Marketers spend considerable time in internal meetings discussing risk, so you know all about it. If you understand this, then you know how the value chain of advertising really works.
So let’s start at the top with you, the client.
You fight long and hard for ‘your’ marketing budgets. Even more so under zero-based budgeting.
The uncertainties around spending money on most forms of marketing don’t help. Put simply, you don’t know if it’s going to work. Even if it does work, you probably can’t prove whether it was the ad campaign, pricing, distribution, competitor inactivity, macroeconomy, Brexit/Trump, weather or weekends in the month that caused it.
Isolating effect is a big ask, even with econometrics and market mix modelling – themselves both works in progress.
The new(ish) mega media companies create no content of their own, yet profit from that of others and have very ‘modern’ attitudes towards corporate taxation.
Thus the marketer feels they shoulder all the risk. At the point where you commit funds, this is technically true, but in so thinking you dismiss the risks that other parties in the value chain face, and may therefore miss ways to mitigate your own.
The risk for agencies
Next down the value chain, the creative agencies’ headline risks are twofold – keeping up the conveyor belt of new ideas on which their business runs, and good old cashflow. Talent, resource, profile, leadership and management all serve these ends.
Your media agency is a more intriguing beast through the lens of risk. It’s subject to similar tensions but makes almost all its money from transactions, not ideas. In submitting to your (or your procurement colleagues’) demands, it guarantees ever-lower pricing for service and media.
The former is delivered by spreading the leadership team more thinly and by deploying fewer, less experienced people on your business. The risk that it will be insufficient is widespread, one reason so many marketers harbour dissatisfaction with their agencies.
Media agencies recoup the revenue deficit from your diminished fees or commissions through bulk trading commitments to media owners in return for super-keen pricing. This is a big risk they take on your account.
The online risks
The online value chain is more complicated with several additional service layers between marketer and consumer. Data management platforms, agency trading desks, demand- and supply-side platforms, networks and aggregators all take a dip as money passes through. Well under 50% of ad spend manifests as working media.
These companies’ risks lie ostensibly in the development of new tech and of operating in a super-competitive ‘wild west’ marketplace. Yet many of these platforms are assembled from very similar components and are therefore actually quite generic.
These intermediaries can also take a pretty casual attitude towards your risk, so viewability, undesirable ad placement, ad fraud and ad blocking end up being your problem, not theirs. Recent press reports are sobering.
This tech layer faces two serious new risks. Widespread – and in my opinion long overdue – reconsideration of the value of online media, and consolidation.
Finally, the media owners who deliver you the eyeballs you seek. You have a lot in common with them. You make things people (hopefully) want to buy. They make things people want to watch, read or listen to.
Like creative agencies, their primary risk is continuing to do this, in many cases daily.
Their secondary risk is increased competition as more and more media come to market, which has helped big media agencies persuade them to trade in increasing bulk at lower prices, while giving them further rebates as well.
Media owners now find themselves competing with, and regrettably often yielding to, the new(ish) mega media companies. These create no content of their own yet profit from that of others and have very ‘modern’ attitudes towards corporate taxation. And they extract colossal ad revenues by leveraging considerable data-driven consumer insight.
What do you do?
Back in the land of the clients, agency relationships used to last longer that they do today. Yet it can now take many months to change complex agency rosters, piling risk back on the advertiser. I’ve heard many stories of contract negotiations outlasting the relationship they relate to. But to be frank, this is usually down to a lack of focus among the brand team.
So if you understand the value chain and the risks than run through it, you can see how to minimise yours. Three top tips :
- Develop and maintain direct relationships with all key business partners (call them suppliers if you must) – don’t just rely on your agencies
- Develop stronger, franker relationships with the key people at your agencies
- Protect your interests with strong, relevant and regularly updated contracts with your key suppliers.
Bob Wootton was director of media and advertising at ISBA and is now principal of Deconstruction Consulting.