You Don’t Know What You Don’t Know

August 7, 2012

By Bill Duggan

“You don’t know what you don’t know” is my new favorite saying.  Media rebates/incentives, state commercial production incentives, and agency trading desks are all issues that marketers need to know more about as all can impact their bottom line and marketing ROI.

Media Rebates/Incentives
The 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 common outside the United States. However, a recent ANA/Reed Smith survey confirms that this practice also exists in the U.S.

ANA/Reed Smith suggest that (1) the entire benefit of media rebates/incentives belongs to the marketer, and agencies need to be completely transparent regarding any rebates/incentives 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 rebates/incentive 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.

The ANA white paper on this issue is titled “Media Rebates/Incentives Require Full Transparency.”

State Commercial Production Incentives
Many states now offer financial incentives to advertisers to shoot commercials in their states.  Although such incentives originated about ten years ago, more recently they have expanded to additional states and have become increasingly attractive to advertisers.  Savings can be quite significant, often ranging from between 15 to 30 percent of production spending in that state.

ANA’s position is that production incentive rebates belong exclusively to the advertiser, not the production company or the agency, as commercial production is funded by the advertiser.  Advertisers need to beware that production companies in particular are sometimes trying to lay claim to these dollars.

Importantly, contracts with agencies and production companies should be written to reflect the fact that any production incentive associated with the work covered by that contract is the sole property of the advertiser.

More details are in ANA’s position paper “The Found Money of State Commercial Production Incentives."  

Agency Trading Desks
Given the complex nature of digital advertising, there have been intermediaries between clients/agencies and publishers—namely ad networks.  The perspective of agency holding companies is that such intermediaries provide little additive value. Further, ad networks historically have had very high margins (perhaps as high as 70 percent).  Agencies sought to recapture a portion of that margin for themselves and their clients by establishing agency trading desks.

While trading desks can have many benefits (better targeting, richer insights, better ROI) there are critiques as well (lack of transparency, double paying, conflicts of interest, marked-up media, mandates, and rebates).

Clients need to be aware of and understand agency trading desks.  ANA continues to sense a lack of deep understanding, among most marketers, of agency trading desks.

Marketers need to have a transparent conversation with their agency(s) and understand if a trading desk is being used for their business. Understand the business model of your trading desk. Ask your trading desk, “How do you make money? What are the costs for service?  Do you mark-up the cost of media?

ANA’s white paper is “Agency Trading Desks, Basics Marketers Need to Know & Questions to Ask.”

“You don’t know what you don’t know” sounds a little bit like a Yogi Berra line.  Yogi is actually a pretty smart guy.  Advertisers are strongly advised to educate themselves on media rebates/incentives, state commercial production incentives, and agency trading desks.

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