordingly defined within the agreement, or otherwise agreed to in writing by the client. Period. The end.

Unfortunately, in our contract compliance audit practice, it is too often that we find agreements which don’t effectively restrict agency revenue to that which has been negotiated and memorialized in the contract between the parties. This can lead to misunderstandings and in rare cases bad behavior on the part of professional services providers seeking to unjustly optimize their revenue yield.

Below are four examples of appropriate contract limitations for advertisers to place on agency revenue, once the remuneration program has been negotiated:

  1. An agency should not be allowed to earn money on the handling or holding of client funds. Examples of this could include the earning of interest or “float” income and rebates or bonuses earned from the use of corporate credit or purchase cards to pay third-party vendors for purchases made on behalf of a client.
  2. All expenses, including those for third-party commitments and out-of-pocket expenses, should be billed on a net basis, at the agency’s cost, with no mark-up allowed.
  3. Discounts, rebates or any other benefits earned by the agency, its holding company and or related parties tied to the investment of client funds and or prompt payment to third-party vendors should be remitted back to the client upon receipt of such benefit.
  4. For direct labor based fees, the agency should not be allowed to charge for employee hours in excess of the full-time equivalent (FTE) standard (e.g. 1,800 hours per annum). Quite simply, once the FTE threshold has been met, the agency has fully recouped employee direct labor and overhead costs and realized the agreed upon profit margin.

One further measure of protection for advertisers is the addition of contract language requiring the agency to be transparent, to fully disclose all transactions and the flow of client funds along with the presence of any rebates or incentives received by the agency directly or indirectly.

Please note, that the “limitations” listed above are not meant to restrict an agency’s ability to earn a fee that is reflective of their delivered value. The intent is simply to limit agency revenue to those sources agreed to by both parties, thus providing the requisite protection to the advertiser.

“Confidence… thrives on honesty, on honor, on the sacredness of obligations, on faithful protection and on unselfish performance.” ~ Franklin D. Roosevelt

Things Are Looking Up for Marketing

26 Apr

What do these seemingly disparate items have in common?

Building Momentum Clock Time Words Moving Forward

  • According to Gartner Research, North American and UK companies will spend 11.2% of corporate revenue on marketing in 2019.
  • Nearly two-thirds of CMOs are expecting to see marketing budgets rise this year.
  • The recent IPA Bellwether survey indicates that UK marketers saw an 8.7% increase in the size of their advertising budgets during the first-quarter of 2019.
  • Martech budgets will account for almost 30% of marketing expense budgets in 2019.
  • On the strength of its break-through brand building efforts Burger King is “cool againproclaims INSEAD.
  • Former Anheuser-Busch InBev CMO, Miguel Patricio is promoted to CEO of Kraft Heinz.

In short, organizational confidence in both marketing and marketers appears to be on the rise and zero-based budgeting (ZBB) has helped, not hindered marketing’s resurgence.

By way of background UK marketers, including Unilever and Diageo, have been at the forefront in adopting ZBB, AB InBev is a ZBB organization, 3G Capital, which owns Burger King and Kraft Heinz has employed ZBB. And finally, martech budgets are soaring because organizations have driven out marketing budget inefficiencies, applying savings to fund productivity enhancing research and innovation initiatives.

Over the last decade or so, marketers had to renew their focus on demonstrating that the marketing function could in fact drive business, including both top line revenue and net profit. Importantly, marketers had to do this at a time when companies had shifted their focus to cost management and categorized marketing as an expense… not an investment.

The message sent to marketing was clear, budgets and the success of the CMO would be tied to achieving quantifiable results that supported the organization’s goals. For many firms, ZBB was an integral part of this process. ZBB provided a framework for eliminating unproductive costs and identifying areas, which better supported firm strategies and that were worthy of financial support.

At a time when “faster, better, cheaper” has become a guiding principle and where big data and technological advances are driving dizzying rates of marketplace change, building a successful marketing infrastructure has become increasingly difficult. Yet, there are numerous indicators that would suggest things are moving in a positive direction. The structure, processes and accountability that is part and parcel of a ZBB process appears to have aided marketing’s resurgence.

In the words of American economist, Emily Greene Balch:

The future will be determined in part by happenings that it is impossible to foresee; it will also be influenced by trends that are now existent and observable.”

 

 

 

 

Does Anyone Care About Media?

12 Apr

Coaching Mentoring Education Business Training Development E-learning ConceptMcKinsey estimated that companies across the globe could spend in excess of $2.0 trillion on media in 2019.

