Tag Archives: multiple agencies

The Model Isn’t Broken. It’s Fixed.

Sony, VW, P&G, J&J, Bacardi, SC Johnson, Visa, 21st Century Fox, L’Oreal, Coca Cola, BMW, BASF. What do all these companies have in common? They all have placed their media business in review, or recently completed a review. Their incumbent media agencies; the usual suspects—OMD, Zenith, UM, Mediacom, Vizeum, Carat, Starcom/MediaVest. The agencies involved in the review; the usual suspects.

Insanity is doing the same thing over and over again and expecting a different result.

I’ve heard and read that some people believe that industry change (content, integration, analytics) is driving this rash of reviews. If so, why are the same agencies that some clients are dissatisfied with all of a sudden appealing to others? Why would OMD be a good repository for Bacardi, which they recently won, when current clients J&J and Visa have put their accounts in review? Is it because what is shown in new business pitches is not what is used on a daily basis? I witnessed much of this when I was at Initiative, albeit a dozen years ago. The people who work on client business think many of the tools and sexy stuff shown in new business pitches is just that, only shown in new business pitches. It’s not practical for everyday use because the planners have too many boxes of GRP’s to fill in. They do not have the time to solve real business problems.

So what is the value proposition of these mega-media agencies? It certainly isn’t buying leverage because smaller agencies can match the big guys on media pricing—and often beat them. The big guys speak of relationships with the media companies, but the media companies are putting more and more inventory up for sale in the open market, using exchanges to eliminate the human aspect of transactions that is rife with inefficiencies.

Others suggest that the reviews are procurement driven, which explains why only the usual list of invitees are participating. These big agencies hate losing business and they’ll promise everything to win. They have a beast to feed to perpetuate their own myth and they believe their own BS.

You don’t have to. If you want the same-old solutions join in the Mad Hatter’s Tea Party. If you want real change you really have to want to change.

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Repercussions

The fallout from Jon Mandel’s statement at the ANA about Agency kickbacks has led to a number of anonymous executives admitting it has happened under their watch and some even confessed to participating themselves. Now, this doesn’t mean that these individuals received kickbacks, but that they allowed their agency/media company to take or give money for a media buy. Initially I thought Jon Mandel was overstating a problem, but apparently it is more prevalent than we could imagine. This is certainly more significant than an agency taking the 2% cash/pre-payment discount–which is still sometimes offered–and not offering the money back to the client.

In my last blog I focused on the kickbacks that were occurring out in the open via mega holding company specialty shops. Read that blog for background. So to go into more detail, here’s how the mechanics would work in two scenarios:

  • Moving buys through a barter division. To simplify things, media companies sometimes want to take clients on a trip or schedule a sales meeting in a nice venue away from the office. Rather than pay cash for these trips the media company will offer future access to media inventory at a reduced price or for free to a barter agency. This is easier than going to management and asking them to pay out-of-pocket, but the media company offers value of inventory that is higher than the cost of the trip. The media company can be more lavish and less cost-conscious, especially when it comes to taking clients on a trip. The barter agency sells the inventory either internally or externally at closer to market pricing and makes a significant profit. The barter division of the mega agency holding company tries to move this inventory internally first, where they can ask for equivalent market pricing. If they sell it externally it needs to be sold at below market pricing. Suddenly a 2% commission on national Cable TV becomes 25% or more–I’m being kind. Remember, some of this inventory can be accessed for free. Barter division provides kickback to media agency to ensure the deal goes through.
  • Non-disclosed media buying. Marketers less familiar with the agency process or infrastructure might be led to believe that their media buying is falling under the master contract with a creative agency when, in fact, it does not. The media agency adds their commissions into the media prices they quote, taking a high commission rate. The creative agency keeps all of their fees, not having to pay for media service while completely offloading the labor. Sometimes they even get a kickback above and beyond their fee.

