Why Transparency Shouldn’t Just Be About Media

Dale Garvie (main photo) is managing director, APAC, for FirmDecisions, the largest independent global marketing contract compliance specialist. In this guest post, Garvie argues marketing has become a patchwork of complex deals that brands should scrutinise more closely…

The ever-more digital media landscape is growing in complexity. Brands today have access to an increasingly diverse array of specialist suppliers across all of the marketing channels available to them. Despite this increasing complexity and choice, in 2020 media investment shrank by 20 per cent in Australia and 14 per cent in New Zealand as a direct result of Covid. Two enduring impacts of the pandemic seem certain to be smaller budgets and closer scrutiny of every dollar invested in marketing.

Moving beyond media

Where there’s a marcomms supplier, there’s a contract. Here are five examples, and in each case  there should be an agreed commercial deal – and a contract – that dictates the terms:

• A multi-territory deal for media placement
• Merchandisers managing the look and feel of retail, making products and promotions stand out using point-of-sale material – particularly post-pandemic, as consumers return to stores
• Creative development of media assets, for traditional and digital channels
• Digital media, display and increasingly video advertising
• The smaller, more fragmented ad hoc spend on event management, PR, and production

And that’s before we even consider the rise of the influencer. We’re expecting to see global spend on influencer marketing to double from $8bn in 2019 – about one per cent of budgets – to $16bn by 2022. Marketing is now a patchwork of complex agency deals that brands need to understand and scrutinize closely if they’re to secure meaningful return on their investments.

Auditing investment across the marketing supply chain

For many advertisers, contracts with media agencies of record have typically commanded most attention because that’s where the largest portion of their marketing budget goes. Inevitably, the spotlight has focused on securing full disclosure and compliance with all costs and intermediaries involved in the media supply chain, especially digital media buys and programmatic. Governance of media agencies managing media billings and recovering rebates have been brands’ top priorities.

But for many companies, including consumer tech and FMCG businesses, annual investment in other forms of marketing commands millions of dollars in retail merchandising, point-of-sale materials, and creative. Investment on this scale comes with significant risk of erroneous charges, misapplied markups and commissions, and a lack of transparency in selection and use of third-party suppliers – just as it does with media.

Common challenges beyond media

When we run contract compliance audits of creative, merchandising, and point-of-sale agencies, we often find that the contracts fail to define the advertising-specific issues they should include. This can be because those negotiating on the brand’s behalf – sometimes in marketing, sometimes procurement, sometimes a hybrid of the two – are unfamiliar with the services rendered. This is particularly true for new or unfamiliar services or channels or when generic contract templates are used. Here are five examples of challenges we’ve identified in recent contract compliance reviews.

1. Many merchandising and creative agencies bill their jobs per estimate, failing to reconcile actual third-party costs against the original estimate. It can be unclear whether the agency has held onto the difference or credited it to the client.
2. The mark-up/commissions applied to each line item of third-party costs – be they for creative or merchandising – can easily be applied or interpreted differently. Where the work is carried out in another country, there can be multiple layers of suppliers and charges.
3. The total estimate is treated as a quote. When reconciling the total job, savings on third-party costs are sometimes offset against extra – unapproved – expenses or overspend on other campaigns. This can, and should, be explicitly prevented by binding contractual terms.
4. Creative agencies often use businesses in the same holding company but treat them as if they were third-parties and billed to their estimate, including an undisclosed margin. This is known as bid-rigging, and the practice is being investigated in the U.S. to ensure that the selection and billing of third-parties versus holding company companies is transparent.
5. Studio charges are often calculated per a rate card that hasn’t been agreed with the advertiser and which is rarely attached to the contract.Studio work is typically carried out and billed by staff already being paid via the full-time equivalent (FTE) enrolment fee or roles that are also part of overhead charges billed as FTEs.

Increased vigilance on all sides

I’m not for one minute suggesting that all blame lies at the door of the agencies. Scopes of work change, commercial models and practices evolve, and people both agency- and brand-side move jobs. With personnel changes come different interpretations of what was agreed. When we conduct audits of these non-media agencies, both brand and agency teams are often surprised by what we uncover. Often they’re unaware how far they have deviated from or misinterpreted the contract.

Summing up

Marketing agency contract compliance has been growing in importance over the past 20 years. It’s become an increasingly important part of the savvy marketer’s toolkit of checks and balances, with more brands working with specialist auditors for an increasing variety of marketing disciplines. Historically, these retrospective audits of agency spend have lagged two or even three years after marketing investment was made in market.

One upside of Covid is that it has helped to shorten the window between marketing expenditure and contract compliance auditing. It has done this for two reasons. First, many brands were forced to pause, slash, or cancel campaigns when the pandemic broke and during subsequent lockdowns, giving brands the time to bring their contract compliance up-to-date. And second, with the lurch to both digital marketing and ecommerce with so much more of the world working from home, brands were starting to use new and different digital channels, ad tech and martech suppliers, and so their contracts need regular and keen-eyed updating. These factors have both accelerated the prospect of real-time or always-on auditing, which will serve brands well. We always recommend that brands update their contracts as often as the terms or dynamics of their partnerships demand, and then go on to audit annually.