Marketing Math Blog

May 07
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Is Legacy Thinking Impeding Your Progress?

By Advertising Agencies, Digital Trading Desk, Marketing Accountability, Marketing Agencies, Programmatic Buying, Trading Desk No Comments

ana agency financial management conferenceEmerging media, rapidly expanding technologies, a changing tax and regulatory environment, talent shortages and a global paradigm shift where marketing is being “outsourced” to the end user. These were just some of the topics addressed by Marketers and Agencies alike at the ANA’s annual “Agency Financial Management” conference in Naples, Florida in early May.

While there may be significant issues to be faced in the near future, the marketing industry remains a significant component of the global economy whose rate of growth outstrips that of most developed countries GDP growth.  That said there are changes required of the industry’s stakeholders to better prepare their organizations’ to successfully navigate a complex landscape fraught with both risks and opportunity.

This dynamic will require a fresh approach by clients and agencies alike along with a willingness to shed the bonds of legacy thinking, which has retarded industry progress on a number of key fronts in recent years.

One of the themes to emerge from the conference is that marketing is difficult, expensive and challenging.  When combined with talent, resource and education restraints being faced by many marketing organizations there is a belief that marketers are leaving dollars on the table.  Contributing factors range from digital media value erosion to a lack of transparency into certain aspects of the supply chain such as trading desks to the absence of industry governance on the issue of cross platform audience delivery measurement.

Underlying these challenges is the fact that client-side marketers, procurement professionals and marketing service agencies are still working on evolving their relationships and gaining better alignment on how best to optimize the advertisers’ return on marketing investment (ROMI).  Central to the success of this collaborative effort is the need to build trust and mutual respect among these stakeholders.

Interestingly, marketers expressed a strong, almost universal need for the introduction of uniform controls, competitive fee structures, tighter statements of work and the use of agency performance incentives to assist in positively driving change.  One aspect of boosting ROMI is the elimination of “waste.”  Based upon our experience in the area of agency financial management consulting, we have found that an excellent starting point for marketers in this area is to clarify the roles and responsibilities of their agency partners, minimizing redundancies and identifying those agencies that are considered strategic partners versus those that provide project-based support.  This provides a solid starting point for determining  “where” to begin in terms of initiating change and inviting those select partners to be part of the process.

On the “good news” front it was clear from the results of a recent survey conducted by the ANA and presented at the conference, that the trend toward an increased level of collaboration between marketing, finance and procurement is taking seed.  Further, as evidenced by findings from a separate survey conducted by the 4A’s, the agency community has clearly begun to accept procurement’s role in the agency sourcing and contract negotiation process.

There is one area however, which has the potential to seriously disrupt marketers’ efforts to optimize their ROMI… transparency, or more specifically, the lack of transparency that permeates the industry.  This was reflected in the results of survey data from the ANA, WFA, ISBA and ACA where “transparency” was identified by advertisers as one of, if not their top concern.  The lack of clarity and in some instances, honesty surrounding issues such as data integrity, audience delivery, trading desks, reporting and financial reconciliations creates financial risks for advertisers and undermines attempts to improve trust levels between clients, agencies and media sellers.  As Mike Thyen, Director of Global Procurement for emerging markets at Eli Lilly and Company so aptly stated:

“Where there is mystery, there’s margin.”

Examples of the potential for financial leakage related to a lack of transparency included the results from the aforementioned WFA study, cited by ANA President and CEO Bob Liodice, which found that for every dollar invested by advertisers in digital media, only fifty-five cents on the dollar flowed through to the publisher.  Inherent in this single example is the lack of transparency surrounding programmatic media buying, agency trading desks and the lack of auditable outcomes in terms of audience delivery, media rates paid and trading desk margins.

