Split Loyalties – Is Your Agency Working For You?

Agencies. Can’t live with ’em, can’t stick your head in the sand and pretend they don’t exist. Nor would you want to – advertising is a tricky business at the best of times, and many companies, especially SMEs, feel more comfortable outsourcing these decisions to the experts, rather than staffing and running their own internal departments.


The best agencies save clients time and money, while delivering as good or better results than the companies would achieve by themselves, and there’s a reason the biggest ones post revenues in the tens of billions of dollars. So why is it that almost half of European marketers don’t trust their agencies?


I Don’t Trust Myself With Loving You


“22% describing current trust levels as ‘low’ and 14% as ‘very low’” might sound like enough of a wake-up call, considering these people are responding to questions about their relationship with the experts that are supposed to represent them. But delving into the ID Comms Media Transparency Report reveals that the problem is even more widespread and lopsided than that:

86% of all respondents believed that the current levels of trust that exist between advertisers and their media agencies is no better than ‘average’, and over a third believe there is an issue… Advertisers as a group were more sceptical. 31% of them thought that levels of trust between advertisers and their media agencies were low or very low, compared to 20% for agency respondents. Of those who believed trust is high, the majority were agency respondents.

So not only do just 14% of respondents view the relationship between advertisers and agencies as actually positive (with at least a third decidedly negative), but agencies trust brands a lot more than brands trust agencies. Obviously, that’s a situation that helps no-one: agencies fulfill a vital role, so it’s important that we identify the root causes of these problems, and do what we can to resolve them.


You’re Once, Twice, Three Times A Rebate


According to the ID Comms report, “more than 70% of global advertisers and agencies agree that the way an agency manages rebates is the biggest barrier to building long-term trust.” US law dictates that rebates and incentives should be made known to the client, and the benefits passed on, unless the contract specifically says otherwise.

ripped bill

But a recent investigative report by industry watchdog the Association of National Advertisers (ANA) uncovered widespread malpractice, possibly even fraud, regarding how agencies generally handle rebates and other concessions. The clarion call, including accusations of potential jail time, prompted this analysis by Pivotal Research Group’s Bryan Wieser:

“If a TV station returns a discount to a media-buying agency there is no way for the client to know about that payment if the agency does not disclose it. Historically, agencies have padded their margins with these payments. Clients haven’t bothered to pursue them because it would be complicated and resource-intensive to do so. Critics regard them as bribes or kickbacks…

Rightly or wrongly, there is a growing perception among marketers that agencies have been mis-leading, transferring value associated with media volumes without clients’ full understanding or support. Between cash rebates, consulting arrangements, vendor-funded staffing or services, inventory banks, equity provided for spending volumes, shifting of inventory from one entity to another… few marketer-clients in the US fully understand the specific arrangements their agencies undertake with media owners.”

Triggit CEO Zach Coelius went further, opining that “Some of the clients are starting to wake up to the fact their trust is being sold down the river for agency margin.” Triggit is an agency competitor, so Coelius isn’t exactly impartial, but he’s not wrong that this is what’s happening in at least some cases, and allegedly on a disconcertingly wide, perhaps even industrial, scale.


What Have You Done For Me Lately?


We’ve talked before about the problems of a lack of transparency, particularly with respect to digital advertising, but it’s evidently a problem across the board. While brands understand that all businesses have to turn a profit, agencies included, they also need to be able to trust their partners to work in their best interests. In the words of Business Insider:

“One of the issues is whether buying agencies are actually securing the most strategic slots for advertisers, or whether they’ve made a previous agreement with a media owner to spend a set amount of their clients’ ad dollars in order to receive a rebate… Media agencies are supposed to spend their clients’ money where the client will get the best value, not just where the agency gets the biggest benefit.”

Agencies buying media space in bulk is good for the sellers (who get a sure thing), good for the agency (who get more bang for their buck), and ultimately good for the buyers (who get better and broader exposure for their campaigns). But that only works if the savings are passed on to them. When they’re not, when “non-transparent business practices [are] mandated by senior executives at agencies and their holding companies,” issues are bound to arise.

man, person, clouds

The key, according to Assembly & MDC Media Partners CEO Martin Cass, is in the contracts. “Supplier/client relationships are bound to be driven by contract compliance, and this is where agencies start to get into hot water, because they often “sell” on relationships and perform on scope.” Squaring this circle is a challenge caused not just by a lack of agency transparency, but also by overly-stringent expectations placed on agencies by their clients, which prevent them taking important risks.


Where Do We Go From Here?


As with many real world issues, there are no obviously easy solutions to these problems. It’s clear that, much like the UK’s recent vote on Brexit, there is a disconnect between the two sides, one that threatens the fabric of their relationship. But this report also provides an opportunity to engage in genuine discussion as to what the client-agency setup should be, and do, and look like.

businessman, sign, pen

A productive discussion that lays the groundwork has the potential to render the whole problem obsolete. If both sides can set and agree at the outset on reasonable expectations – not just delivery, but also relationship and transparency – build those expectations into the contract, and revisit them periodically, we can start to move towards a world where most clients are happy with their agencies, and vice versa. After all, as Martin said “You get the behavior you design for.”