Marketing Math Blog

Aug 01
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Increase Your Digital Coverage by 40% In One-Easy-Step

By Advertisers, Digital Media, Digital Trading Desk, Marketing Accountability, Marketing Procurement, Media, Media Transparency, Programmatic Buying No Comments

simple is goodConfucius once said that “Life is really simple, but we insist on making it complicated.”

Perhaps the same can be said of digital media buying. Too often it seems as though the onset and rapid growth of programmatic buying has created more problems than solutions. An expanded media supply chain with multiple layers of costs, increased levels of fraud, brand safety concerns, visibility challenges, a lack of transparency and perhaps most troubling, eroding levels of trust between advertisers and their agencies.

Growing pains? Perhaps. But something needs to change and this author would like to suggest one potential solution… abandon programmatic digital media buying altogether. Seriously? Why not?

Consider the following and the concept won’t seem so far-fetched:

  • In 2015, advertisers spent $60 billion on digital media, with close to two-thirds of that going to Google and Facebook (source: Pivotal Research).
  • According to the advertising trade group, Digital Content, today this duopoly is garnering 90% of every new dollar spent on digital media.
  • What happened to the magical pursuit of the long-tail and the notion of smaller bets being safer? Economics. The fact is that the notion of the long-tail simply didn’t work as researchers and economists found that having less of more is a better, more statistically sound pursuit. To wit, Google’s and Facebook’s market share.
  • Today, programmatic digital display advertising accounts for 80% of display ad spending, which will top $33 billion in 2017 (source: eMarketer).
  • Between 2012 – 2016 programmatic advertising grew 71% per year, on average (source: Zenith).
  • In 2018, programmatic will grow an additional 30%+ to $64 billion, with the U.S. representing 62% of global programmatic expenditures (source: Zenith).

Come again. Two publishers are getting $.90 of every incremental digital dollar spent and programmatic digital media buying accounts for 80%+ of digital media spend. What are we missing? Is there an algorithm that specializes in sending RFPs and insertion orders to Google and Facebook in such a manner that the outcome yields a 40% or better efficiency gain?

As we all know, there have been numerous industry studies, including those sponsored by the World Federation of Advertisers (WFA) and the Association of National Advertisers (ANA), which have suggested that at least 40% of every digital media dollar spent goes to cover programmatic digital media buying’s transactional costs (third-party expenses and agency fees), with only $.48 – $.60 of that expenditure going to publishers.

So, for an advertiser spending $40 million on programmatic digital media, if the law of averages holds true, $16 million will go to cover transactional costs and agency fees. That means that of the advertiser’s original spend, they will actually get $24 million worth of media. While we know that programmatic media can yield efficiencies, can it overcome that type of transactional deficit?

If that same advertiser eschewed programmatic digital and decided to rely on a digital direct media investment strategy, what would it cost them?

Assume that they hired ten seasoned digital media planning and investment professionals for $150,000 each (salary, bonus, benefits), they would spend $1.5 million on direct labor costs. Further, in order to afford their team maximum flexibility, let’s say that the advertiser allocated an additional $1 million annually for access to ad tech tools and research subscriptions to facilitate their Team’s planning and placement efforts. This would bring their total outlay to $2.5 million per annum.

If they were spending $40 million in total, this means that the team would be able to purchase $37.5 million worth of digital media. Don’t forget that placing digital buys direct will greatly reduce fraud levels that can eat up another 8% – 12% of every digital ad dollar, while also greatly improving brand safety guideline adherence. Compare that to the $24 million in inventory purchased programmatically. 

So how efficient is programmatic?

Sadly, most advertisers can’t even address this question, because their buys are structured on a non-disclosed, rather than a cost-disclosed basis. Even if they had line of sight into what the third-party costs (i.e. media, data, tech) and agency fees being charged were, they wouldn’t have a clue as to the fees/ charges that sell-side suppliers were levying, further eroding working media levels.

A simplistic solution? Perhaps. But the fact that the industry continues to drink the programmatic “Kool-Aid” without any significant progress toward resolving the dilutive effect that programmatic transactional costs, agency fees and fraud have on an advertiser’s investment seems a tad irresponsible.  

Ask yourself. What would you do if it were your money? 

 

 

Jul 26
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Is Programmatic Advertising Worth the Risk?

