Tag Archives: PwC

Ad Industry: Lack of Transparency Limits Trust

5 Dec

dreamstime_s_38659968“Trust is the glue of life. It’s the most essential ingredient in effective communication. It’s the foundational principle that holds all relationships.” ~ Stephen Covey

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

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

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

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

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

Consider but one aspect of advertising spend, digital media.

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

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

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

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

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

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

Has the Time Come and Gone for Digital Advertising Agencies?

28 Apr

digital trading deskWe all understand the concept of “specialization” and the potential benefit delivery for certain service providers in select industries. That said, the era of the digital media specialist agency may be drawing to a close.

Think about it, we have specialist agencies for programmatic advertising, paid search, organic search, social media, email, mobile marketing, website development, user experience, social, native and display advertising.

Why? What are the advantages that accrue to an advertiser from this level of specialization? More importantly, how many advertisers are equipped to engage with multiple media agency partners?

Integrating strategy and resource allocation decisions, coordinating roles and responsibilities and effectively managing relationships among several media agencies takes time, energy and money… assets that are tougher and tougher for marketers to come by. Not to mention, the additional costs incurred for overlapping agency services/personnel.

Specialist agencies aside, when it comes to digital media, advertisers are also contending with general market agencies, PR firms, multi-cultural, experiential and promotional agencies that are also involved with their digital marketing efforts. It is damn difficult for a marketing staff to coordinate and optimize digital communications along this many fronts, let alone integrate such efforts with an organization’s “traditional” media efforts. And, let’s face it, the task is not any easier (or cheaper) for an advertiser’s media agency-of-record to take the lead on this task and coordinate multiple disparate agencies working collaboratively and cohesively toward a common goal.

The ultimate question for advertisers may be, why take what is already a complex process and further complicate it by dividing efforts and resources across so many players?

In our contract compliance auditing and financial management practice we have seen advertisers pay a steep price for assembling agency networks that are too broad for their existing teams to effectively manage. This in turn leads to cost inefficiencies related to duplicative services and fees tied to the lack of clear role differentiation across agencies, and in turn, a reduction in working media. Say nothing of the impact on digital media effectiveness tied to communication and briefing gaps that inevitably arise in these scenarios. Perhaps there is a lesson to be learned from the words of William Blake, 18th century English poet and painter:

“The road of excess leads to the palace of wisdom”

We believe that the time has come for advertisers to give more serious consideration to streamlining their agency networks in general, and specifically to pare back the number of agency partners involved with their digital media efforts… beginning with “specialist” shops.

A great place to start is to evaluate the potential for centralizing media planning for traditional and digital media. This is a logical “first step” and will allow marketing organizations to better leverage their data, to improve their targeting and segmentation schema, enhance their resource allocation decisions and integrate all facets of their communication plans. Additional benefits from such a strategy include more collaborative and improved media briefings and streamlined communications across agency partners. Similarly, when it comes to media buying, focusing on fewer partners makes it easier to leverage an organization’s overall media spend, optimize sponsorship and value-add opportunities across media properties, and to minimize agency fees by eliminating redundant buying activities across partner shops.

Major holding company media agencies and larger independent media firms, with broad resource offerings and the scale to provide “one-stop” service certainly stand to benefit from consolidation. As do ad technology firms such as Adobe, Oracle and Google that provide advertisers with the tools to manage certain digital functions in-house. It should be noted that while the large media networks of a holding company will benefit, specialized, stand alone digital media shops within those holding companies may face challenges related to such a consolidation.

In closing, we wanted to address the topic of the “rise of the management consultancies” as legitimate competitors to traditional agencies. As it relates to media planning and placement, we believe that the large ad agencies and holding companies will retain an edge in this area for some time to come. However, vulnerability in the areas of strategic consulting and customer connectivity (i.e. data integration, user experience and system development) is where we believe consulting firms will continue to make significant inroads with CMOs as marketers seek to fulfill corporate mandates to assist in digitally transforming their businesses. As this is occurring, some agencies have announced plans to expand their resource offerings to compete with the likes of Accenture, IBM, PwC and Deloitte in this area. Realistically, at least in the near-term, agency constraints on talent and functional expertise represent significant hurdles before an attack in this area can be mounted… while concurrently defending their current base of business.

 

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