Transparency Vaccine Now Available

By Guillermo Girola Unless you have been hiding under a marketing rock for the last years, you know there is a disease spreading in the marketing community. The symptoms are CFO discomfort, feverish battles about auditing rights clauses in contracts, increasing pressure to ‘opt-in’ on inventory deals, and an overall feeling of distrust. You can’t …

Continue reading “Transparency Vaccine Now Available”

By Guillermo Girola

Unless you have been hiding under a marketing rock for the last years, you know there is a disease spreading in the marketing community. The symptoms are CFO discomfort, feverish battles about auditing rights clauses in contracts, increasing pressure to ‘opt-in’ on inventory deals, and an overall feeling of distrust. You can’t take this disease lightly. It is called lack of transparency. And it has the power to kill your client-agency relationship.

As a client, you can inoculate yourself against it. As with many vaccines, you may experience a little pain in the year of the implementation, you may feel a little dizzy running your numbers and supporting your decision at management meetings over and over again. But you will not only be preventing major effects in the future, but you will also help leading the way to a healthier advertising environment.

And if you are waiting for herd immunity to keep you safe, forget about it. If you are not part of the solution, you are most definitely part of the problem.

You know what Opt-In means, right? If you do, skip ahead a paragraph or two. Opt-in are those media purchases where you opt to procure the spaces from inventory the agency purchased itself at a non-disclosed cost. The price you are “opting-in” at is usually somewhat below what you pay when the agency buys this as your agent. Which is great. Until you realize that the agency can buy for itself at a better price than it buys the same thing for you. And that is when you say Wait a minute!!!

One step back before we move on: let’s understand the nature of the agency relationship. An agent is someone who “is given agency” or “the power to act on your behalf.” Part of your contract with your advertising agency states that you are giving them the power to generate obligations for you towards third parties (such as media vendors) in agreed exchanges. You use media spaces for your messages; media gets your advertiser money. The agency has a role facilitating that interchange and is compensated for that role. The role has to do with multiple parts of the exchange: evaluating alternatives, recommending the ones that better fit your needs, negotiating a cost that maximizes the benefit for you the advertiser, securing the space, controlling the service was delivered in the shape of an ad placed in front of consumer ads, etc. That is why you pay the agency. They are your agent throughout the process.

When the agency comes with an Opt-In proposal, that relationship suddenly becomes something else: the agency becomes a vendor. They have something in their inventory, and they want to sell it to you. They already know at what price you are purchasing that same type of media, so they will only make you an offer if what they have in their inventory is at a cost advantage. Sounds legit, right? Why wouldn’t you? You may even score a few points for lowering the cost!

But take another step back and think again. Ask yourself: Am I being recommended the best spaces for the brand or the ones that get the agency a better margin? Why can the agency buy a media space at a lower cost than what they buy it for me? Why don’t they want to show me the actual cost they paid by including these non-disclosed clauses in the opt-in language in the contracts?

For that last question, here are a couple of hypothetical dialogs that never happened, all of them highly speculative and none of them proven to be real– (that’s what my attorney asked me to clarify, so hold your lawsuits, y’all).

Hypothetical Dialog 1 – Conversation between am agency buyer and a rep during annual negotiations:
Agency Buyer: Hi, Media Rep! I come on behalf of my client Brandex. They may want to invest 10 Million with you this year. What is the price you are willing to offer them.
Media Rep: The cost is $10.
Agency Buyer: Oh! C’mon! It’s 10 Million! You know that last year they already paid $9.7. I need to beat inflation, give me a better price!
Media Rep: OK. I will keep the price flat vs last year.
Agency Buyer: I know you could do better! But OK. That makes me look good enough. You know, if I’m audited, I can show savings after inflation adjustment.
Media Rep: Great. Let’s sign the contract.
Agency Buyer: Before we do that…. (lowering the voice). What do you say if I throw in an extra million of my own into the mix. It’s the agency’s money, not the client’s. What would you say is a good price for us, if you get this extra investment. (repeatedly winks an eye to the rep).
And… scene!

Hypothetical Dialog 2 – This time it’s a phone call between a Global Agency Group CEO and its counterpart at a Global Media Conglomerate.
Agency CEO: You know, Media CEO? I’ve been looking at what all the companies under my supervision are buying in your properties. You may have realized that we have directed to increase our investment significantly, wouldn’t you say?
Media CEO: That is right. Our audiences have grown and.
Agency CEO: Sorry to interrupt, but you have not heard me well. We have directed our teams to plan investments there. I think it’s time we make this a good business for both you and us. I heard that you have some media spaces that are floating around and are not yet sold.
Media CEO: Well, the annual negotiations are still.
Agency CEO: We can help you get rid of that unsold inventory. Honestly, imagine the embarrassment of having those empty spaces in your operation!
Media CEO: Well, they would not be empty.
Agency CEO: Exactly! They do not need to be. We would put high quality advertiser there. It would look great. And you don’t even have to pay us to do that. We would do it absolutely free. You don’t need to worry! I’ll make it happen. And you know what else I could make happen: I could ask my teams to look again if they are not overinvesting in your company. But I will not. Because this is such a great business for both of us. Do we have a deal?
Media CEO: We do… always a pleasure… Can we at least be paid in Isle of Man?

We see often that media vendors may be willing to give away some additional value during negotiation. That value is either captured by you or by the agency. If you Opt-In, you are letting the agency capture some of that value, in order to get a portion of it for yourself. You should be entitled to all of it.

One of the explanations that we hear from agencies is that they are putting their own capital at risk and that’s why they get better conditions. Sorry, but unless you have been offered the same conditions when they made their own buy, they are failing to act as a good agent.

How do you prevent this from happening?

We have seen several ways, none of them free of inconveniences.

Create a relationship with the media. Remember: agencies and media are engaged in a longer lasting relationships than agencies and advertisers. If you have a direct relationship with media vendors, you can at least get a back-channel and make sure that nothing can be hidden from you. Trust, but verify. That takes time. And may result in pesky phone calls from media to offer you the latest and greatest they have in shelf. It may be a steep price.

Do not accept any non-disclosed buy. If the deal is legitimate, there is no reason not to show you the whole value chain. And it should be fully auditable. The risk is that you will not be offered the deals at all.

Reject opt-ins altogether. If every advertiser did, we would be closer to ‘herd immunity’. There is no cheap inventory to be sold to anyone. Wishful thinking, but it seems there’s always someone willing to buy replacement hubcaps from the guy on the corner.

There are ideas floating around about hi-tech solutions. Block-chain and stuff. We’ll need to see to believe. Cost efficiency of the solution may be an issue.

Also, there have been attempts at creating ecosystems that separate planning from buying and make every buy an auction. It has proven impractical.

Here and now, transparency has only one solution and it’s not pretty: reject deals that are too good to be true. Don’t feed the monster. Take a deep breath and say no to a lower cost at the expense of a fully transparent deal. As with most vaccines, it’s not a pleasing experience. But they keep things healthier.