0% agency fees or How to Spend Money as Cheap as Possible

There's an edgy debate raging in the USA advertising world over the last couple of weeks - former Mediacom CEO Jon Mandel publicly accused media agencies of failing their primary duties to customers and talked in detail about secretive media kickback deals, at the end confessing it was the primary reason for him quitting the agency world altogether.

It's a taboo topic in the marketing world, despite that everyone in the advertising is well aware of it... And yet public conversations happen very rarely around it and majority of agencies and customers prefer it stays that way.

I encourage you to read the full AdAge coverage of the story below, but here's a brief summary of what's happening - as advertising agency fees continue to go down, audit and general market practices require they disclose any volume discounts or rebates they receive from media and pass it on to customer. Naturally agencies are forced to look for alternative income sources and end up with non transparent ways of making money. Non transparent ways of making money then translates into non transparent media buying decisions and it all ends up with customer business goals becoming secondary if not tertiary priority ...

While the story covers the state of affairs truly well, it doesn't cover one key angle - why is this happening and what can be done about it ?

This might shock you a bit, but I honestly think that main driver for the customer damaging practices are customers themselves. Here's why:

• On the customer side, marketing departments have been focusing for far too long on derivative metrics with no real business KPI's. Working with agencies, I've seen so many times how an agency fails to understand why a x3 overachievement of business goals doesn't yield any reaction from the marketing side. Another symptom of the same problem - Sales and Marketing functions are now often completely separated and don't have decent cross functional collaboration. Sounds familiar ?
• Instead of maximizing the gains for the company, marketing is instead pushed to minimize the costs of 3rd parties. You can call this strategy 'spend a ton of money as cheap as possible'. Think about the RFP (request for proposal) process - key questions agencies need to answer are media discount levels, agency fees and inclusion of free services into that fee. Many times customer even selects the media for the agency to buy - this generally beats the purpose of having an agency and encourages them to focus on the wrong side of business, on the wrong KPI's. Do you honestly care more if the discount is 52% or 57% rather than if this agency is able to bring in more sales at the end of the day?
• Agencies on the other hand, seeing such measurement of their work, are playing along - fees are going down to 1-2%, if not lower sometimes, huge time allocation goes to price negotiations with media instead of actual strategy and creativity. Subsequently negative ROI of campaigns is then covered up by bogus shiny metrics that don't describe quality of work and agency receives a 'get out of jail free' card for pursuing their own financial gains through media kickbacks rather than focusing on what works for the customer.

So, what should customers do to fix this situation:

• Put sales focus back at the center of your marketing activities. Branding or Performance marketing focus - it doesn't truly matter, at the end of the day any marketing investment should yield gains and be backed up by indisputable metrics. And by that I mean not reach, frequency, impressions or likes, but actual business results like purchases, store visits, calls, online orders, etc.
• Be a reasonable customer - you don't believe agency produced this shiny presentation, attended 12 meetings and provided deep business insights while being paid 1% on your 100k$ budget, do you? You wouldn't offer your own employees to work on such renumeration, why would you expect a dedicated, professional team would do this and not hide something else from you ?
• Once agency will be compensated fairly for their work, for their investment into people and tools and will have to meet goals that can't be swept under the rug, they will once again be able to serve the purpose they came to exist for in the first place.

Read the full article here:
AdAge: Media-Agency Kickbacks. Yes, They're Real.