By Fiona Foy, Senior Partner – Americas, Media Marketing Compliance
5 years ago, the ANA highlighted the lack of transparency in the media and advertising supply chain in their ground-breaking report. My colleague at Media Marketing Compliance, Stephen Broderick, was part of the group of select advisers that helped put that report together and we share a long-standing interest in bringing this issue to the fore.
Navigating the media world has become increasingly difficult for advertisers as there continues to be an ever-growing number of agency, or agency related parties and external supplier influences involved in the delivery of campaigns.
Advertiser and agency contracts should be updated regularly to reflect at least market changes but as important is to assess the agency’s compliance with agreed terms to ensure they are acting in the advertiser’s best interests.
Sadly, this kind of auditing is still overlooked and in the US market, which has the biggest budgets globally by some margin, it should be a concern for all our CMOs and CFOs.
Identifying responsibility and expertise
When many people think of auditing media, they are naturally drawn to auditing performance – whether a campaign is working and reaching the right audiences. But these metrics are totally different to auditing whether your advertising agency is delivering on the terms of your agreement.
An analogy that comes to mind is one of looking at a relationship from the outside. Everything appears to be ideal and working perfectly but you do not know what goes on behind closed doors. How things look on the surface is not always the full picture and this can be true of your agency relationships – do you know how the agency operates beyond your day to day interactions?
Likewise, you may think you have a world class agreement with your agency. But are you testing it through auditing?
Putting the problem into perspective
Due to the complex nature of contract compliance, auditing the costs and agency processes or operations are not immediately visible to the naked eye and at the forefront of the relationship. It requires expertise. People who know the way the advertising supply chain works to identify them and present them to you.
And if you’re not seeing what might be potentially owed in rebates, unbilled, inventory media etc., it’s easy to ignore it.
Marketing is one of the biggest outgoing spends for most big American businesses, aside from direct costs and payroll. It’s typically the largest of indirect costs.
A recent survey by Gartner, which correlates with what we see ourselves across client accounts, is that marketing budgets are historically between 6% and 13% of revenue. To add to this, we know digital adspend is only predicted to rise and now exceeds traditional media spend.
Let’s take those figures and say the average adspend for a large American business is 10% of company revenue – with an annual sales revenue of say $30billion and $3 billion allocated to marketing.
The lack of understanding of how efficiently and effectively the agency engine operates beyond the day-to-day interactions can have a significant cost impact to the advertiser. Losing a fraction of percentage point of a $3billion marketing budget to non-compliance has a significant financial impact on the advertiser on all levels.
That’s why it’s vital to understand how the agency has procured inventory media, the multiple related parties that are involved, digital rebate deals, service level agreements, and unbilled media positions. A compliance audit will analyse all of this, recover funds and avoid such losses moving forward.
There is also a significant corporate governance element of showing your shareholders and regulators that your business partners are not only delivering significant business value but are spending your marketing budgets properly.
It should be front of mind for CFOs, given the volume of expenditure and highly complex ecosystem.
Our approach to this is totally in agreement with the ANA’s slogan “trust but verify”.
More than ever, this is all about having the right contract. Advertisers need to truly consider the reasoning behind an agency’s rejection or significant amendment of proposed contract language – particularly around audit rights, inventory (non-disclosed) media, payment terms and media benefits.
Trust but verify
So, when did you last look deep into your agency relationship and bring external experts in to verify it? Do you have a full understanding of how your agency has managed your funds – from PO to paying third, fourth and fifth party costs? Have you been provided with the resources you were contracted for?
Asking these questions can ensure your partners have acted in your best interests.
Otherwise, without auditing you may never see beyond the exterior that is presented to you on a daily basis.
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