Both of these scenarios would pass muster on an audit because the audit only goes one transaction deep. The auditors are not examining every transaction nor do they know there are secondary transactions. The kickback would always be treated as a separate transaction, not discounts on invoices.

The more you know, the more you don’t want to know.

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I’ll Have Two Scoops, Please.

The ad industry is abuzz with the recent accusations by Jon Mandel, a longtime media exec, regarding widespread kickbacks between media companies and media agencies. I can believe that there are kickbacks, personal favors, some tit-for-tat agreements, but the claim that it is widespread is difficult to believe because of the number of people that need to be involved, all either partaking in the fraud or looking the other way. In order for them to be as widespread as Mr. Mandel states it needs to be systemic. To get away with it strict non-disclosure agreements between the agency and the media vendor must be in place. It would also survive an audit because any kick-backs would be treated as a secondary transaction. It would be disturbing if it is indeed happening. Read the following for more info on Mr. Mandel’s statements: http://adage.com/article/agency-news/mediacom-ceo-mandel-skewers-agencies-incentives/297470/

But there is another practice that is widespread in our industry, one that happens out in the open. I’ll call it “double-dipping”. Double-dipping is when an agency buys services from itself in order to improve its bottom line. And it is happening at the biggest agencies out there.

Not to pick on any one, but look at the major holding companies and you’ll see how agencies are making money today when the stated commissions seem to get lower and lower every year. Each major holding company owns creative agencies, media agencies, barter companies, mobile agencies, tech platforms, CRM companies, research and strategy companies, branded content companies, etc. So you can see for yourself, below are links to their organizations:

IPG: http://www.interpublic.com/our-agencies

Omnicom: http://www.omnicomgroup.com/ourcompanies

WPP: http://www.wpp.com/wpp/companies/

Publicis: http://www.publicisgroupe.com/#/en/maps

Their worst offenders are their trading desks where there is no transparency between the amount they are paying and the amount that they are selling it to themselves.

High-level executives at any company like this are encouraged, and likely their bonuses are dependent upon, how they can improve the bottom lines of the parent company by moving money between organizations internally. Whenever and wherever possible they will buy services through an internal partner who is arbitraging inventory. The client thinks the margins are slim, but they can easily double or triple when no one is paying close attention.

Marketers have contributed to this by creating an environment where this can happen. Every year procurement led reviews occur wherein a marketer’s stated goal is to reduce the service costs. This is compounded by their insistence on extending payment terms. Who in their right mind would continue to accept lower terms AND wait to get paid? The answer is simple. Someone who’s figured out another way to make money.

If you’re a marketer who is now concerned about these practices look carefully at your agreement. Is your agency able to subcontract without your permission? Is your main agency constantly parading in specialty divisions? If they use an internal subcontractor with your knowledge do they not want you to have a direct contract? Do you not audit your agency and their vendors? If so, there’s a possibility they are double-dipping.

Holding companies developed these arcane multi-discipline organization charts for one reason and one reason only. They’re not interested in being the best at anything, except discovering new ways to separate you from your money.

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Buyer’s Remorse

A new CEO comes in, ousts the CMO and VP of Marketing and tells his smaller media agency that he won’t renew their contract because he has a larger media shop he’s worked with and believes their BS about bigger agencies always buying better than small ones.

This happened to us recently. When the CEO’s preferred media agency submitted a ridiculously high compensation proposal suddenly we’re back in the mix. Our fee proposal was very fair. We even offered the client a better deal. We get an opportunity to pitch ourselves to the new CEO who, for the previous two months, wouldn’t even acknowledge our existence.

We have a great meeting. We explain the fallacy in believing that larger agencies “always” get better pricing. We tell him you get best pricing (and overall work) from people who care about their work and have time to do a great job for you. They take the time to negotiate for value and continue to drive down costs if they can rather than stop when they reach the benchmark. Sometimes those people work at bigger agencies, but more often they work at smaller ones. He mutters on his way out “that was a great meeting”.