Changing times require firms to evolve and innovate in order to remain relevant with their customers and to improve their operations.  When it comes to marketing, the rate and rapidity of technology driven change is such that viewing today’s opportunities through an “old school” prism is certain to create risks and limit marketers’ ability to fully leverage their investment.   Keeping an open mind, forging strong relationships between marketing and procurement, implementing controls and reporting to enhance transparency and investing in one’s agency partnerships represent key actions to be considered to successfully face the changes which are underway.

May 02
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Are Advertisers Fully Realizing the Benefits of These Production Trends?

By Creative Services, Digital Asset Management, Digital Media, Production Services No Comments

digital production managementPerhaps one of the more significant trends within the advertising industry in the last decade has been the advent of digital asset management platforms and the continued move toward the decoupling of creative development and cross platform production.  

These innovations have resulted in a number of meaningful benefits for advertisers including; the ability to maintain consistent brand standards across the globe, minimizing required production lead times and reducing expenses in this area.  Agency holding companies to have been the beneficiaries of improved efficiencies tied to their horizontal strategy of creating in-network production centers to serve clients across their network of agencies.  There have been numerous reports from agencies indicating that this de-coupled, centralized approach to advertising production can generate savings for their clients in the range of 20% to 50%. 

There is another trend which is positively impacting production efficiencies… “offshoring.”  Ironically, the practice of offshoring is not talked about quite as openly or as often between advertisers and agencies.  Considered a global best practice in the digital production sector, the ability to leverage an advertiser’s digital asset repository from anywhere in the world has fueled the rise of digital production hubs in markets such as Bogota, Colombia, Sao Palo, Brazil and New Delhi, India.  The reason is straight forward.  These markets provide access to a growing talent pool of digital production specialists, while offering comparatively low labor costs that can be as much as 70% below that of North American and Western European markets.  

In our agency contract compliance auditing practice we review numerous client-agency agreements complete with agency staffing plans, labor and studio rate sheets and direct labor cost work-ups.  Of note, it is rare that these documents provide any transparency into an agency’s use of in-network production centers or their utilization of an offshoring strategy.  Rather, we see agency overhead and direct labor rates by function, which reflect more traditional staffing models and costs affiliated with U.S. creative hubs such as New York, San Francisco and Chicago.     

The obvious question to be asked is; “Are advertisers fully participating in the efficiency gains related to these practices?”  Based upon our experience, too often advertisers do not have the requisite transparency into this area to assess the extent to which any realized production efficiencies are flowing through to their bottom line.  As the twentieth-century U.S. architect and engineer, Richard Buckminster Fuller once said: 

“None of the world’s problems will have a solution until the world’s individuals become thoroughly self-educated.” 

Interested in learning more about your true production costs?  Contact Cliff Campeau, Principal at Advertising Audit & Risk Management at ccampeau@aarmusa.com to schedule your complimentary consultation on this important topic today. 

 

Apr 01
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Technology Companies Are the New Media Owners

By Advertisers, advertising legal, Contract Compliance Auditing, Digital Trading Desk, Letter of Agreement Best Practices No Comments

technology firms as media ownersBy Oliver Orchard, Senior Client Director – EMM International 

This week I was fortunate to attend a debate in the British Parliament, The House of Commons.  The debate was hosted by the International Advertising Association (IAA) and organised by The Debating Group.   The IAA was formed in the 1930’s to help advertisers who were moving more and more towards export trade to understand the complexities of the different global ad markets. EMM’s staff are encouraged to take an interest in the work of the IAA, and we put many people through the residential training courses, with some of our senior staff holding committee positions.  The remit today is very much about helping to develop the client and agency heavyweights of the future, through networking, training and support.  The Debating Group has been holding debates in the House of Commons since 1975, and they regularly bring politicians, journalists and marketers together to discuss the political issues that surround marketing; and together they host a number of debates annually for the industry to participate in. 

The motion “Technology Companies are the new media owners” was supported by Rory Sutherland, Executive Creative Director and Vice Chairman of O&M and seconded by Anjali Ramachandran, Head of Innovation at PHD.  It was opposed by Hugo Rifkind of the Times and Chad Wollen, Group Head of Innovation and Commercial Futures at Vodafone. 

