Why Advertisers Need to Know More

By Mike Drexler

Most advertisers today are concerned about how their media investments are being handled by agencies. While agencies still place the bulk of advertiser budgets in paid media, advertisers generally do not know all of the methods agencies often use to obtain media prices, track the performance of media delivery and then be fully accountable to the client before they are billed and invoices paid to the media.

First, how do agencies negotiate with the media. The answer often seems simple, but it is not. The simple answer is they use research data to understand the characteristics, purchasing patterns and media habits of the consumer, arrive at the specific media vehicles, channels and platforms that attract the client’s key target audiences and then negotiate a price based on how they “read” the supply and demand of the market (lots of ways to do this with trend data, money committed to the market, advertiser budgets being revealed, the general economic outlook and oftentimes an established client base for benchmarking year over year increases). It is, in reality however, more complex.

Many agencies are able to use their total client dollar leverage to attack the marketplace. For some it works better than others depending upon size and negotiating prowess. But the bigger advertisers don’t want their volume used to subsidize smaller agency clients. Especially if they don’t know if they are necessarily getting a much better price than those they subsidize. So how do advertisers get to know this? For the most part they really don’t. And now with the issue of transparency coming to the forefront, clients don’t particularly like the idea that agency financial “bundling” is appropriate, especially if the agency is purchasing and “owning” the inventory or receiving undisclosed rebates or using arbitrage and then reselling it at a profit for themselves.

Agency size is certainly not the only factor in media negotiations. Timing of a media purchase is also important. And with that comes the relationship the agency has with the media. Many agencies cultivate good relationships with the media, which can be very helpful in the negotiations, but it gets borderline troublesome if promises are made to commit future dollars without clients signing off or getting locked in without suitable options to exercise with the vendor. If media negotiations are conducted without outability clauses, the agency has to make it up with someone’s dollars.

Another concern is proper verification of the exact placement of an ad in the context of the editorial, program or site. On some occasions, in local broadcast media, an ad is placed immediately adjacent to a higher rated time period but actually runs at a lower audience time yet charged the higher rate. Or in national broadcast or cable in a lower rated program position. In the digital world, with programmatic buying on open exchanges, an ad can also be placed through ad networks on an inappropriate content site or placed in lower page position without sufficient viewability or pixels within the viewable space. And bots can also sometimes be the culprit when publishers purchase sourced traffic to boost their impressions and ads are not really seen by humans.

Advertisers often suggest they need to “follow the money”. But it can be difficult. It really begins with the strategic planning process starting with properly defining the target audience with a variety of analytics including demographics, psychographics, purchase behavior, media behavior, content interest and then it must be tracked and monitored all the way from implementation, to post evaluation, to verification, to make goods or audience deficiency units (ADU’s) or impressions in the case of digital (and occasionally cashback), to invoicing, to reconciliation through to billing and paying with periodic auditing as necessary. Some agencies are reluctant to reveal their negotiated pricing with vendors and of course obscure the supply chain. In certain cases then, it may be necessary to conduct an audit so the entire supply chain can be followed as much as possible.

Money management should always put the client first. It’s their money and they deserve complete accountability. That’s really indisputable. But sometimes it doesn’t work that way. Each element in the planning and buying process should be agreed to and incorporated into every client/agency contract. And KPI metrics should be established and measured. Clients and agencies must also provide for changes in scope of work or strategic direction that may require spending modification or adjustment to staff. This also should be reviewed periodically and signed off on with mutual agreement from both parties because it may also require adjustment in compensation.

Oftentimes clients don’t thoroughly review these contracts. And they sometimes don’t fully understand what actions are being taken and the use of media terminology. As Bob Liodice of the ANA has noted, advertisers must also assume greater responsibility for the issues confronting them particularly as it relates to transparency. And, as some have also said, it’s useful to engage an outside expert to help the evaluation process leading to a more productive and enduring relationship. Maybe the right outside media consultant really can add value to both parties. From the looks of things, I certainly think so.

Originally published in Media Village

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