We have the support of the marketing team, the research team and the field marketing personnel who all lobby for us to be retained. The CEO asks us to submit pricing on a prototypical buy in 50 markets. We bought those markets the prior year so we used our actual achieved costs. The CEO hires his preferred media agency. We’re disappointed, as we should be. We felt we had a chance. We believed we won the CEO over. Then we felt used simply so he could get a better compensation deal from the agency he hired.

A month later one of the marketing managers calls us to ask how we got our media pricing because the new agency can’t meet those costs. Why weren’t they asked to submit pricing on the same prototypical media buy that we were asked to? The CEO could have hired the better agency if he held them to the same standard throughout the process.

We get more calls asking us to meet with the new agency to tell them how we achieved the costs we got. We outright refuse and offer to handle the business instead. “Hire us and you’ll get those costs”.

Now the CEO has a recruiter calling one of our senior people to ask him to interview for the head of media position. Our guy says to the recruiter “If he respected me so much and wanted me working on his business why didn’t he hire my agency?”

He wanted a larger media agency. He got one. Be careful what you ask for. You just might get it.

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Is Your Marketing Integrated Or Quarantined?

Isaac Asimov once said “The true genius of any plan lies as much in the execution as it does in the concept. “ The same can be said of Integrated Marketing. An Integrated Marketing program built solely on execution—meaning, simplistically, a multi-platform media buy for cost efficiencies sake—will save you money, but won’t accomplish much in business growth. Nor will a great idea not executed properly, not achieving significant scale and not motivating people to a specific action.

So, if Integrated Marketing is so important why don’t we see it every day? It seems that somewhere somehow we lost our way as an industry. Let’s take a step back in time to see when that happened and how we got to the state we are currently in. Marketing in the days before mass media was simple. Most businesses were local and there were few national brands. So a product got a strong following and word-of-mouth with an occasional newspaper ad worked. But after World War II mass media took over—first driven by magazines and radio. But barely a decade later, TV became affordable to a large segment of the population–and mass brands grew simultaneously in a symbiotic way. One could not have happened without the other. TV and Magazines helped introduce brands to new consumers and the advertising revenue generated by these brands funded the content that increased the appeal of mass media. And because there were fewer options the mass media flourished.

Advertising became the focus of most brand’s marketing budgets and TV became the favored medium. The advertising industry came up with a model of how to evaluate advertising—the famous six stage ARF Model—Vehicle Distribution, Vehicle Exposure, Advertising Exposure, Advertising Perception, Advertising Communication and Sales Response. We developed an advertising impression metric to plan, buy and track how we were doing. Advertising agencies restructured around this principle and created media planning and media buying disciplines whose goal was to aggregate audiences.

Since the 1980’s a lot has changed in media availability. Most homes have multiple TV’s, and access to more than 100 channels and the share of viewing has fragmented greatly. That’s just TV. Magazines, radio, newspapers had the same fragmentation and increased availability of options. Today, with internet/mobile access rivaling TV ownership, the world is different. The age-old ARF model doesn’t apply anymore because with digital media we can do so much more than we ever could before. We can customize messaging and create individualized communication pathways to drive purchases. Digital is not an advertising medium, per se. It is a marketing channel.

The sad truth is that today that ARF model still drives the advertising industry. Media is still planned and purchased at most agencies on an impression/GRP basis. We value ourselves as buyers on how well we do on a cost per thousand impressions basis. Media Researchers at most agencies are more concerned about methodology of tracking audiences than on developing tools and techniques to measure what really is important—product sales. We used to play a joke on new employees. On their first day we would show them a media plan and tell them it didn’t have enough W18-49 GRP’s. We’d then send them down to the supply room with a requisition form for a box of GRP’s. Well, the joke, it turns out, is on us for focusing for too long on a surrogate metric for evaluating ourselves. We are still trying to aggregate audiences. But it’s not just an agency problem. The entire marketing process is over-siloed. When marketers have a creative agency, a media agency, a PR firm, a promotional agency and a digital marketing partner engaged on the brand, often times from multiple holding companies, the challenge becomes one of bringing disparate voices into harmony. Getting everyone singing the same tune, and not seeking a solo performance that highlights their voice, their contribution in absence of everyone else. This is a base instinct we have in these situations, proving our worth and our value in a team environment.