Rory and Anjali focused on the idea that ever since the Caxton Press printed the first secular work technology has always been the new media owner; whilst Hugo and Chad focused on the idea that media owners display some sort of moral conscience, or in some way better the world, through editorial.  Naturally, with Hugo’s work as a journalist this focused on print media and the role of Twitter and Google in events such as the Arab spring; though what sort of conscience media owners such CBS Outdoor, Exterion or Decaux demonstrate was conveniently overlooked.  Chad explored the idea that the message is separate to the medium; which as any junior planner will tell you is exactly why they have a job. 

The panel spoke eloquently for 40 minutes, and ultimately the motion was defeated. I voted against it myself, though with a different line of argument I feel the result would have been very different. 

The proposers missed a trick by ignoring media agency trading desks, DSPs, SSPs, RTB and inventory wholesaling.  Media agencies are the new technology companies, they are also the new media owners.  This situation is becoming more and more apparent to advertisers.  Many are scrambling to change their contracts in order to maximise their returns on the ‘good’ output of these technologies (the fantastic targeting and pricing), whilst seeking to limit the ‘negatives’  (unaccountable placements, lack of evidence of genuine exposures and the opaque margins anecdotally between 20% and 80% depending on quality of placement as one rather inebriated global head of a big five DSP network let slip to me recently). 

These technologies are increasingly supplanting the traditional agency/vendor relationship and are replacing transparency with opaqueness in an unprecedented way.  The share of digital on the schedule grows every year, the number of clients with a DSP clause in their contract grows weekly and every day traditional media channels become more and more digitalised.

Clients are often under-informed about these developments and contractually deficient when it comes to agency scopes. So what can you do? 

  1. Make sure that your contract with the agency is updated every year to cover all new technologies that might emerge – mobile advertising, RTB and interactive TV were all unthinkable until quite recently.
  2. Employ a specialist with a broad helicopter view of the market to ensure you are giving and receiving best practise in your process and relationships with the agencies for traditional and new media.
  3. Ensure you understand fully what the benefits and limitations are of new technologies.  With a recent study showing that just 8% to 15% of impressions online are actually “real” does that CPM deal really offer the best value?
  4. Understand which data is relevant and which is not.  Don Peppers, the social media guru, once said “trying to extract relevant data from digital is like putting a fire hose in your mouth when you’re thirsty” – it’s easy to be blinded by numbers, but in reality very few of them are important.
  5. Don’t go it alone, a market specialist can save you time and money by getting to the point, training your staff, and sitting on your shoulder during important future strategic discussion with the agency. Once you understand the game, ask the right questions, and make informed decisions, increased effectiveness will follow.

Some technology companies are the new media owners, they also happen to be your media agency.

To learn more about EMM International and how media accountability can drive advertiser value, contact guest blogger Oliver Orchard at Oli.Orchard@emminternational.com.  Mr. Orchard is a Senior Client Director for EMM International and a key contributor to the company’s digital media accountability practice.  EMM is a provider of international media auditing and media optimization consulting services.  The company is based in London, England.   

 

 

Mar 20
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“I’ll Gladly Pay You Tuesday, For a Hamburger Today”

By Digital Media No Comments

digital media accountabilityThe title of this article, a quote uttered by the character Wimpy in E.C. Segar’s long running Popeye cartoon series could be an apt metaphor for the digital media marketplace.  

Well, perhaps the tide has begun to turn.  Just recently, the ANA aggressively spoke out regarding the lack of accountability within the digital media sector citing recent research studies which have pegged viewability levels at approximately 50%.  

Other concerns cited by the ANA include the lack of a cross platform audience delivery measurement standard and the fact that there isn’t one, unbiased entity which is responsible for developing such a standard.  The ANA has announced that they will convene a “measurement summit” to begin to address this issue with the intent to advance their support for an e-grp standard.  We believe that this is a noble endeavor and applaud the ANA for taking the lead on such a worthwhile initiative.  

