In the latest Mad Reality Check column, Mark Leone, a partner at MadClarity, wonders why certain things are allowed to stand in media that other industries would never even countenance.
At times, I feel like I’m picking on procurement and commercial teams. They have been the inspiration for many of my articles.
In most cases, it isn’t their fault.
Well, at least some of the time… this is one of those times.
In the last few weeks, we have been involved in several media agency fee discussions. Every advertiser wants to work with a good agency, although definitions of good vary. Most want an agency that is strong strategically, buys well, and most importantly, that they trust. However, most can’t understand the difference in fees between those agencies… and the others.
It is relatively simple. In every case, you will pay more under a non-disclosed model.
You probably won’t realise. If you don’t look under the hood, you won’t see it. But it will cost you.
The industry has done a dreadful job of educating advertisers and, in particular, the commercial and procurement partners of marketing. They haven’t been taught the implications of these decisions. The industry has collectively embraced opacity over commercial rigour. It has accepted “advisors” can maintain multiple, undisclosed, revenue streams. This shouldn’t be acceptable in any professional relationship, but it is in media.
It is obvious why many have been happy for it to continue. For the big agencies, their entire operating model depends on it. For those negotiating the deals with agencies, the differences are much more easily quantified under the hidden disguised model. The gap in fees is often too good to ignore. When you are measured on savings, this is important.
It seems to be win-win. Until it isn’t!
The bigger unintended consequence… no one really knows what a fair agency fee is. Where do you start?
Is it a fully disclosed model?
Will the agency be making hidden margins?
Is Principal Media involved?
What are the channels they will be using?
Then there is the procurement team’s favourite option, the biggest trap of the lot, the FTE model. A system built to justify spending more time and resource, to justify a higher fee. A commoditised mess that assumes all resource is equal and time spent is a proxy for quality.
No one can believe how much is being made in hidden margins.
What if your media agency charged no service fee at all? Would they survive? Surely not?
It is not that long ago we saw an agency offer to refund their entire service fee for a year, to not have a client’s business move during a pitch. The business moved… the CMO’s eyes were opened to the extent that hidden margins they had been making for some time. Yes, the fee was in the millions, yet that couldn’t compete with the potential loss.
The result is good agencies being pressured to compete. How can they realistically compete? There are only two options: cut corners or give in to temptation. Neither are good options for advertisers in the long run. Thankfully, for now, enough of the good agencies are standing firm. That won’t continue forever.