Besides the inherent human desire to prove our individual worth is how we as agencies and media salespeople divide functional disciplines—TV sellers call on TV buyers who are responsible for delivering TV value, print sellers call on print buyers who are charged with delivering print value and the digital sellers call on digital buyers who have to deliver digital media value.

So in a world of silo-ed, or worse—quarantined, marketing partners how can one deliver both an idea and an execution? By chance? I doubt it. Sheer magnitude of media buying clout? Probably not. A great idea without the scale to impact the bottom line? Highly unlikely. Someone develops an idea and champions it, with contagious excitement and relentless single-minded focus on executing that idea with the potential consumer at the center of everything.

We are at a critical point in the media landscape. Old line media companies are struggling. Magazines titles are getting shut down. Newspapers are merging or getting shut down. Consolidation is happening all around us. But the news is not all bad. Magazine companies are becoming media companies and media companies are becoming marketing companies. The threat for agencies is the biggest one. If ad agencies do not reinvent themselves as marketing agencies then they will be disintermediated, dismissed from the process entirely. Historically the ad agency has been the lead partner to a marketer. In a world of long-tail marketing there is no “One” message for the masses. There are millions of messages each one speaking to an individual’s motivations.

So, here’s my clarion call to us as an industry. Here’s the three things we each need to do to re-focus our efforts on Integrated Marketing.

Marketers:
1. Stop thinking of marketing as a cost proposition and approach it as an investment. Stop the constant priority of evaluating your marketing efforts on cost alone. Sometimes good ideas cost more than bad ones. You should think about results and a return on investment. You should want talented and creative people working to build your business.
2. Engage all your marketing partners together frequently. Let them get to know each other. Make them work together. Encourage them to dialog and debate ideas without you as an intermediary. Make them collaborate and let them know that it’s “all for one and one for all”.
3. Make us accountable. Hold our feet to the fire. Make sure we deliver on our combined promise.

Media Companies:
1. Stop thinking of yourself as a media vendor and an advertising placement property. So many of you have such rich content and strong relationships with consumers. Use it to your advantage. You are a marketing communications company.
2. Engage your marketing people in bigger ways than ‘added value’ programs that don’t add up to much. Put your marketing people, who know your customers better than you think, in front of the marketers and agencies. Number
3. Partner with like-minded properties inside your own company and outside as well. Find a partner that can enhance your offering and make you both a larger scale player than you can be alone. If you’re a special interest magazine company with marginal web assets find a cable TV network that you can partner with whether it’s an ad-hoc relationship or a longer-term strategic alliance. What do you have to lose? What do you have to gain?

Media Agencies:
1. Think like marketing agencies, not media buyers. We are uniquely situated to help collaborate, build and evaluate, but only if we allow ourselves. We need to re-insert ourselves at the highest levels and not be a vendor.
2. Don’t just keep buying more boxes of GRP’s. If we want to be treated as a marketing partner we need to behave like one. We need new metrics to prove what works. Get your research department to stop focusing on audience metrics and have them develop marketing metrics.
3. Treat the media companies as partners, they are not your enemy. If you want them to bring good ideas to you then treat them fairly and with respect. Listen to them and let them bring you ideas. Don’t make them fill out 100 page RFP’s asking them to answer questions that you won’t even evaluate.

Our collective business, the business of marketing brands, is built on our people, because that’s all we have. Our people and their ideas. If our people are willing to contribute to the greater good, then we all win. If someone champions an idea, is relentless in their pursuit of engaging their partners, and accepts nothing less than a team approach then there is nothing we can’t accomplish.

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