Did P&G Just Call Out The Ad Industry? Transparency Or We Hit The Highway?

After a long period of talk and nice conference discussions, is the start of 2017 finally turning out to be the start of really doing something about transparency? With today's massive P&G announcement, it would certainly appear so. We've had a lot of talk and it's probably fair to say that media agencies have had to be, shall we say, "inventive" with how they keep margins up -- but could we now be seeing a year of clamp-downs?

After Ogilvy & Mather announcing single P&L accountancy structures for clients, and thus boosting transparency yesterday, today we get down to the real nitty gritty with P&G tackling the heart of the thorny issue, media. It's not totally agencies fault, but it is, as the FMCG giants says either 'murky' or downright "fraudulent." These are very strong words you don't usually hear from clients, and certainly not publicly.

The root of the problem is that brands just don't buy it any more. The media relationship is one that brand marketers have most readily handed over to procurement so the bean counters can constantly put the screws on media agencies because it's where the huge money is, and shaving 10% of cost can be massive. It has gotten to the point where the media agencies are turning around and warning that there really is no proverbial "skin in the game" for them anymore. They are attacked on cost, they're losing bids to major rivals who appear to be buying business and yet still the brand wants more cutbacks and so the message throughout last year was that there were no savings to be had.

The obvious answer to this has been, of course, how on earth can the media agencies claim to be down to the bone on margin when they are making millions of dollars in profit and WPP is on record as employing the UK's highest-paid executive, Sir Martin Sorrell. It just doesn't add up, does it? You're broke but you're still making a lot of money and paying guys at the top ludicrous sums?

So here's what has been happening. Those arguments have actually made transparency worse. Media agencies have cut back on the cost of their media, although they have no idea what x million views will cost them on sites and apps in a year or two's time. It's a massive gamble, if you'll pardon the pun, and there's huge pressure to keep acting as holding companies' money machines. So, what do you do? Find other ways to hide charges, of course. It might be in the head count set aside for an agency or inflated fees paid to third party tech companies verifying that media has indeed been bought and stood a chance of being seen by a human.

Ironically, it's here that P&G is insisting that media agencies show that they are using providers that apply industry standards in measuring viewability and fraud. It's a very good point that any brand needs to check up on to ensure that an agency has its back and isn't just wasting budget. However, it's also here that one might reasonably expect they could find a rather high margin being charged, under their name, by their agency, not all of which is passed on.

This brings us to the terrible murky waters of rebates and contracts -- clearly a major concern for brands, that their media could be influenced by who gives their media agency the best deal, and as part of that, whom the agency has to buy more media from to fill their criteria of so much spend per year for a discounted price. Then there are the rebates themselves -- the rewards for continued good custom which brands suspect are not always declared and passed on to them. 

So P&G is the first to say, enough is enough -- we know the more we negotiate on price, the higher the risk that fees are made up elsewhere in the media ecosystem. It will be very interesting to see how much transparency they are able to achieve or whether they could become the first huge name to do away with media relationships and use technology in-house to buy its own media.

The transparency debate is truly heating up this year because it's not just about the old discussion, it's about going over old ground to see where the fees are being pumped up away from the headline figures. Agencies will say they had to do this to protect margins, FMCGs will just shrug and say, new year, same blooming problem.

It must be very tempting for an FMCG to actively investigate setting up its own trading desk and seeing how things work without the middle man? Just a hunch. But watch this space.

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