Be careful what you wish for. Andy Pearch (below), co-founder of global media advisory firm MediaSense, reveals how media agency commercial models are evolving in response to their clients’ requirements for more media value.
Concerns are rising among advertisers over the increasing complexity and exoticism of operating and trading practices at media agencies. Media agencies have always trodden a fine line between neutrality and self-interest, in their hybrid role as investment advisors and commercial traders. But as they vie for the pivotal role in brand communications management, they appear to be putting this status in jeopardy as they continue on their path of self-imposed metamorphosis from buyer to vendor.
For every action, there is an equal and opposite reaction
Under pressure to control costs and make savings, many clients have negotiated improved buying rates with minimum downsides and long-term stability. Although most media markets operate variable pricing models, most advertisers want certainty about the prices they pay. Agencies naturally want to play ball, but in offering this degree of trading certainty they need to mitigate their own downside risk as well.
One way is to use their own funds to secure discounted media inventory on their own account and then sell it to their clients. This is called “inventory” or “proprietary” media, and it is on the rise. Many advertisers will agree to include inventory media to improve competitiveness, so it will become a larger part of the trading mix.
But consider for a moment the knock-on effect. A media owner has to balance its books: to offset the proprietary discount here, they will look to increase the rates they charge to advertiser-funded buys there. Inventory media could effectively inflate the prices paid by clients for “standard” inventory. By setting variable price points for its customers, the agency is acting like a vendor.
There’s buying the plan and there’s planning the buy
For many years UK agencies have acted as principals for their clients, operating share deals with media partners. The role of ensuring that campaign spend is distributed in line with group-negotiated media share deals falls to a key role within the agency – “the allocator.” The allocator works for the head of investment, polices the planners and prevents “rogue” clients from putting undue strain on agency deals.
Once again, this situation emerged in response to clients wanting the certainty of improved performance, but managing inventory on this industrial scale means the majority of media plans are far from neutral. Clients are looking for recommendations that help their business meet its objectives but how can they be confident that the suggested media plan isn’t influenced by the trading deal? Once again, the agent is behaving like a vendor.
One door closes, another door opens
Commercial transparency – specifically undisclosed margins in programmatic trading – is without doubt the “issue du jour” for clients seeking the certainty of supply chain visibility. Recent industry initiatives such as the ISBA model media contract have responded to concerns and are attempting to close down the opportunities for agencies to profiteer from systemic opacity. But this assumes that everyone wants transparency – some clients are prepared to sacrifice transparency to receive more attractive commercial terms from their agency.
The upshot will be the presentation by agencies of two types of contract: the option of “non-disclosed” and “fully-disclosed” terms. Agencies are designing contractual models which keep their options open and keep their clients happy, but is it sustainable for an agent to operate a bi-polar business policy better suited to a vendor?
These three examples are the outcome of a stampede to certainty. As clients have become more demanding and sophisticated, so agencies have responded by managing their risk more carefully and creatively. This isn’t going to change, because clients are not going to become less demanding.
Smart, commercially-minded clients will explore the options, probe the opportunities, weigh up the trade-offs and achieve a commercial outcome which works for their business. Clients insisting on an all-you-can-eat buffet of commercial and contractual demands risk ending up with fractured relationships and a severe tummy upset.