Two years after the Association of National Advertisers’ damning report on how agencies profit from media budgets was released, the skepticism it unleashed has only intensified.
Advertisers and agencies talk about transparency a lot but often look as though they’d rather blame one another for the lack of clarity than come up with a way to get it. By and large, transparency comes down to pricing for both sides when it actually should mean much more as advertisers seek greater control beyond their agencies to ad tech and data.
Since the ANA report, advertisers tend to fall into two groups: the ones that have changed how they pay agencies to reward them the more successful a campaign is, and those that are yet to find a commercially viable alternative to the non-disclosed arrangement they have with their agency. Advertisers in both groups are starting to realize that transparent relationships with their agencies cost money.
Four senior agency executives, who spoke to Digiday on condition of anonymity, said they’d been faced with so-called pay-for-performance models that asked them to put their entire fee at risk if campaigns don’t hit certain objectives.
“A marketer thinks that’s progressive because it’s win-win when it’s not as they’re asking the agency to work largely at risk and sometimes against metrics that are beyond their control,” said one of the executives. Another executive said, “Doing things the right way doesn’t necessarily cost more, but advertisers do need to know what value means to them and then ask their agency to go and get it. Not enough advertisers know what value means beyond pricing and therefore can’t understand how media can drive growth in their business.”
Advertisers are willing to face up to those inconvenient truths. But their outlook for the future depends on what side of the Atlantic they’re on.
The British advertising trade body ISBA, for example, is working closely with agencies to come up with a blueprint for what a mutually beneficial relationship for advertiser and agency looks like.
“We’ve seen a rise in the take-up of disclosed ‘[agency] models among our membership.,” said Phil Smith, director-general of ISBA. “We know that there’s a real appetite amongst our agency community to make disclosed models available but to do so in a way that protects themselves at the same time.”
Not so in the U.S.
“I believe that trust between advertisers and agencies is lower than it’s ever been because agencies keep denying there are transparency issues,” said Bill Duggan, group evp at the ANA. “It amazes me that two years after the K2 report that there are many marketers who aren’t fully aware of the transparency issues and the potential solutions.”
Tight agency margins got tighter following the ANA report, especially as a result of more pitches. Some of those pitches are reducing agencies to suppliers rather than strategic partners, said one lawyer on condition of anonymity. Some of the deals are structured so the advertiser pays its agency by project rather than as a more expensive retainer. For agency bosses, it seems as though the rhetoric around advertising is different, and yet not much has really changed since the report. And that’s why old habits at agencies die hard.
“Lots are agencies are still unable to give neutral advice because they’re moving media budget into places that make them cash rather than are right for clients,” said one former agency executive. “I do, however, think clients need to ask more questions and spend more time assessing media plans.”
But it’s hard for advertisers to get those answers when they don’t know what to ask. Building that internal expertise takes time and money, which not every advertiser has. It’s taken fashion retailer River Island two years to build a team of almost 20 media buyers, who effectively use Manning Gottlieb OMD as a media consultant.
“My view of media agencies is that they will become strategic, consulting partners rather than media buyers,” said Josie Cartridge, customer director for River Island. “As a marketer, I’m more interested in the planning, strategy and marketing insight that a good agency brings rather than their ability to negotiate a certain number of impressions at a cheaper price.”
River Island’s approach is an example of the hybrid agency model that’s become more widely discussed among advertisers over the last two years. Part of the discussion around those models focuses on how an agency should be remunerated in a fully disclosed way, which is easier said than done due to paradoxical budget issues in media trading.
“It’s a challenge when your business is only looking at how much you spent on media, said Darren Woolley, founder and global CEO at marketing consultant TrinityP3. “There are marketers who want to ask for extra budget [to change models] but don’t know how to when it looks like they’ve not spent the money effectively in the past.”
The key for advertisers is to understand all layers of incentive in order to identify potential bias in their agencies’ recommendations.
“We see a rapidly increasing desire at advertisers to understand the full buying chain and the structure of the networks agencies they work with, which can definitely be attributed to the sparks of the ANA report,” said Ruben Schreurs, managing partner at digital media consulting firm Digital Decisions. “Advertisers need to have contracts that cover not just their agency of record but also the wider group and other subsidiaries within it. If they do not have this, audit rights are likely too limited to run a comprehensive review.”