ANA Members: Media Rebates A 'Hot Topic,' Increased Pressure To Lower Agency Comp
- by Joe Mandese @mp_joemandese, May 18, 2015
Nearly two-thirds (62%) of ad execs attending the Association of National Advertisers recent Financial Management Conference consider agency media rebates to be a “hot topic” within their organizations, according to findings of a survey conducted by consulting firm Ebiquity and its sister company FirmDecisions during the event.
Regardless of how hot a subject it is, an even higher percentage -- 85% -- of respondents said they are feeling some pressure by their organizations to decrease their agency’s compensation annually.
“The rise of cost-cutting has pushed some agencies towards more opaque compensation models,” Ebiquity said in a report on the survey findings, adding: “So navigating the nuances of agency agreements is imperative and more challenging.”
Despite the pressures, less than a third (29%) of the respondents said they felt “comfortable negotiating the complexities of agency contract issues.”
The survey, which was conducted on site, is based on the viewpoints of 100 procurement, sourcing and finance professionals on behalf of some of the world’s largest advertisers. The survey design and execution was carried out by Ebiquity’s Media Intelligence practice.advertisement
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It's a "given" in a survey like this that 85% of those answering claimed to be feeling "some" pressure to reduce their agency's commissions. I'm surprised that the figure isn't even higher---like 100%. So why don't the advertisers simply fire their agencies and do the job themselves? The problem with that is that they would have to hire the agency people to do the work for them---as no one else is qualified-----and, in the process, lose the economies of scale that go with most agencies who handle a large number of clients and use their key creative, media and research people on many accounts, not just one one account.
Even worse---who does the "client" fire when things go bad without a convenient agency scapegoat?
So 85% prefers a relative insignificant change to remuneration instead of getting a piece of the multi-billion dollar elephant in the room.... the 15% going for the big bucks must be laughing all the way to the bank.
@Morten, in fairness to the agencies, the days of the 15% commission are long gone. Typical fees, once one can figure them out----which is the client's CFO's job----are much, much lower.
@Ed: the 15% referred to the remaining clients who will go for the bigger opportunity that is rebates, kick-backs and other benefits and bonuses derived from holding group deals (reality is that the number is much lower as I describe below).
Most agencies involved on the rebate/kick-back culture work on percentages, and value is offered only to a few select advertisers. This type of client would normally be up-to-date with the latest trends in holding group deals, and they will enter rebate discussions with proper negotiations strategies and leverage. As a client, you will know from your latest negotiations results whether you fall into this category.
The biggest challenge that the US market is facing is that the vast majority of clients either doesn’t do anything about the rebate issue, or alternatively act like bulls in a china shop (trying to bully their agencies into submission). These types of clients typically never meet the agency person who has authority to discuss/allocate holding group value.
Lastly, mixing agency remuneration and rebates in negotiations is counter-productive: Agency remuneration is predominantly earned on operating agency level (i.e. the client-facing front offices), and they get to keep almost everything except the obligatory holding group overhead. Volume deals and benefits associated are managed at holding group level (the entity that contracts volume deals with the vendors, technology companies, etc.), and the value is then redistributed to clients according to the above. Consequently, reducing fees only hurt operating agencies, and clients going down this route often end up with poorer service and less investment in talent.