By Advertisers, Digital Media, Digital Trading Desk, Media, Media Transparency, Programmatic Buying, Trading Desk, Working Media No Comments

RiskConceptually, it is easy to understand the potential of programmatic media buying. It is obvious to most that using technology to supplant what is a manual, labor intensive process to drive efficiencies and improve media investment decisions could be a plus for advertisers, agencies and publishers (not to mention ad tech vendors).

The only question to be addressed is “when” will the benefits of programmatic outweigh the costs and the risks to advertisers?

Proponents of programmatic will argue that this buying tactic has already generated economic benefit for advertisers when it comes to digital media buying. After all, streamlining the processes related to the issuance and completion of RFPs, buyer/ seller negotiations and preparation of insertion orders clearly saves time and reduces labor costs for all stakeholders.

No one would argue this premise. However, reducing labor costs associated with traditional buying is but one component of programmatic buying costs. Consider the broad array of programmatic buying related fees and expenses currently being born by advertisers:

  • Data Management Platform (DMP) fees
  • Demand Side Platform (DSP) fees
  • Data/ Targeting fees
  • Pre-Bid Decisioning/ Targeting fees
  • Ad Blocking (pre/ post) fees
  • Verification fees
  • Agency Campaign Management fees

It should be noted, that there are “other” non-transparent charges and fees linked to sell-side platforms (SSPs), bid processing, real-time bidding auction methodology and principal-based buys (media arbitrage) that are born by advertisers and limit the percentage of their digital media spend that actually goes toward inventory.

In a recent Ad News article by Arvind Hickman, the author referenced studies conducted by both the World Federation of Advertisers (WFA) and the Association of National Advertisers (ANA) that demonstrate the magnitude of these programmatic fees and expenses. The WFA study determined that $.60 of every dollar spent on programmatic digital media buying goes to cover “programmatic transactions and fees.” The ANA study suggests that advertisers could be paying between $.54 – $.62 of every dollar on digital supply chain data, transaction fees and supply side charges.

Bear in mind that neither of these studies addressed the impact of media arbitrage or ad fraud. Industry studies, focused on assessing the level of digital ad fraud, fielded by the Association of National Advertisers (ANA) and WhiteOps found that fraudulent non-human traffic in the form of bots was “more prevalent in programmatic environments.” According to the research, display ads purchased programmatically were “55% more likely to be loaded by bots” than non-programmatic ads.

And yet, in-spite of the challenges still being faced with programmatic digital media buying, this media investment model is being rapidly rolled out to out-of-home, print and television.

Who do you think will bear the learning curve costs and risks associated with expanding programmatic to other media categories? The answer, is primarily advertisers and to a lesser extent, publishers.

We certainly understand that programmatic is the future of media buying. That said, rushing headlong into this arena, without satisfactory levels of transparency and or fraud prevention, combined with the upfront costs of the industry’s investment in technology, that are ultimately passed through to the advertiser, are both risky and costly to advertisers.

Is there a need to reach and take risks in order to secure positive progress? Yes. But, it might be best to follow the approach advocated by one of this country’s greatest military leaders, General George S. Patton:

“Take calculated risks, that is quite different than being rash.”

 

 

 

 

 

Jun 30
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The Ad Industry is Metamorphosing

By Advertisers, Advertising Agencies, Client Agency Relationship Management, Marketing Agency Network No Comments

phoenix rising“It was the best of times; it was the worst of times…” Most of us are familiar with the opening line from Charles Dickens in his epic work A Tale of Two Cities. Many marketers may even consider it an apt description of both the current state of the advertising industry and the challenges that they face in sustaining brand relevance and driving growth.

So, who will marketers count on to assist them with the tasks of deepening brand engagement with core target segments, revitalizing sales and profits in a low-growth environment and in differentiating their brands for competitive advantage?

Over the course of the last few years, many have opined on the viability of the ad agency model and what it portends for advertiser/ agency relationships going forward. And with good reason. Concerns cited include threats from non-traditional competitors such as management consulting and technology firms encroaching on their turf, talent recruitment and retention challenges and margin compression due to downward pressure on fees and expanded scopes of services.

It may be as some predict that management consulting firms will leverage their capabilities in the area of strategy and integration to pirate work from ad agencies and that ad-tech providers will enable marketers to take certain tasks in-house. The question remains, how will marketers adjust to this dynamic and the evolution of their agency networks to potentially include consulting, data and ad-tech firms? There are already very real challenges related to agency stewardship today due to under-resourced client marketing staffs.