A big number to be sure, and for most advertisers the media component of their marketing spend, which runs between 10.4% – 14.0% of annual revenue is a material SG&A expense (Source: The CMO Study, from Deloitte, AMA, Fuqua School of Business at Duke University).

Thus it was surprising to read the results of advertising and media consultant ID Comms recent survey assessing advertiser interest in media training. Seventy-one percent of the respondents indicated that the “investment in media training” by advertisers was “unsatisfactory or entirely unsatisfactory.”

Given that in aggregate, the survey respondents firms spend “in excess of $20 billion” on media globally, one might say that their response was stunning. This is particularly so given the scrutiny that has been given to media advertising in the wake of the Association of National Advertisers (ANA) 2016 study on “Media Transparency” that brought to light some of the financial risks faced by advertisers in this area.

So why haven’t advertisers stepped up their investment in building media competency? It would seem that advertisers the world over would place a much higher level of priority on the recruitment and training of media personnel to help them steward their media agencies to safeguard and optimize their media spend.

Media savvy marketing professionals understand that the cost: benefit proposition for staffing and training corporate media departments is quite compelling. In fact, the ID Comms survey went on to point out that nearly all of the survey respondents agreed that “brands can gain a competitive advantage in marketing” by elevating their firm’s media capabilities.

Companies have plenty of Chiefs, ranging from Chief Executive Officers, Chief Operating Officers, Chief Financial Officers and Chief Marketing Officers to Chief Risk Officers, Chief Procurement Officers, Chief Technology Officers, Chief Information Officers, Chief Revenue Officers and more.

Okay, so perhaps there is no room left in the C-Suite for a Chief Media Officer. No worries, build out the corporate media function within the marketing pyramid. No money in the HR budget to hire a seasoned media professional? No worries, bring on a fractional Corporate Media Director to assist in staffing and training the department.

The need is real.

What advertiser wouldn’t benefit from investing in the ongoing training and education of their marketing and or corporate media staffs? Honing capabilities related to setting media strategy, establishing KPIs, crafting a compelling media brief, reviewing media plans, evaluating media performance, building an understanding of the adtech sector and managing a diverse roster of media agencies would yield both near and long-term financial returns.

With the desire to improve “working media” in an increasingly complex marketplace companies would benefit mightily from building their corporate media proficiencies.

“Hire for passion and intensity; there is training for everything else.” ~ Nolan Bushnell

 

 

Two Simple Steps for Advertisers to Safeguard Their Ad Dollars

2 Apr

simpleisgoodThe current advertising ecosystem is fraught with risks as the number of intermediaries grows, media continues to fragment and new specialist agencies come into being. The recent Chapter 11 bankruptcy filing of adtech provider Sizmek serves as a subtle reminder of these risks. At the time of its bankruptcy filing, Sizmek owed 48 different creditors in excess of $40 million for digital media inventory.

To protect their investment from the impacts of this type of event, U.S. advertisers should consider implementing the following two contractual safeguards:

  1. Establish a “Principal-Agent” relationship with your agency partners.
  2. Incorporate a “Sequential Liability” clause into your agency agreements.

Incorporating Principal-Agent language into agreements reinforces the advertiser’s expectation that its agency is beholden to “always act in the best interest of the Client” when entering into agreements with its affiliates, subcontractors and or third-party vendors.

Further, establishing sequential liability as it relates to third-party vendor payments protects advertisers from the failure of any intermediary to its vendors, for which that intermediary has already been paid by the advertiser. Advertisers must also require their agencies to provide notification of any third-party vendor that will not recognize the sequential liability relationship that exists between the advertiser and the agency. By way of caution, media sellers (for instance) often incorporate “No Sequential Liability” or “Joint and Several Liability” clauses into their agreements or purchase orders with agencies which contradicts or disallows this important advertiser protection.

While properly screening agencies and third-party vendors can dramatically decrease an advertiser’s risks, the aforementioned contract clauses will offer an additional layer of protection.

 

 

 

 

Working Media or Tech Tax?

2 Apr

dreamstime_xs_40032570Fact: Digital media expenditures have grown to represent the lion share of advertisers’ media spend, with programmatic being the dominant form of digital media advertising. According to Zenith’s recently released Programmatic Marketing Forecast, “65% of all money spent on advertising in digital media in 2019 will be traded programmatically.”

As marketers continue to focus on increasing working media ratios, they must confront the rise in expenses ranging from agency campaign management fees, data fees and adtech fees associated with their digital media investment.