However, in light of past measurement discussions and the amount of time which it takes for the industry to coalesce around such issues this is clearly a long-term proposition. 

So what is at risk in the near-term?  Let’s step back and take a look at the scope of the digital media challenge.  Digital media has grown in excess of 12% – 15% per annum over the course of the last several years and that meteoric growth seems likely to continue unabated.  According to Magna Global, global media spending is projected to hit $521.6 billion in 2014 and on the strength of another year of double-digit growth, digital media will represent 24% of that total.  

Speaking at the 4A’s conference, Bob Liodice, Chairman of the ANA suggested that if the industry doesn’t address these concerns that advertisers will begin to “pull dollars off of the table.”  In light of the growing share of global media spend represented by digital media, this seems highly unlikely.  Compounding the challenge is the fact that as an industry, advertisers appear to be perfectly comfortable throwing away 50 cents of every dollar spent on digital media, thus providing little impetus for reform. 

The irony is that absent a viable cross platform measurement standard and in the case of most advertisers, the lack of meaningful attribution modeling capabilities, there is no rational basis for the growth of digital media.  It would appear that Seneca, the Roman statesman, dramatist and philosopher was right when he suggested that; 

“Every man prefers belief to the exercise of judgment.”

Based upon a number of research studies recently conducted, one could easily discount the viability of the 50% of the digital ads which have the potential to be seen.  The validation of consumer engagement levels with digital media poses its own set of challenges.  Thus it is ludicrous to think that publicly traded companies would allow 25% of their media budgets to be invested (using the term loosely) into such a non-transparent sector of the industry with little in the way of controls or oversight.  

In reality, however unlikely it may be, Mr. Liodice’s suggestion that advertisers pull dollars out of digital circulation is the best path to accelerating much needed reform.

For advertisers interested in learning more about improving transparency into their marketing and media investment, contact Cliff Campeau, Principal at Advertising Audit & Risk Management, LLC at ccampeau@aarmusa.com for a complimentary consultation on the topic. 

 

 

 

 

Mar 17
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Agencies as Media Owners

By Advertising Agencies, Client Agency Relationship Management, Media No Comments

agencies as media owners

Over the course of the last several decades media owners and media agencies pursued aggressive growth strategies largely fueled by merger and acquisition activity to consolidate their power and achieve a “leg up” in their respective negotiating positions.  So it comes as no surprise to anyone in the industry when you step back and assess the size and leverage of today’s top three agency networks; Publicis/ Ominicom, WPP and Interpublic Group.   

What complicates matters for advertisers is the emergence of the agency as “media owner” model ushered in by the rapid growth of programmatic buying and digital media arbitrage.  The essential question is clear:

“Doesn’t a media agency have a conflict of interest when it has a fiduciary obligation to secure the best available inventory at the most advantageous rates for an advertiser if they also resell media (as part of their recommended inventory) which they have purchased directly from publishers to achieve a financial gain?”

This is a dilemma complicated by the lack of transparency inherent with programmatic buying, which already limits advertiser transparency into the caliber of the inventory secured on their behalf and or the CPMs paid for those exposures.  

There are a number of dimensions that need to be addressed in the context of a traditional client-agency relationship in the wake of this phenomenon:

  1. How will an advertiser shape its media agency network and assign roles and responsibilities to protect its self-interests of objectivity, competitive pricing and an optimal return on its media investment?
  2. What media components might an advertiser bring in-house?
  3. In the ongoing dialog regarding “Big Data,” can advertisers realistically view their media agencies that are also media owners, as impartial partners, to be entrusted with sensitive, highly confidential data?
  4. How should media agency remuneration systems evolve to reign in the percentage of their gross media investment which is currently ending up in an agency’s pocket (i.e. fees, commissions, rebates, margin spreads, etc…)?

