How Do We Begin the Healing?

Tom260Predictably, in the wake of reports and recommendations to the ANA by K2 and Ebiquity on agency transparency, and subsequent reactions and rebuttals by the AAAA, nobody has been able to agree on a course forward.

There’s an elephant in the room, though, one that pundits have touched on but haven’t exactly told us how to address.  Larger agencies, particularly the publicly-traded ones that need to protect their margins, have willingly but begrudgingly abandoned their role as unbiased strategic advisor to their clients.

The other elephant in the room is that many advertisers actually forced them out of that position.

When I came up in the ad business, managing media campaigns that extended into all forms of media, the notion that the client wouldn’t get his due was unthinkable.  In other words, the very idea of an undisclosed markup, or a failure to return money to the client when costs actualized lower than planned was simply not an option.  If we were able to save money on print insertions by getting cash discounts for early payment, it was expected that this money immediately flowed back to the client.  Pre-buying media ahead of a client’s approval of a recommendation, with the thought of “selling it in” later was a non-starter, as any such arrangements would have biased our approach.

Today, it’s often difficult to tell the difference between an agency and a media seller, because both types of organizations can have their own media offerings.  With some conferring higher profits, how can an agency that approaches client recommendations in this way avoid bias.  (Hint: It can’t.)

How did we get here?  We can start the healing process much sooner if we understand the issues that brought us to this place, and address them as fundamental problems that need to be solved above all.

We got here for a number of reasons:

  • Compensation models were not aligned with client success. Commission models meant that whenever a problem arose, the solution from the ad agency was biased toward “buy more media.”
  • The substance of agency compensation conversations moved from marketing to procurement departments. This is what pushed agencies into a corner.  The continual downward pressure on margins, coming from a department that hadn’t historically been a part of agency selection discussions, was what forced abandonment of the “trusted advisor” role for the agency.  Penny wise, pound foolish decisions were made.  Many agencies effectively became media sellers in response.
  • Easy Obfuscation. Whether it’s undisclosed margins in programmatic buying or arrangements made with publishers to hang on to “volume discounts” while covering up the paper trail, the process of obscuring impropriety was made easier by technology and by willing publishers.

One of the worst parts of this is that agencies who stayed true to their “trusted advisor” mission were often treated like agencies that strayed from the path, making it harder for those agencies to continue to exist.  There’s only so much improvement that can be made to process and supporting tech.

So, how do we start the healing?  By addressing the core issues:

  • Agencies need a variety of unbiased compensation models that can address the situation at hand. At the same time, advertisers need to avoid holding agencies to performance standards over which they have little control.  There needs to be an unambiguous agreement as to the role of the agency and that of the client.  In short, agencies can lead a horse to water, but they can’t force the horse to drink.
  • Procurement discussions need to evolve. Quite simply, more input is needed from the brands and from marketing, and the discussions can’t revolve around “better, faster, cheaper” all the time.  Procurement needs to lean on marketing to get a better picture of an agency’s contribution to the bottom line, and make the conversation about finding creative ways to address concerns, not about how to shave 10% off a line item.  Every agency should walk away from a procurement discussion with the sense that greater success for the brand means they’ll make more money.
  • The trust needs to come back. In return for being treated like the strategic consiglieres they are, agencies should adopt better transparency guidelines.  Agency CFOs should be prepared to sign affidavits that no undisclosed markups were earned with advertiser dollars, and to prepare audit trails of media vendor billing, per existing agreements with advertisers.  “Meet in the middle” should be the mantra here, with an acknowledgement that agencies need to make a decent profit while contributing greatly to the advertiser’s success.

Return to the original sense of the word “agency” is the only path, here.  The world is already crowded with publishing, media, ad tech and mar-tech companies with products to sell.  The world doesn’t need the agencies to step in and fill that role as well.