Every agency holding company is engaged in principal-based media buying to one extent or another. Further, the use of this tactic is at the forefront of their presentations to Wall Street analysts.
The holding companies pitch to analysts has everything to do with their agencies, focusing on how principal-based buys allow them to move beyond traditional service fees and capture higher margins by leveraging media arbitrage opportunities. Any potential benefit of this controversial buying tactic to advertisers is secondary.
While agencies claim to be committed to delivering improved media efficiencies and to client transparency vouching for media delivery and pricing to assess the accuracy of these claims is difficult at best.
Agency claims of cheaper media, access to premium inventory, and better placements sound great to some clients. However, delivery against these benefits is often illusory and cannot readily be validated. In the end, there is no way of knowing whether the promises associates with these buys were delivered or that the advertiser was simply overcharged for subpar media inventory. The reason is that principal-based media buys are typically contractually exempt from compliance and media performance auditing. Thus, there is no means for advertisers to independently assess agency performance for that portion of their media budget invested in this manner.
One of the most important aspects of a Client/ Agency relationship is trust and the comfort of knowing that in exchange for the agreed-upon transparent fee, the agency’s advice and recommendations will be objective and based solely on what is best for the client. Principal-based buying creates the potential for conflicts of interests. Importantly, it can undermine the notion of trust and create doubt about whether agency proposals in this area are truly focused on the client or what’s best for the agency.
Advertisers should be concerned and take proactive steps to protect themselves from their agency’s use of this media buying approach. The reason for this is that agency claims of cheaper media, access to premium inventory, and better placements sound great, however, delivery against these benefits is often illusory and cannot readily be validated.
The three best safeguards for advertisers to implement can be readily implemented in the client/ agency agreement.
- Contractually reinforce the fact that the relationship is principal-agent based and that the agency has a fiduciary responsibility to the client in all transactions undertaken on the client’s behalf.
- Add language to the contract that prohibits the agency from engaging in principal-based media buying unless an authorized representative(s) of the client provides written approval in advance of the agency undertaking such an approach.
- Add contract language that states when principal-based buys are authorized, the agency is required to fully disclose all aspects of the buy including media placements and the underlying inventory costs. Further, clients should specify that all principal-based buying activity is subject to independent audit or review.
Ensuring that agency interests are aligned with advertiser business goals and implementing a framework for trusting that the agency’s advice will always be focused on the advertiser is the key to building a successful relationship. In the end, this far outweighs any alleged benefit related to principal-based media buying.