• by Jeff Adelson-Yan , April 1, 2019

I recently read a article in the trades suggesting that brands still see cost as the determining variable in selecting an agency partner. I would opine, however, that cost and transparency are inextricably linked. Further, cost (low or high) is not always congruent with value.

In economics — and, more specifically, efficient market theory — there are two types of markets.  An efficient market is one in which the price of an asset reflects its true value.  Conversely, an inefficient market is one in which price is not commensurate with the true value of the asset. 

The key difference between the two markets is information. When both buyer and seller share information equally, value is added for both parties, and efficient markets ensue. Amazon is a great example of this.

By contrast, the funeral industry is one of the most inefficient markets.  No pricing transparency exists, information held is heavily one-sided (with the seller) and buyers are unlikely to shop around.  The end result? More often than not, buyers overpay.

So, why is it that the world’s most innovative brands settle for the funeral-industry model when it comes to their agency partners?

Advertising by its very nature has been built upon “waste”:  spend a ton of money with the hope that you’ll reach a very small percentage of folks who will buy your product or service.  The savviest marketers seek to minimize their waste — and yet those same brilliant thinkers (and their procurement counterparts) buy layers of waste when it comes to negotiating agency deals.

True transparency shines a light on the complicated layers of the advertising ecosystem.  It empowers the buyer and seller to evaluate which layers add value and which do not.

Furthermore, transparency is not simply limited to cost, but should be much more expansive.  Agencies and clients should be transparent about how data is collected, utilized and who owns it.  Transparency extends to ad fraud, viewability, brand safety and eliminating any potential conflict of interest.

Agencies are hired for their expertise and counsel, and actions taken on behalf of a client, should be done with neutrality.  Anything that might compromise an agency’s ability to be objective creates one-sided information, and we know who wins in that scenario.

Conflicts of interest can be as seemingly innocuous as an account manager preferring to work with a vendor with whom they have a personal relationship, versus working with a vendor who is a better fit for the client, to more egregious acts like preferential spending of the client’s dollars with vendors who offer cash or cash-equivalent incentives. 

When it comes to agencies, brands that focus on cost without equal attention to transparency will always overpay one way or another.