- Thursday, Jul. 21, 2016
- NEW YORK
Marketers should require media agencies to be fully transparent to elevate trust and restore confidence in the client/agency partnership, according to a wide-ranging set of recommendations released by the ANA (Association of National Advertisers) and Ebiquity/FirmDecisions.
A key recommendation was that clients require their agencies to disclose all potential conflicts of interest and allow thorough audits of the agency, its parent company, affiliates, and subsidiaries to ensure full transparency and contract compliance.
The guidelines are part of a new report, “Media Transparency: Prescriptions, Principles, and Processes for Marketers,” that was developed by the ANA in conjunction with Ebiquity, a leading independent marketing analytics specialist, and its subsidiary, FirmDecisions.
The report followed the June release of an ANA-commissioned assessment by K2 Intelligence that found non-transparent business practices, including cash rebates to media agencies, were pervasive in a sample of the U.S. media ad-buying ecosystem.
The K2 Intelligence study, conducted from October 2015 through May 2016, revealed “evidence of a fundamental disconnect in the advertising industry about the advertiser-agency relationship.” In general, advertisers expressed a belief that their agencies were duty-bound to act in their best interests. Meanwhile, many agency executives interviewed said their relationship to advertisers was solely defined by the contract between the two parties.
In addition, K2 Intelligence found evidence of potentially problematic agency conduct concealed by principal transactions; as a principal, an agency (or its holding company or associated company) purchases media on its own behalf and later resells it to a client after a markup.
“The purpose of these guidelines is to provide marketers with prescriptions for addressing transparency issues specific to the K2 Intelligence study,” said Bob Liodice, ANA president and CEO. “We outlined actions marketers should consider to diminish or eliminate non-transparent and non-disclosed agency activities and to ensure that their media management processes are optimized.”
Concurrently, ANA released a recommended contract template and urged marketers to leverage it as the foundation for their master services agreements with agencies. The template was first created by the Incorporated Society of British Advertisers and was adapted for the U.S. marketplace by ANA general counsel ReedSmith LLP. It can be accessed here.
The contract template includes provisions such as a requirement that revenue earned by the media agency and agency-related parties should solely be the fees and commissions set out in the contract, unless otherwise expressly agreed upon by the advertiser. All financial and other benefits should be returned to the advertiser unless expressly agreed otherwise by the advertiser, the template stipulates.
“Advertisers are now experiencing a unique environment where demands for financial accountability and ROI are increasingly high, while transparency into media spending is difficult to achieve,” said Michael Karg, group CEO, Ebiquity. “We’re at a turning point in the U.S. advertising industry. With these recommendations, advertisers have the opportunity to pave the way towards greater transparency while laying a strong foundation to manage future complexity.”
The report also noted considerable media management deficiencies among marketers. The report emphasizes the need for substantially increased accountability and more disciplined processes, such as greater rigor in contract development and governance stewarded by a “chief media officer.” This individual would serve as a centralized internal resource to oversee media strategy, partner with external agencies, and work with third-party suppliers to optimize the media mix and share best practices across teams. The role would be part of an overall plan for advertisers to adopt strong, disciplined processes to create and manage improved media agency contracts. Those contracts would ensure strict accountability, compliance with effective management principles, rigorous process governance, and significant senior management oversight.
Specifically, the report recommended that to achieve full transparency marketers should:
•Establish overarching agency management principles that can be easily understood and executed. These include requiring media agencies to ensure complete transparency in all transactions with parent companies, subsidiaries, affiliates, and third parties. Agencies should err on the side of communicating everything to marketers, the report said.
•Establish primacy over the client/agency relationship, and regularly re-evaluate and upgrade internal processes and practices. The report said it is essential that marketers have a thorough understanding of the existing client/agency relationship and know when the agency is acting as an agent on behalf of the client or as a principal representing itself.
•Create a uniform code of conduct between the advertisers and agencies. The code of conduct between advertiser and its AOR would be mutually agreed to, signed by both parties, and serve as an addendum to the master services agreement.
In addition to those three key pillars, seven strategic recommendations for advertisers are advocated to reduce or eliminate the potential conflicts identified in the K2 Intelligence study. They include:
•Where the agency is acting as a principal versus an agent, the advertiser should have a disciplined and reliable process for managing conflicts of interest.
•Advertisers should ensure contracts with media agencies include robust language to deliver full transparency.
•Advertisers should insist on thorough and far-reaching audit rights that include tracking contract compliance and measuring the media value delivered.
•Marketers must implement disciplined internal processes to deliver contracts designed to ensure strict accountability, rigorous process governance, and senior management oversight.
The remaining three platforms addressed client ownership of data and technology, advertisers’ stewardship of media investments and fair agency compensation models, and the establishment of a culture of trust between agencies and clients.
“The K2 Intelligence report was a serious wake-up call for the industry,” the report noted, flagging the level of conflicted and suboptimal behaviors that developed from both agencies and advertisers. “This behavior corroded the bond that existed between the two constituencies.”
The report concluded that several important lessons were cited in the K2 assessment that the ANA and Ebiquity’s recommendations are designed to address:
•The loss of trust was the most significant and important manifestation of the issue.
•Agencies can no longer deny that the “rebate issue” exists in the United States, along with a host of other transparency-related issues. To continue that denial would seriously undermine any hope of restoring the equity in the client/agency relationship.
•Advertisers must rethink their collective set of media management practices. The deterioration of accountability and oversight — particularly with respect to contracts — must be resolved. Advertisers must establish their primacy over the process to increase the ability to optimize client/agency relations in the future. Media management governance needs to be rethought and reconsidered.