There is no standard, there are no guidelines… this is a “new chapter” in client-agency relations which is unfolding before our very eyes. 

So it was with great interest that I read a recent article on the More About Advertising website entitled; “Five ways for clients to find out what’s really going on as media agencies become media owners.”  The author, Andy Pearch, Director of MediaSense suggests that “the old media audit to pitch model has been broken by these developments” and that advertisers “legacy supplier management techniques need to evolve.”  The primary reason for this, in the author’s eyes, is that media agencies have become “market makers” where they, not the traditional media owner, sets the price of the media. 

In light of the growing leverage which agencies are able to exert on the media process, Mr. Pearch suggests that advertisers will have to learn how to “negotiate with their own agencies for a better market position.”  On the topic of transparency Pearch feels that “it is naïve to hope that the most dominant agencies will cede competitive advantage and margin by becoming sufficiently transparent.”

Two of his more intriguing recommendations include the need for advertisers to “take a tougher line on cases of non-transparent practice” and failure to comply with contract terms.  Additionally, Pearch suggests that advertisers both re-think their dependency on a single-supplier media agency model and, for larger organizations with the appropriate depth of resources, “consider setting up their own trading desks.”

We live in an interesting and dynamic time for the advertising industry with technology ushering in an era of rapid change that will continue to impact both consumer media consumption patterns and an advertiser’s ability to deliver their message in an appropriate, targeted manner.  It is our belief that during this time of sea change, advertiser transparency and control should not be sacrificed in the ongoing pursuit of cheaper CPMs.  The challenges identified here are not likely to be limited to digital media as the trading desks potentially expand their media coverage and agencies seek to extend media arbitrage opportunities.  In the words of Hippocrates:

“Extreme remedies are very appropriate for extreme diseases.”

 

 

Feb 21
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Can the News Get Any Worse for Digital Advertisers?

By Advertisers, Digital Media, Digital Trading Desk, Media No Comments

digital media fraudTwo articles published on February 18, one by Reid Tatoris in Marketing Daily which asserts that when it comes to online advertising there are “only 8% of impressions that have an opportunity to be seen by a real person” and the second by Joanna O’Connell, Director of Research for AdExchanger questioning the transparency of programmatic media buys, should raise the hackles of anyone playing in the digital media marketplace.

Mr.Tatoris begins his argument by correctly establishing the Interactive Advertising Bureau’s (IAB) definition of an online ad impression:

“A measurement of responses from a web server to a page request from the user browser.”

Based upon this industry accepted definition he suggests that an impression “does not equal an ad opportunity” and proceeds to profile a number of items which can derail the process, most notably the fact that “60% of all traffic on the web is bots.”  Once again, it appears as though the industry’s prowess at trafficking digital ads has outpaced its ability to both measure actual audience deliveries and or to police the legitimacy of the thousands of “hundreds of thousands of websites” that exist today.

When you combine the ongoing concern about the efficacy of the digital advertising delivery with the transparency challenges associated with programmatic media buying, the risk to advertisers escalates. 

Programmatic buying integrates advertiser data with technology assisted processes and intelligence allowing advertisers or their agency trading desk partners to bid on inventory being offered on ad exchanges by publishers.  Automated buying, which often occur on a real-time basis, grew 75% in 2013 to $3.5 billion according to eMarketer and is likely to grow another 38% in 2014. 

There are numerous advantages associated with programmatic buying, including looking at impressions down to the individual level.  However, one of the perceived limitations is the lack of transparency in and around the caliber of the inventory being purchased and the price being paid for that inventory. 

Thus, in light of the impact of impression dilution between purchased and delivered suggested by Mr. Tratoris, and the concerns over the quality, if not quantity, of impressions delivered via programmatic media buys, an advertiser might legitimately ask, “What are we getting and what did we pay for it?” 

