Transparency: Important for SMBs or a Distraction from Real ROI?
June 8, 2016 | Contributed by: Wesley Young
There’s been an ongoing dispute brewing between brands and their ad agencies regarding the topic of media buying. Brands are concerned about the transparency behind charges by agencies for their media buy.
The problem stems not from the price of the actual transactional purchase, but from other monetary benefits that might not be included in that price. Brands claim agencies might get rebates for certain volume purchases. Also, incentives, commissions, discounts or other value that might be provided outside of the direct purchase are viewed as improper benefits the agency receives using client money.
Many of the agencies deny such practices or claim that any benefits received are credited back to the advertiser. Yet there remains criticism and skepticism by the advertisers.
Both parties attempted to work on improving transparency by working on best practices through their representative associations – the Association of National Advertisers (ANA) for the brands and the American Association of Advertising Agencies (4A’s). Yet the effort seemed to widen the dispute when the 4A’s released language for transparency guidelines before the ANA agreed to it. The ANA said the effort failed to “fully or adequately reflect the best interests of marketers,” and demanded that names of brands that were part of the work group be removed from the release stating that inclusion implied that the brands had endorsed the work.
Advertisers were busy doing their own investigation into past conduct and believed release of the guidelines before the investigation was complete was premature. The ANA hired K2 Intelligence and Ebiquity/Firm Decisions to audit and investigate finances and reporting behind media buys. That report was just released.
The report concludes that the practice of receiving financial incentives for media buys is “pervasive” throughout the industry and that markups of media sold ranged from 30%-90%. It also found a disconnect in understanding of what the relationship between agencies and advertisers should be.
Advertisers believed agencies are obligated to act in their clients’ best interests. Agencies viewed the relationship to be more contractually defined. Interestingly, a number of advertisers failed to realize that some contracts actually expressly permit the agency to receive and keep financial incentives.
Individual agencies continue to extol their transparency and object to broad allegations against the entire industry. The report does not call out specific parties or name particular agencies. Whether or not names and specific details will eventually be leaked remains to be seen.
What happens at the national level often trickles down to the local level. Certainly pricing, ROI and cost of marketing services are a big deal to local businesses and repeatedly cited as a reason for high churn rates. Whatever shakes out at the national level is likely to impact practices at the local level and the issue of transparency is one to keep an eye on.
And hopefully this will not be a distraction for SMBs who fail to see the forest for the trees. For SMBs, the more important issue should be ROI on the services they purchase. While local businesses should understand what they are paying for, focusing too much on the price of media buy turns marketing into a commodity instead of the value added service that it is.