The aforementioned challenges, combined with the rate of digitization and the emerging role of artificial intelligence occurring within the ad industry, certainly pose challenges for advertising agencies and could serve to lessen their stranglehold on the marketing and advertising sector. In a recent McKinsey article entitled; “The Global Forces Inspiring a New Narrative of Progress” the authors note that “disruption is accelerating.” They opine that this dynamic is raising serious concerns for many organizations relating to the question, “How long can their traditional sources of competitive advantage survive in the face of technological shifts?”

That said, in spite of these risk factors and other marketplace developments, ad agencies are doing just fine:

  • Agency holding companies have continued their aggressive acquisition drives, supporting both their horizontal and vertical integration strategies. While overall M&A activity is down from 2016 levels, WPP and Dentsu have consummated twenty acquisitions with a combined value of $700 million through the first 4 months of 2017. (Source: R3’s “State of Agency M&A report” for January – April, 2017).
  • While down from 2016’s 5.7% growth rate, global ad spending is projected to grow 3.6% in 2017 (Source: Magna Global, June, 2017). Of note, this is higher than the International Monetary Fund’s projected increase for global GDP growth.
  • Even though 1Q17 Advertising Industry gross margins fell to 44.15%, the industry itself is healthy. For instance, within the services sector, the Advertising Industry achieved the highest gross margins, net margins, EBITDA margins and pre-tax margins for the quarter (Source: CSIMarket.com).
  • Some 86% of mid-sized ad agencies are confident that this year will be better than last in terms of profitable growth (Source: Society of Digital Agencies (SoDA) survey).

Importantly, since the demise of the “good ole days” of full-service agencies and the fifteen-percent commission remuneration model, agencies have demonstrated a unique ability to not only keep up with industry changes, but to take the lead from both a thought leadership and innovation perspective. They have been able to scale, attracting more clients and deeper talent pools, they have invested in emerging technologies to deal with increasingly complicated, data driven processes and to pioneer the use of algorithms and artificial intelligence to efficiently execute deliverables ranging from digital media investment to creative adaptations… all while dealing with evolving client expectations.

Further, it bears noting that the publicly traded holding companies; WPP, Omnicom Group, Publicis Groupe, Interpublic Group of Cos. and Dentsu, had combined estimated worldwide 2016 revenue levels of $60.7 billion (Source: Advertising Age, June 2017). When one considers the pre-dominance of the estimated billing process and agency remuneration schema that includes direct labor and overhead cost reimbursement plus guaranteed profit margins of 14% to 17% or more, one must also respect the financial clout that these publicly traded entities wield.

Is there a need for near-term belt tightening to offset softer 2017 ad spending levels? Yes. Do the holding companies need to consolidate agency brands and realign capabilities to boost the efficacy of their service delivery models and generate much needed efficiencies? Yes. Will agencies need to improve their talent recruitment and retention practices, across a diverse range of specialties? Yes. But no business is immune from these challenges, including management consultants, ad-tech platforms and publishers.

The big question the industry in general and marketers will need to assess is related to whether these players will be able to boldly transform their current business models, repositioning their firms to deliver integrated, multi-specialist services in a nimble, cost efficient, on-demand manner.

Broadly speaking, all participants are facing challenges as the ad industry undergoes its current metamorphoses. We believe that it is too early to predict winners and losers or to suggest that marketers adapt an attitude of empathy toward any of their marketing supply chain partners. After all, it is their marketing spend that has built this sector into a $457.4 billion global machine in 2017 (Source: Statista, 2017). And they must vigilantly safeguard and optimize that investment.

Below is one of the closing lines from A Tale of Two Cities, one that many may not be as familiar with:

“It is a far, far better thing that I do, than I have ever done…”

With this parting thought, Dickens’ suggests that the main character in his novel and the city of France will be resurrected, rising above their present strife and “made illustrious.”

Here’s hoping that the ad industry achieves similar transformative success.

 

 

Jun 05
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It’s Only Money…

By Advertisers, advertising legal, Contract Compliance Auditing, Letter of Agreement Best Practices, Marketing Accountability No Comments

moneyThere was one particularly startling revelation that came from the ANA’s recent Agency Financial Management conference in San Diego. During the presentation of this year’s “Agency Compensation Trends” survey results it was noted that the ANA found that almost half of the members it surveyed had not reviewed the findings of the ANA’s 2016 Transparency study.