In spite of this dynamic, digital media continues to grow, representing approximately 25% of total U.S. ad spend in 2013 and, according to eMarketer, this could grow to 31% of total spend by 2017.  Rather than getting serious about enhanced measurement, improved transparency and fraud protection, the industry rallying cry seems to be “ready, fire, aim” with regard to the efficacy of this media channel and its audience delivery capabilities. 

 

Feb 19
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Strategic Sourcing and Vegetarian Haggis

By Advertisers, Advertising Agencies, Marketing Procurement No Comments

Guest Article by Katherine Wang, Senior Project Analyst at Source strategic sourcingOne Management Services, LLC

How would you describe strategic sourcing and procurement? Source One’s company website demonstrates, for instance, that a variety of solutions and services are involved in the day-to-day responsibilities of a specialist in this growing field. I, for one, tend to prefer utilizing the terms “consulting” or “subject matter experts” when explaining to others what I do to, in order to capture the multidimensional nature of my activities. Never have I heard of my work being described as “Vegetarian Haggis.”

When I think of Scottish-related stereotypes, I think fondly of things like rugged terrain, tartan, and James Bond, so I will leave out any negative comments about haggis until I try the dish. However, due to the nature of haggis being a hearty and meaty dish, Rob Guenette’s comparison of procurement to a vegetarian version* humorously captures the common frustration and ambivalence agencies often feel towards the division that handles the RFP, negotiation, and contracting processes.

A common point of contention appears to be the perception that the only objective procurement is concerned about is cost reduction, regardless of the shop’s creative ingenuity or type of work, and as a consequence, parties habitually develop unreasonable expectations of themselves and of their partners.  Another concern is the idea that procurement departments do not have a clear enough understanding of the sales and marketing industry to make the best judgment calls. Digiday’s interview with two digital agency leads indicate how their greatest concern is that procurement develops scorecards and “scientific systems” to evaluate shops and disqualify candidates for incorrect or irrelevant reasons. These perceived impediments are only exacerbated by the fact that pitch processes are lengthy and costly, and according to PRWeek, increasingly drawn out thanks to the procurement department’s increasing involvement in marketing-related decisions. When considering those factors, it’s no wonder procurement is as appealing to the agencies as vegetarian haggis is to Sean Connery (or anyone else for that matter).

Nevertheless, it is unlikely that marketing teams will exile the procurement division any time soon. Putting aside company regulations and bureaucratic hurdles, procurement is, as discussed by Alan Wexler, EVP of SapientNitro, and James Gross, co-founder of Percolate, utilized as the “investigative layer that takes the workload off the buyer when making a purchasing decision,” and help add accountability and structure to a company’s buying decisions. This is especially important when large firms with a multitude of divisions and products seek marketing services and are faced with a daunting number of choices from different agencies.

To allay the qualms engendered by the agency-procurement relationship and to emphasize the benefits that such a partnership would bring, I conclude with a few notes on best practices observed in the business. All paths point to how clear communication is integral to the process. Forbes’ recent exposition on the 2013 ANA Advertising Financial Management Conference in Scottsdale Arizona illustrates the gap as well as constructive links between procurement, agency and marketing teams. Brett Colbert of MDC Partner’s quip about procurement at the conference, “…It can’t just be about procuring or buying…. We have to move the conversation beyond savings, talk about value not price,” deftly sums up the ultimate goal. To meet this target and derive value from business engagements, parties should increase the flow of information to better comprehend each initiative’s needs.

Similarly, ISBA and IPA provide six useful principles to make the most out of an agency pitch. The lesson to be mastered sounds simple enough: procurement, agency, and marketing teams should work to ensure that there is effective communication and transparency among the three parties. Collaboration is important to understanding the ultimate objectives and nuances of selecting an agency that fits well, in terms of capabilities and chemistry, and to avoid using the RFI/RFP as a blunt instrument. As they say, “Quality, not quantity.”

