Why agencies’ reluctance to talk about rebates is making marketers nervous

With ISBA yesterday (28 April) announcing a new contract designed to create more transparency for advertisers negotiating with media agencies – the first time in more than a decade it has taken such a step – it appears that more and more marketers are losing faith in the controversial rebate model.

Money

ISBA, which represents 450 major brands including Tesco, Burberry and Coca-Cola, claims global media agencies such as WPP, Publicis and Havas have increasingly been generating profits through controversial business practices that are not visible to their clients.

It says client-agency contracts are typically lacking essential detail around areas such as viewability, brand safety and click fraud, therefore allowing agencies to profit in these areas by setting up separate deals with media publishers.

Debbie Morrison, director of consultancy and best practice at ISBA, hopes its new contract, or “guide” as she puts it, will create more transparency but also raise serious questions at the board level of major brands.

She explains: “We look at our clients and hardly any have media specialists in-house yet media expenditure tends to be the biggest second spend after capital expenditure. It is crazy. You need someone who knows how to manage viewability and media buying, or the agency can take advantage, especially with digital marketing and programmatic creating so many complications.”

Morrison says there is a clear trend of global agencies suspiciously choosing a brand’s auditor for their deal. “It is unacceptable position. You have to be free to choose your own suppliers, not have a media partner tell you who to use.

“Certain agency groups only use certain auditors and it all looks very fishy.”

Debbie Morrison, ISBA’s director of consultancy and best practice

It’s clear that a lack of transparency around how agencies earn their dollar is creating distrust among marketers.

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, according to a recent ID Comms’ survey.

The report, based on responses from 140 senior executives at global agencies and advertisers, found that 67% of agency respondents believe “how the agency trades with media vendors” and “how the agency manages rebates/AVBs” are the most influential factors in gaining the trust of a brand.

And if things don’t change soon, the big agency groups could struggle to retain clients, according to Jenny Biggam, co-founder of independent media agency 7Stars.

She points to ITV, which recently dropped its 11-year relationship with Mindshare to make independent agency Good Stuff its new media planning and buying agency, as an example of the emerging trend.

“You can maybe draw something from that move as ITV, as a media brand, is very aware of how the big groups make their money on rebates,” she says. “It chose Good Stuff over WPP within the pitching process as ITV might think that an independent agency will offer much more transparency.”

ITV-ad-2016
ITV’s recent decision to bring in an independent agency could signal a wider shift, according to 7Stars

Vladimir Komanicky, a partner at Oystercatchers, agrees with Biggam’s assessment. He believes brands could also look to move more of their advertising creation in-house like brands such as Pret A Manger.

He adds: “You’re seeing major advertisers start to use separate planning agencies to their buying agencies. Coke have just done that in the US. The logic is you can trust the advice of a planning agency because they aren’t making transactions with a media owner so therefore they cannot make money from whoever they are recommending. The planning agency is just putting forward who they trust and what they believe is right for Coke. It is safer.”

He even suggests that the lack of transparency is giving many brands an untruthful portrayal of a digital campaign’s success, with metrics such as video views often fabricated.

“If you look at digital, a bigger issue than rebates is non-human traffic. When an agency wants to increase the number of impressions, they find and develop programmes that open websites in smart ways. It is fairly common and marketers risk this happening by not understanding how an agency makes its money.”

Perhaps predictably, the IPA has already dismissed the new ISBA contract.

Its director general Paul Bainsfair explains: “The contract is one-sided in favour of advertisers and very unlikely to form the basis of a contract between a media agency and client.

“As we’ve said before, in the ever-complicated world of media services, the manner in which advertisers and their agencies arrange to trade with one another is a matter for them.

“Different agencies have different business models just as different advertisers have different requirements. There is no ‘one-size-fits-all’ business model.”

Paul Bainsfair, director general of the IPA

Last December, the publisher of the Daily Mail gave a rare look into the extent of rebates in the media industry. Daily Mail & General Trust said it set aside £25.6m in cash and discounts for agencies and clients over its last financial year. Oystercatchers’ Komanicky says that level of transparency is the only way to go.

He adds: “I don’t believe the current state of the market is sustainable in the long term. If you look in the US last year, at one stage 50% of all brands were pitching their accounts and it’s because they are losing trust. Agencies will have to be more honest about how they are earning money”.

Last year, the US-based Association of National Advertisers hired two consultants to conduct an inquiry into allegations that undisclosed rebates are influencing media agencies’ work on behalf of marketers.

And if agencies fail to change, 7stars’ Biggam says certain sectors just won’t see the point in retaining the traditional client agency model.

She concludes: “I would assume that the investigation in the US will lead to the big groups rethinking what their commercial strategies are as at the moment some of the big agency groups’ reputations are pretty low. As a brand, it isn’t a place you want to be. If you’re a financial brand and your reputation is already low why would you want to be associated with even more controversy?

“For me the compromise comes when a media agency is constantly giving a brand strategic advice on where to spend money. If that’s happening, something probably isn’t right.”

Latest from Marketing Week

Ryanair, BA, EE: Everything that matters this morning

marketing news

Ryanair profits rise as ‘always getting better’ programme attracts record traffic Ryanair saw profits rise 6% in the full year to 31 March to €1.316bh, an increase it puts down to a 13% cut to average fares and the third year of its ‘Always Getting Better’ programme. Traffic was up 13% to a record 120 […]

PLEASE SIGN IN OR REGISTER. IT'S FREE, QUICK AND EASY!

Access Marketing Week’s wealth of insight, analysis and inspiration that will help you develop as a marketer and leader.

Register and receive the best content from the only title 100% dedicated to serving marketers' needs.

We’ll ask you just a few questions about what you do and where you work, so we can make Marketing Week more relevant to you.

Register now

THE BEST CONTENT

Our award winning editorial team and columnists will ask the biggest questions about the biggest issues on everything from strategy through to execution to help you navigate the fast moving modern marketing landscape.

THE BIGGEST ISSUES

From the opportunities and challenges of emerging technology to the need for greater effectiveness, from the challenge of measurement to building a marketing team fit for the future, we will be your guide.

PERSONAL AND PROFESSIONAL DEVELOPMENT

Information, inspiration and advice from the marketing world and beyond that will help you develop as a marketer and as a leader.

Dedicated to developing your skills and helping you achieve marketing excellence. Find guidance on leadership, professional development and the latest industry jobs.

Having problems?

Contact us on +44 (0)20 7292 3711 or email subscriptions@marketingweek.com

If you are looking for our Jobs site, please click here