According to WARC, which provides guidance to many of the world’s largest advertisers, advertising agencies and publishers, in 2017 “over $30.0B of the $63.4B spent on programmatic advertising went to technology vendors.” Thus, it is understandable why so many refer to these fees as a “Tech Tax.”

Heritage or Baggage. What’s Your Perspective?

2 Apr

ddb-content-logo2-2019-1320x660Two different agency holding companies, with two different perspectives on the value of brand heritage and the role that heritage will play in their respective cultures moving forward.

In late 2018, WPP made the announcement that it was going to merge J. Walter Thompson, the world’s oldest agency brand with Wunderman. The new agency was christened Wunderman Thompson. This came on the heels of WPP’s decision to consolidate digital agency VML with Young & Rubicam renaming the combined entity VMLY&R.

Make no mistake, we are proponents of the holding companies moves to consolidate their brands to streamline operations, improve accountability and to simplify marketer access to agency services. That said, for the nostalgics among us, it was sad to witness the disappearance of two of the industry’s most venerable brands.

Thus, we were pleasantly surprised when Omnicom introduced its new corporate identity for DDB in March. The firm chose to leverage its heritage, adapting its original logo and paying homage to its three founders Ned Doyle, Mac Dane and Bill Bernbach by incorporating the agency’s original name, Doyle Dane Bernbach into its new identity.

A spokesperson for the agency stated, “As other agencies are commoditizing their agency names and turning away from their founding principles and visions, DDB is doubling down on the values that Doyle, Dane and Bernbach founded our agency on – creativity and humanity.”

In the words of Bill Bernbach: “Getting your product known isn’t the answer. Getting it wanted is the answer.”  

Don’t Confuse Data-Centricity with Customer-Centricity

2 Apr

online mediaAd agencies and consultancies alike continue to focus their acquisition and consolidation strategies on “data” firms as they build-out their future service offerings.

One only has to consider Publicis Groupe’s recent advances toward Epsilon or note Interpublic’s 2018 acquisition of Acxiom and Dentsu Aegis’ acquisition of Merkle in 2016.

No one questions the importance of data analytics and its role in key aspects of the marketing process from target audience segmentation and enhanced digital media performance to optimizing lifetime customer value. However, adopting a data-centric mindset that focuses on lower funnel conversion tactics to satisfy advertisers’ near-term revenue generation needs should not be mistaken for a customer-centric approach to addressing the problems facing advertisers today.

To the extent that data immersion yields intelligence and insights that help position brands in a relevant and compelling manner to make it easier for consumers to associate themselves with those brands that is good. But if the focus is to forgo brand building in the hope of driving results through the creation of on-demand experiences with the goal of driving conversion, the risk is that marketers may simply annoy consumers and not endear their brands to their target audience.

A fundamental question to be addressed is: “Why is it that in the age of “big data” customers are becoming less brand loyal?”

Perhaps the focus should be data analytics ability to generate insights that inform brand strategy, boost a brand’s emotional appeal, build its value proposition and build an emotional connection with the consumer.

To this end, it was with great interest that I noted one of the key findings from PwC’s recent Retail Survey; “Consumers want benefits, not surveillance

U.S. Advertising On the Rise In 2019

5 Mar

dreamstime_xs_29951176Good news for the U.S. advertising industry as revenues are expected  to grow 2% in the first quarter and 7.6% for 2019. This according to Standard Media Index (SMI).

Of note, SMI data is generated from raw invoices — actual dollar amounts spent on each ad buy — from five of the seven media agency holding groups and independent media agencies Read More

 

Lapses of Judgement Are Afflicting the Ad Industry

25 Feb

Hand icon with thumbs downPerusing the advertising industry trade publications over the last few weeks, I couldn’t help but notice a recurring theme… poor judgement. Whether temporary lapses or recurring behavior all parties including marketers, agencies, adtech suppliers and publishers seem to be afflicted by this malady of late.

Examples include, but are not limited to:

  • Client-side procurement personnel waylaying agency reviews by disregarding strategic selection criteria to focus on “cost improvement” as the driver in selecting agency partners.
  • Media agencies recommending unproven media products such as outstream auto-play video. Why? Aside from ads running through completion while out-of-view thus artificially inflating completion rates and skewing ad effectiveness measures, the notion of forcing a video on a user that has not opted-in could negatively impact that user’s experience and their feelings toward the brand.
  • Digital media sellers continuing to use sourced traffic from third parties to increase the number of visitors to their websites to meet audience delivery requirements.
  • YouTube failing, once again, to police its own platform policies and safeguard brand advertisers by allowing users to find and make unsavory comments on videos featuring young children.
  • The feedback from media buyers attending the Digiday Media Buying Summit regarding the aforementioned video publisher, believing that “yes” it is a brand-unsafe environment but it works, giving advertisers the views and conversions.
  • Social media influencers purchasing followers to increase their alleged reach, thus boosting their appeal to brand marketers.