To learn more about how strategic sourcing may bridge the disconnects between marketing teams, procurement, and advertising agencies and obtaining value, contact guest blogger Katherine Wang at kwang@sourceoneinc.com.  Katherine Wang is a senior project analyst for Source One Management Services LLC and a key contributor to the company’s sales and marketing services group. Her unique experiences and insights are leveraged daily as the group develops innovative and effective sourcing strategies for a client list of global leaders in industries including pharmaceutical, health care, and manufacturing. Source One Management Services is a provider of procurement services, helping clients with strategic sourcing and supplier management solutions. The company is based in Willow Grove, Pa. 

*A final note on vegetarian haggis: according to The Guardian, it’s actually pretty good, all things considered.

 

Feb 03
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Is the Failure to Comply with Contractual Terms Cheating?

By advertising legal, Contract Compliance Auditing, Right to Audit Clauses No Comments

contract complianceHaving been involved in developing marketing accountability systems and monitoring supplier compliance for the last decade or so, this is a question which has been posed many times, in many ways: 

 

  • Was this action or inaction an oversight or an ethical breach? 
  • Did they know or should they have known? 
  • Was their behavior consistent with industry standards? 
  • How could their interpretation of the agreement vary so wildly from ours? 
  • Were they intending to cheat us?
  • How could we have prevented this?

Long a subscriber to the principle of “caveat emptor” or “let the buyer beware”, I have long felt that advertisers need assistance to level the playing field when it comes to the financial stewardship of their marketing investment.  The fact of the matter is that “sellers,” which include marketing services agencies, media publishers and the myriad of third-party vendors whose goods and services are being procured on an advertiser’s behalf by their agency partners are better informed than their client-side counterparts or “buyers” when it comes to the intricacies of these transactions. 

Establishing sound Master Services Agreements with well defined terms and conditions designed to guide agency behavior and provide the requisite legal and financial safeguards are a great first step in any client-agency relationship.  Integrating a performance monitoring system with contract compliance testing further enhances a client’s controls, while yielding greater transparency into the financial management of their marketing spend.  Some may still ask; “But is this enough?”

Thus, it was with great interest that I read an article on the Knowledge@Wharton website entitled; “Cheaters… Win? Why Systems to Prevent Deception Don’t Work.”  Conventional wisdom among psychologists has held that “unethical behaviors” typically “evoke a negative emotional response after the event – if the mere promise of feeling guilt or remorse doesn’t stop the individual from doing it in the first place.”  However, a new research study conducted by Maurice E. Schweitzer of Wharton and colleagues from the HarvardBusinessSchool, LondonBusinessSchool and the University of Washington’s Foster School of Business suggests that there are other forces at work.  The study found that unethical behavior may not create a negative emotional reaction but conversely may “trigger positive feelings” among cheaters.  Why?  Mr. Schweitzer suggests that “part of the cheater’s high comes from a sense of accomplishment when an elaborate system is defeated.”

We’re all familiar with the euphemism, “Gaming the System.”  Could it be that some questionable behaviors in the minds of some “cheaters” are perfectly acceptable in this context?  The aforementioned research would suggest that this is the case.  Sadly, given the size of the global advertising ecosystem, which Magna Global estimates will reach $515 Billion in 2014, and the complexity of the marketing supply chain, this mindset raises the risks to advertisers when it comes to insuring that they are receiving value commensurate with what they have paid for. 

Farfetched?  Not really.  Just consider the steady stream of concern raised about the various ways in which digital media advertisers are defrauded.  You may recall the October 2013 story from Adweek’s Mike Shields entitled, “The Amount of Questionable Online Traffic Will Blow Your Mind: The Worldwide Rip-off” in which Wenda Millard, President of MediaLink purported that “a quarter of the online ad market is fraudulent.”  According to the article, Millard categorized actions such as, “piracy, non-viewable ads, ads stacked on top of one another, inappropriate content and, of course, deliberate malicious behavior” as fraudulent.  This is but one relevant example of the impact of cheating within the marketing sector.

The fact of the matter is that cheaters exist and always will.  They exist in every walk of life, in every industry, within every organization and at every level.  The best course of action to be taken to insulate an organization from cheaters has always been to find effective and efficient means to incent ethical behavior within one’s organization and across its supplier base.  Supplemented of course by an accountability initiative that includes ongoing oversight, performance monitoring and in the case of contract compliance, independent audit support.  In the oft cited words of President Ronald Reagan: “Trust, but verify.”

Interested in finding out what an advertiser can put into action to reduce its exposures to these kinds of abuses?  To learn more, contact Cliff Campeau, Principal at Advertising Audit & Risk Management at ccampeau@aarmusa.com for a complimentary consultation.

Jan 21
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Intellectual Property Protection: How to Protect Your Firm from Trolls

By advertising legal, Letter of Agreement Best Practices No Comments

intellectual infringement protectionRecently we published an article on patent and copyright trolls and the recent legislative changes and legal decisions which have had a favorable impact on advertisers and their agency partners.

We received a tremendous amount of feedback from our readers on the topic, along with the question; “What specifically can we do to protect ourselves from copy and or patent infringement trolls?”  Given the level of interest regarding this subject, we wanted to share our thoughts on measures which advertisers can take to assist in mitigating the risks emanating from law suits brought by non-practicing entities.

By way of background, Advertising Audit & Risk Management (AARM) works exclusively with advertisers in the area of advertising agency contract compliance and performance auditing.  As part of the contract review portion of the audit, we provide counsel on opportunities for advertisers to enhance contract language to incorporate the latest in terms of legal and financial safeguards to protect their interests.  Needless to say, intellectual property infringement protection has been a growing area of concern for our clientele and one of the items on which we provide guidance.

The challenge as it relates to copyright and patent trolls or non-producing, patent enforcing entities is multi-faceted.  On the surface, the answer to this dilemma is pretty straightforward:

  1. Carry Intellectual Property Infringement Insurance.
  2. Ask your agency to conduct “Clearance Searches” to identify where digital work could pose infringement risks.
  3. Require your agencies (particularly digital/ mobile agencies) to carry the same or similar insurance (i.e. patent defense insurance policy)… be sure to provide guidance on terms:
    1. Is the vendor required to indemnify? Indemnify and defend?
    2. What is being indemnified? (damages, attorney fees, injunctions, lost business)
    3. Specify your desired role, exposure limits in a defense should action be brought.
  4. Require your agencies to indemnify you.

In reality however, the aforementioned actions can be expensive (i.e. a “clearance search” can cost $25,000 to $50,000), are not necessarily foolproof and represent serious client-agency contract/ relationship challenges when it comes to the issue of indemnification.

As an example, the American Association of Advertising Agencies (4A’s) recommends that; “Agencies make clear in their client agreements that clients assume all risks associated with patent infringement.”  On the flip side of the ledger, some advertisers, particularly larger organizations, force their agencies to contractually indemnify them… whether the agency has the financial means to do so or not.

This raises the question; “How can we break the logjam when it comes to indemnification protection?”  Clearly the answer to this question includes open, constructive dialog between both parties and their legal counsel.  After all, both advertiser and agency have a shared interest in minimizing the risks associated with frivolous, expensive lawsuits brought by trolls.

For client-side procurement professionals, the most logical approach to resolving this issue with the organization’s agency partners lies in negotiating a middle-ground based upon the notion of “mutuality” or a “proportional and equitable” sharing of risks and costs.  Experience would suggest that negotiations over this matter are more protracted and time consuming than other aspects of a client-agency agreement.  This is understandable given the risks to both parties and the cost and complexity of the potential remedies.

As long as advertisers negotiate from a position of strength and fairness, they can bridge the gap with their agency partners and reach agreement on this important legal construct.