Think about that. If an organization did not review the Transparency study’s findings, that means that there must not have been any resulting internal dialog with or among marketing’s C-Suite peers, no direct interaction with their agency network partners, no review of existing Client/Agency contracts, no improvements in reporting and controls in which to illuminate how an advertiser’s funds are being managed.

This, in spite of the level of trade media coverage regarding transparency issues ranging from rebates, discounts and media arbitrage, to the Department of Justice investigation into potential ad agency bid rigging practices or the level of ad fraud, traffic sourcing or non-disclosed programmatic fees on both the demand and sell side of the ledger.

There is only one conclusion that can be drawn from this remarkable revelation…many marketers simply don’t care how their organization’s advertising investment is being allocated or safeguarded. Unfortunately, we regularly see the ramifications of this attitude of indifference in our contract compliance audit practice:

  • Client / Agency agreements that haven’t been reviewed or updated in years
  • Failure among clients to enact their contractual audit rights with key agency partners
  • Limited controls regarding an agency’s use and or disclosure of its use of affiliates
  • No requirement for agency partners to competitively bid third-party and affiliate vendors
  • Lack of communication to media sellers regarding ad viewability standards
  • Failure to assert an advertiser’s position on not paying for fraudulent and non-human traffic
  • No requirement for publishers to disclose the use of sourced-traffic
  • Incomplete instructions on buy authorizations to media vendors, minimizing or blocking restitution opportunities
  • Poorly constructed media post-buy reconciliation formats that lack comprehensive information and insights

Interestingly, there have been many positive developments from key industry associations such as the ANA, 4A’s, IAB and public assertions from leading marketers such as P&G and L’Oréal to further inform and motivate marketers on the topic of transparency accountability. Yet, given the materiality of an organization’s marketing spend and the publicized risks to the optimization of its advertising investment, many organizations have not yet taken action, tolerating the risks associated with the status quo. As the noted British playwright, W. Somerset Maugham once said:

“Tolerance is another word for indifference.”

The failure to proactively embrace transparency accountability can pose perilous risks to an organization’s marketing budget which in turn directly impacts its company’s revenue. Many would rightly suggest needlessly.

In these instances, the fault for the increased level of attendant financial risk, fraud and working media inefficiencies lies squarely with those companies that have adopted an attitude of indifference toward these very real proven threats. One cannot blame an ad agency, production house, tech provider, publisher or media re-seller for taking advantage of the status quo and acting in manners that, while not in the best interest of the advertiser, are not expressly contractually prohibited.

The good news is that advertisers can address these issues head-on in a quick and efficient manner, mitigating the risks posed by transparency deficiencies. It all begins with a review of existing Client/Agency contracts and engaging one’s agency partners in dialog regarding the adoption of industry best practice contract language to facilitate an open, principal-agent relationship. The Association of National Advertisers (ANA) has a wealth of information on this topic and can also recommend external specialists to assist an advertiser with agency contract development and or compliance auditing.

Interested in safeguarding your marketing investment? Contact Cliff Campeau, Principal at AARM | Advertising Audit & Risk Management at ccampeau@aarmusa.com for a no-obligation consultation on this topic.

May 25
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Is Your Contract Worth the Paper It’s Written On?

By Advertisers, advertising legal, Client Agency Relationship Management, Contract Compliance Auditing, Letter of Agreement Best Practices, Marketing Accountability, Right to Audit Clauses No Comments

partnershipThe Association of National Advertisers (ANA) recently released its study on programmatic media. The study was conducted in conjunction with the Association of Canadian Advertisers (ACA), Ebiquity and AD/FIN.

While the study provided fascinating insights into programmatic media performance and costs at the transactional level, there was one particular item that stood out:

88% of the advertisers that were interested in and 75% of the advertisers that signed up to participate in the study could not or had to opt out.

Why was this? According to the study’s authors, “because of a myriad of legal, technical and process roadblocks put up by players in the ecosystem.” Long story short, those advertisers did not have contractual language providing them with clear data ownership or usage rights with their agency, trading desk and or ad tech partners.

The obvious question to be asked is, How can an advertiser’s programmatic media transactional data not belong to the advertiser? After all, it was their media investment that funded the buys. It was their agency partners who invested those funds on their behalf (or not). So, who could possibly own that data if not the advertiser?

What would you do if your agency partner denied your organization access to programmatic performance data that you had requested. Data that would shed light on your programmatic media performance and costs (i.e. third-party costs, agency fees, tech fees, data fees). It certainly seems short-sighted that an agency would deny their clients access to this data, both in the context of the ANA study and for providing transparency into how their programmatic investment is being stewarded to disclose what their true working media percentage is.

Sadly, this is but one example of Client/ Agency contract language omissions that create disclosure and accountability gaps, which can lead to legal and financial risks for advertisers. Other examples include:

  • No requirement for an Agency to disclose or competitively bid in-house production resources or affiliate companies.
  • Media arbitrage deals in which the Agency is marking-up media by an undisclosed amount on inventory that it owns stemming from principal-based buys it has made.
  • Agencies acting as principals, rather than agents, when investing the Client’s creative production funds. One example might be the Agency or its production studio filing for and retaining incentives offered by states and municipalities for shooting or post-production work completed in their geography.

Marketing spend is on the rise and is certainly considered a material expenditure, which can represent 12%+ of a marketer’s revenue base (source: 2015 CMO survey).

And yet too often, an advertiser’s contractual audit rights are not broad enough to ensure unmitigated access to the data files, records and reporting necessary to evaluate an agency’s compliance with the agreement and or their financial management performance. This can and should include:

  • An advertiser’s right to select an internal or external auditor of its choice (i.e. contract compliance, media performance, financial management).
  • The right to audit the agency and its related parties (i.e. holding company, affiliates, related entities, etc.).
  • Assertion of the advertiser’s right to limit or eliminate an agency’s non-transparent revenue (i.e. AVB’s, rebates, non-disclosed fees, mark-ups, float income).
  • The right to audit principal inventory and or mark-ups.

Contracts are also a great vehicle for communicating performance guidelines for items ranging from brand safety and viewability policies to fraud monitoring requirements and an advertiser’s policy on not paying for bot traffic, all of which are designed to safeguard an advertiser’s investment.

From our perspective, it makes sense for advertisers to engage in dialog with their agency partners to talk through contract terms and conditions, such as these, to secure their perspective and ultimately their buy-in. After all, the contract is a document that will govern most aspects of the Client/Agency relationship. Thus, open dialog that leads to a transparent relationship can form the basis for a trusting partnership that will last for many years to come.

As Stan Musial, the legendary baseball hall of fame member of the St. Louis Cardinals once said:

“The first principle of contract negotiations is don’t remind them of what you did in the past – tell them what you’re going to do in the future.”

Apr 28
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Has the Time Come and Gone for Digital Advertising Agencies?

By Advertising Agencies, Digital Media, Marketing Agency Network, Media No Comments

We all understand the concept of “specialization” and the potential benefit delivery for certain service providers in select industries. That said, the era of the digital media specialist agency may be drawing to a close.

Think about it, we have specialist agencies for programmatic advertising, paid search, organic search, social media, email, mobile marketing, website development, user experience, social, native and display advertising.

Why? What are the advantages that accrue to an advertiser from this level of specialization? More importantly, how many advertisers are equipped to engage with multiple media agency partners?

Integrating strategy and resource allocation decisions, coordinating roles and responsibilities and effectively managing relationships among several media agencies takes time, energy and money… assets that are tougher and tougher for marketers to come by. Not to mention, the additional costs incurred for overlapping agency services/personnel.

Specialist agencies aside, when it comes to digital media, advertisers are also contending with general market agencies, PR firms, multi-cultural, experiential and promotional agencies that are also involved with their digital marketing efforts. It is damn difficult for a marketing staff to coordinate and optimize digital communications along this many fronts, let alone integrate such efforts with an organization’s “traditional” media efforts. And, let’s face it, the task is not any easier (or cheaper) for an advertiser’s media agency-of-record to take the lead on this task and coordinate multiple disparate agencies working collaboratively and cohesively toward a common goal.

The ultimate question for advertisers may be, why take what is already a complex process and further complicate it by dividing efforts and resources across so many players?

In our contract compliance auditing and financial management practice we have seen advertisers pay a steep price for assembling agency networks that are too broad for their existing teams to effectively manage. This in turn leads to cost inefficiencies related to duplicative services and fees tied to the lack of clear role differentiation across agencies, and in turn, a reduction in working media. Say nothing of the impact on digital media effectiveness tied to communication and briefing gaps that inevitably arise in these scenarios. Perhaps there is a lesson to be learned from the words of William Blake, 18th century English poet and painter:

“The road of excess leads to the palace of wisdom”

We believe that the time has come for advertisers to give more serious consideration to streamlining their agency networks in general, and specifically to pare back the number of agency partners involved with their digital media efforts… beginning with “specialist” shops.

A great place to start is to evaluate the potential for centralizing media planning for traditional and digital media. This is a logical “first step” and will allow marketing organizations to better leverage their data, to improve their targeting and segmentation schema, enhance their resource allocation decisions and integrate all facets of their communication plans. Additional benefits from such a strategy include more collaborative and improved media briefings and streamlined communications across agency partners. Similarly, when it comes to media buying, focusing on fewer partners makes it easier to leverage an organization’s overall media spend, optimize sponsorship and value-add opportunities across media properties, and to minimize agency fees by eliminating redundant buying activities across partner shops.

Major holding company media agencies and larger independent media firms, with broad resource offerings and the scale to provide “one-stop” service certainly stand to benefit from consolidation. As do ad technology firms such as Adobe, Oracle and Google that provide advertisers with the tools to manage certain digital functions in-house. It should be noted that while the large media networks of a holding company will benefit, specialized, stand alone digital media shops within those holding companies may face challenges related to such a consolidation.

In closing, we wanted to address the topic of the “rise of the management consultancies” as legitimate competitors to traditional agencies. As it relates to media planning and placement, we believe that the large ad agencies and holding companies will retain an edge in this area for some time to come. However, vulnerability in the areas of strategic consulting and customer connectivity (i.e. data integration, user experience and system development) is where we believe consulting firms will continue to make significant inroads with CMOs as marketers seek to fulfill corporate mandates to assist in digitally transforming their businesses. As this is occurring, some agencies have announced plans to expand their resource offerings to compete with the likes of Accenture, IBM, PwC and Deloitte in this area. Realistically, at least in the near-term, agency constraints on talent and functional expertise represent significant hurdles before an attack in this area can be mounted… while concurrently defending their current base of business.

 

Apr 19
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Advertisers: Contract Compliance is Easier to Secure Than You Think

By Advertisers, Advertising Agencies, Advertising Agency Audits, Contract Compliance Auditing, Marketing Accountability, Right to Audit Clauses No Comments

If you’re an advertiser, we have three brief questions for you to easyconsider:

  1. Does your organization have contracts with its ad agency partners?
  2. Do those contracts contain right to audit clauses?
  3. Has your company ever enacted its right to conduct contract compliance and or performance audits?

Chances are your answer to the first two questions is “Yes” and very likely “No” to the third question. Why is this? Why would the majority of advertisers negotiate audit rights into their marketing supplier agreements and not take advantage of such an important control mechanism? This is particularly perplexing given the materiality of marketing spend and the many publicized challenges confronting advertisers and their relationships with advertising agencies. Challenges such as waning levels of transparency into agency financial management practices, lack of a direct line-of-sight into the rates paid by its agency partners, agency resource constraints and personnel turnover.

After years of conducting advertising agency contract compliance audits, our experience shows the agency community wants to do the right thing in most instances. Are there bad actors? Sure, as there are in any business sector. Are there lapses in oversight or judgment? Certainly. This is a people business and people make honest mistakes. Do errors occur? Of course, as in every organization… no entity is perfect in that regard. Beyond common lapses in judgement, follow-through and or mistakes the primary compliance challenge is often a sub-standard or outdated client/ agency agreement which does not supply an advertiser with the requisite legal safeguards and financial controls.

It is for all of these reasons that “Right to Audit” clauses exist and why it is considered “Best Practice” to engage independent audit support to assess an agency’s contract compliance and financial performance. The benefits of auditing are meaningful and many, with the resulting financial true-ups, identification of process improvement opportunities and new learnings in general, providing substantial contributions to future efficiencies.

These outcomes can have significant financial impacts for both stakeholders. For agencies, who have made oversights, misinterpreted or misapplied certain contractual conditions there is the obvious impact of correcting those items and reconciling their fee and or third-party expense billings. Advertisers benefit from the collection of past due credits, trueing up financial matters, identifying and eliminating unauthorized, non-transparent agency revenue and realigning its scope of work and agency resources on a go forward basis.

It is true that the consequences of an audit can sometimes cause an agency some discomfort and even be outside an advertiser’s comfort zone. However, these important accountability programs are more than offset by the positive outcomes that ultimately drive compliance with the agreement and motivate more effective financial stewardship. To this end, it was with interest that I read a recent article entitled, “Mix Enforcement with Persuasion” by Lucia Del Carpio, Assistant Professor of Economics with INSEAD. Professor Carpio wrote about the topic of improving compliance with laws and regulations. One of his observations had particular relevance to our compliance auditing experience and crystalized what we often profess:

“Compliance sometimes requires nothing but enforcement.”

The cost to conduct agency contract compliance auditing is nominal relative to the benefits yielded by these initiatives. In our experience, we have never seen an instance where the financial and operational benefits of an audit didn’t provide a return multiple times its attendant cost. Factor in the notion that compliance auditing actually incents agency contract adherence and it is easy to understand why “Right to Audit” clauses exists in client/agency contracts to begin with.

Interested in learning more about agency contract compliance auditing? Contact Cliff Campeau, Principal at AARM | Advertising Audit & Risk Management at ccampeau@aarmusa.com for your complimentary consultation on this topic.

Mar 21
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Can AI Bots Solve the Agency Remuneration Issue?

By Advertisers, Advertising Agencies, Agency Compensation, Agency Fee & Time Management, Client Agency Relationship Management, Letter of Agreement Best Practices, Marketing Budgets, Media Transparency No Comments

commodoreIt was a simpler time in 1864, or so it seems, when the “Commodore,” James Walter Thompson, founded his namesake agency.

As the ad industry grew over the next several decades, a commission based compensation system was the predominant means of remuneration. Simply put, full-service agencies kept 15% of the gross media rate charged by media owners from whom agencies purchased advertising for their clients. At some point in the 1960’s commission based remuneration began to give way to labor-based fees that were predicated on an agency’s direct labor and overhead costs and a reasonable level of profit.

It wasn’t long afterward that the agency “holding company” was born and full-service agencies gave way to agencies that specialized in a particular area such as creative development, media planning and placement and sales promotion. Both of these trends directly impacted “how” and “what” agencies charged clients for their services. As importantly, advertisers became more acutely interested in understanding more finitely the details behind the composition of their agency partners’ fees. This in turn created anxiety and concerns on the part of ad agencies and clients alike. Advertisers sought to reduce the level of fees that they were paying and the agency community sought to protect their profit margins and maintain some level of privacy surrounding their financial operations.

Fast forward to 2017 and the topic of “non-transparent” agency revenue sources such as rebates, kick-backs, float income and media arbitrage has been at the forefront of contract and compensation discussions since the Association of National Advertisers (ANA) completed their landmark “Media Transparency” study in 2016. Rightly or wrongly, many in the industry feel that client procurement tactics, focused on squeezing agency compensation led to the rise in non-transparent revenue. Agencies for their part, feel as though they are overworked and underpaid, while clients continue to sense that they are paying too much for the resources being proffered by their agency partners.

Challenging times to be sure. Add in the shift from traditional media to digital, the attendant impact on workflow and resources, the rise of new competitors to ad agencies that include consultancies, publishers and ad tech providers and the rapidly increasing impact of technology on operational efficiencies and the topic of agency compensation becomes even more vexing.

And while agencies wrestle with their organizational, talent and cultural issues, the industry is poised for a giant leap forward in operational efficiency. Algorithms that can place media and inform resource allocation planning and artificial intelligence bots that can actually create advertiser content and oversee the production of creative materials have the potential to displace agency personnel across multiple functions. The question is: “What is the impact of these technology trends on agency remuneration systems?”

For an industry that has relied on labor-based fees linked to marking-up employee salaries and selling their time to advertisers, the notion of automation and doing more with less can certainly be daunting. As IBM Watson Chief, David Kenny, once said:

“If you are using people to do the work of machines, you are already irrelevant.”

Thus it is time for the ad agency community to rethink both how they organize themselves to deliver client services and how to evolve from labor-based compensation models to outcome based remuneration systems.

Wonder if there is an AI bot that can assist with this transition?

If you’re an advertiser and interested in learning more about how to compensate your ad agency. Contact Cliff Campeau, Principal, AARM | Advertising Audit & Risk Management at ccampeau@aarmusa.com for a complimentary consultation on this important topic.

 

 

 

Mar 14
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Does Anyone Really Want Advertisers to Solve the Attribution Dilemma?

By Marketing, Marketing Accountability, Marketing Budgets, Media No Comments

conspiracyIt has been decades since the concept of Marketing Mix Modeling (MMM), the forerunner to Attribution Modeling, was introduced. The concept was relatively straightforward, marketers would apply statistical analysis to sales and marketing data to quantify the impact that each element of the marketing mix had in driving brand sales and profit. Once the causal relationship had been modeled, marketers would then be able to accurately forecast outcomes and inform resource allocation decisions.

While the concept may have been straightforward, the solution, for most marketers, has been elusive. Why? First and foremost, MMM has some inherent challenges, particularly when it comes to quantifying the impact of longer term brand equity development tactics versus those focused on short-term sales. Secondly, these models have not fared well in accurately assessing the impact of various media types on outcomes to assist in refining allocation decisions.

Fast forward to the late ‘90’s when we experienced an explosion in online media, the birth of e-commerce and the introduction of “Big Data.” The emergence of digital media and the attendant level of data that marketers where now able to gather led to the launch of “Attribution Modeling.” The goal, to assess and quantify what marketing and media touchpoints influenced an advertiser’s target audience, and to what extent, across the purchase funnel in an effort to optimize media spending across the ever expanding gamut of media alternatives.

While there are multiple variations of attribution models to consider, most marketers have relied on single-source attribution models, often using a “last click” approach which assigns responsibility for an outcome to one event. While simple, this flawed approach to attribution modeling gives too much credit to digital media, at the expense of traditional media and other marketing touchpoints.

Sadly, for advertisers that are doing both MMM and Attribution Modeling, it is rare that the feedback from these related, but different approaches synch. Further, there remain audience delivery measurement (i.e. cross-channel measurement), multi-touch attribution challenges that introduce a layer of complexity that drives up the cost of attribution modeling.

That said, since the onset of these two modeling tools being introduced, the industry has dramatically evolved its data gathering capabilities, enhanced CRM and DMP capabilities, conceived of and launched programmatic media buying, where algorithms have replaced media buyers and now we’re seeing the use of artificial intelligence bots, such as Adgorithms’ “Albert” that can plan and place media and create content. Heady stuff to be sure.

This got the cynic in me thinking; “Well if we can master all of this from a technology perspective, surely we should be able to cost efficiently and effectively master attribution modeling.” That led to idle speculation about whether or not the ad industry really wants advertisers to solve the attribution modeling dilemma?

After all, what if John Wanamaker was wrong? What if more than half of his ad spend was wasted? Remember, the marketing and media choices available to him in the 19th century were considerably more limited than those available to advertisers today. Would accurate attribution models eliminate some of the following marketing and media options from consideration?

  • Television
  • Radio
  • Magazine
  • Newspaper
  • OOH
  • Cinema advertising
  • Product placement
  • Direct mail
  • Email
  • Sponsorships
  • Online display
  • Online video
  • Podcasts
  • Paid search
  • Organic search
  • Mobile
  • Social media
  • Native advertising
  • In-store advertising
  • In-store displays
  • On-package advertising
  • Trade promotions
  • Price promotions
  • Couponing
  • Affinity marketing
  • Affiliate marketing
  • Applications
  • Earned media

Crazy. Right? Reminds me of a quote by the American journalist, Gary Weiss:

“One problem with the focus on speculation is that it tends to promote the growth of the great intellectual cancer of our times: conspiracy theories.”

What do you think…

 

Feb 26
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4A’s Appoints New CEO/ President

By Advertisers, Advertising Agencies, Marketing Accountability No Comments

4A'sCongratulations to Marla Kaplowitz, CEO of MEC North America, who was recently selected as the Chief Executive Officer and President of the American Association of Advertising Agencies (4A’s).

An advertising industry veteran with 29 years of media and communications experience, she is also a member of the 4A’s Media Leadership Council and She Runs It.  Commenting on her appointment, Ms. Kaplowitz stated that; “As a passionate member of this industry for nearly 30 years, I’m thrilled to join the 4A’s at this exciting and pivotal time for marketing and communications.”

We certainly wish Ms. Kaplowitz success in her new role and thank outgoing 4A’s CEO Nancy Hill for her nine plus years of service.