The good news is that there are certainly good actors in the industry that are conducting themselves in an honorable manner, making sound decisions and taking proactive measures to address the aforementioned lapses in judgement. Examples include Unilever’s recent decision to ban the use of influencers who purchase followers and advertisers such as Nestle, McDonalds and Disney pulling their schedules from YouTube. 

That said, the apparent level of apathy toward brand-unsafe media environments, unproven media channels, inorganic followers and site visitors and an unhealthy focus on low price at the expense of quality is quite alarming.

One can only hope that these lapses in good judgement are temporary and that the industry takes heed and puts the appropriate safeguards in place to protect advertisers and their brands moving forward. In the words of Simon Bolivar, the 18th century Venezuelan military and political leader:

Judgement comes from experience, and experience comes from bad judgement.

 

 

 

 

Be Big Somewhere… 3 Keys to Media Planning Success

20 Feb

apertureIn the past, there were two overarching concepts that helped to form the basis of an advertiser’s successful media planning efforts.

Be Big Somewhere – Simply stated, this approach held that in order to break through the clutter and gain the attention of an advertiser’s target audience one had to focus their media in places and at times where they could achieve a significant share of voice vis-à-vis the competition.

Aperture – Core to this concept was the belief that each consumer had an ideal time and place when they could be reached by an advertiser’s message. Simultaneously, there were times when the consumer was either prepared to buy or was gathering information regarding a potential future purchase. The intersection of these two points was the “aperture” and was considered to be the ideal point to expose consumers to an advertiser’s message.

Simple proven concepts that had withstood the test of time… up to a point.

At a time marked by the hyper-fragmentation and proliferation of media where consumers have access to a plethora of choices for accessing information and entertainment, it is questionable whether or not these concepts still hold true.

While the dynamic of a rapidly evolving media marketplace creates exciting content access options for consumers, it poses challenges for advertisers and their agency partners. For example, while the average amount of time consumers spend with media is significant, averaging 721 minutes per day (Source: Statista, 2019) determining the right time and place for targeting an advertiser’s message is difficult at best:

Avg. Time Spent with Media by Consumers in Minutes per Day (2017)

  • TV                                            238
  • Mobile (non-voice)               197
  • Online (laptop, desktop)     123
  • Radio                                         86
  • Other Connected Devices      33
  • Print                                          24
  • Other                                         21

         Total Minutes Per Day         721

Further, over the course of a typical day, studies have shown that consumers are exposed to somewhere between 4,000 and 10,000 ad messages. This exposure leads to increased levels of consumer apathy and message burnout. Thus, achieving a meaningful share-of-voice to break through the clutter, and then to effectively reach the target audience and finding the right aperture in this environment, is certainly more complex.

Compounding these environmental factors, at least for advertisers working with multiple media agencies, is the added challenge related to the development of an integrated, holistic planning process to help optimize media allocation decisions across agencies, platforms, publishers, networks, etc.

Moving forward there are three evolving, but yet to be perfected, media planning tools whose furtherance would greatly aid advertisers and their media partners:

  1. Cross-channel, multi-touch attribution models – In order for advertisers to truly optimize their media investments, it is imperative that they be able to assess the role that each consumer touchpoint plays in achieving their goals.
  2. Cross-platform media measurement tools – Simply put, planners need tools (e.g. common metrics) that will allow them to better understand campaign reach by platform and overall, while being able to calibrate total content ratings, regardless of where consumers view the message.
  3. Artificial intelligence platforms – AI has the potential to greatly assist media planners (and buyers) in analyzing multiple data sets to aid in everything from audience segmentation to creating and comparing alternative strategies and leveraging data on a real-time basis to optimize buys while a campaign is underway.

As the industry continues to perfect these tools and agencies master their application, the ability to plan media seamlessly across platforms will be greatly enhanced. In the words of NHL Hall of Famer, Wayne Gretzky:

A good hockey player plays where the puck is. A great hockey player plays where the puck is going to be.”

 

 

%d bloggers like this: