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Media Rebates/Incentives Require Full Transparency

July 16, 2012

By Bill Duggan, Group EVP, ANA

The industry practice of media companies providing rebates/incentives to agencies for referring or influencing client spending towards that media company, and then the agencies not reimbursing those funds to the client, has long been acknowledged as a common practice outside the United States. However, a recent ANA/Reed Smith survey confirms that this practice also exists in the U.S.

Awareness of the industry practice of media companies providing rebates/incentives to agencies for referring or influencing client spending towards that media company, for the U.S. and then elsewhere in the world, is 28% and 32%, respectively. By rebates/incentives we are referring to money paid or volume discounts granted by a media company to an agency that are not reimbursed to the client.

In the U.S., television and radio were identified as the media where such incentives are most likely to take place. But all media identified in the survey — magazines, newspapers, online, outdoor, radio, television, and yellow pages — is believed to have some level of rebate/incentive activity.

For business here in the U.S., survey respondents overwhelmingly believe that agencies should not keep rebate/incentive dollars. Eighty-five percent of respondents believe that agencies should not keep any rebate/incentive dollars and should remit all such dollars to clients.

The majority of respondents (63%) also believe that agencies who accept rebate/incentive dollars from the media here in the U.S. may not be objective with their media allocation recommendations.

Thirty-four percent of respondents identified having specific language in their U.S. agency contract(s) stating that any rebates/incentives resulting from their business be returned to them in whole. One percent have language specifying that rebates/incentives be returned in part. Almost 40% don’t know or are not sure if their agency contracts have such language.

Thirty percent of respondents report that they conduct periodic audits to ensure that undisclosed rebate/incentive activity is not occurring with their agency.

Implications

Marketers need to be aware of this issue of media incentives/rebates and know that the practice isn’t limited to faraway places like China and Brazil — it is happening here in the U.S.

Barring any up-front agreement to the contrary, best practices suggest that (1) the entire benefit of media incentives/ rebates belongs to the marketer, and agencies need to be completely transparent regarding any incentives/rebates received; (2) marketers should have clear language in their agency contracts specifying how whatever form of rebate made on their business will be handled or allocated; and (3) marketers should consider periodic audits to ensure that unauthorized incentives/rebate activity is not occurring.

Contractual language should also be at both the agency and holding company levels to address “global” advertising arrangements and ensure the fair share allocation of total agency incentives/rebates, and outline the process to reallocate those dollars to a specific client.

This is an issue about transparency. Personally, I am surprised that media rebates/incentive activity, unreimbursed to the client, is happening here in the U.S. Clients need to be aware of this issue and have frank conversations with their agencies.  And agencies must be transparent with their clients.

The ANA white paper on this issue is available at www.ana.net/rebates.

 

 

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