How to avoid being "the next Toyota"

The unfolding scandal around Dentsu’s overbilling of long-term client Toyota in terms of digital media spend has placed the industry’s problem with transparency centre-stage. That this problem had gone on undetected for around five years, and may affect more than 100 clients, is baffling to outsiders but sadly familiar to those in the industry. 

While the precise reasons that led to Dentsu’s mishandling of client accounts are still being determined, and may be unique to the agency, the root cause of this incident, and others like, it is the industry’s lack of transparency. 

An internal poll conducted this year by the World Federation of Advertisers (WFA) places concerns around transparency as a high or top priority for 85 percent of its members. “It’s not just limited to transparency across media businesses, but extends to areas such as media transparency and price transparency, for example,” explains Ranji David, marketing director, Asia, for the WFA, adding that there has been significant interest from members around this topic.

Viewability, trackability and transparency are hot topics with senior marketers right now, in all markets, says David Porter, VP of global media, Unilever. “It is clear that brands of all sizes and from all categories are concerned about these issues and are looking to our agency and media partners urgently to raise, and then maintain, standards across the board,” he says.

George Patten, MD and global lead for media management at Accenture, says that transparency is an increasingly prominent issue for clients because it is closely linked to the proliferation of more severe problems, such as ad fraud, or practices that could undermine the brand’s security or reputation. Without full disclosure and tracking by their agencies, clients have no way of knowing how bad things are in the digital space. “We believe it’s a US$7 billion problem with clients losing 30 percent to 40 percent of impressions and click-throughs to ad fraud,” he says.

(Story continues below)

Why now?

The business of media auditing and questions around rebates and transparency certainly aren’t new. Accenture has been in the business for 30 years and Ebiquity, for 20. But the once-straightforward issue of rebates and pricing has morphed into a miasma of complexity and opacity with the advent of programmatic media and the growth of the adtech sector. 

“Programmatic brings many benefits but it is in marketers’ best interests to make sure they stay close to their programmatic programmes and to their digital partners,” says Porter. 

Unilever, he continues, is a strong advocate of fully disclosed programmatic models, and has worked with a variety of trading desks to arrive at the best approach for each market.

As more and more funds move into online advertising — currently around US$200 billion a year globally — this becomes more of a priority not just for CMOs but for the CEO and the CFO, says Nick Manning, chief strategy officer for Ebiquity. 

The recent report on transparency in the industry in the US by the Association of National Advertisers (ANA) and K2 Intelligence has heightened both awareness and paranoia among clients. Following its release major US marketers, including JP Morgan Chase, GE, Sears and Nationwide Mutual Insurance Company launched audits of their agencies, The Wall Street Journal reported in September. 

“The ANA report came as such a shock to the US industry because, while they were aware that such practices took place around the world, they were sure it wasn’t happening on American soil,” says Manning. “The report disproved that.”

Marketers perceive transparency levels in Asia-Pacific as even lower, with each market holding unique barriers to transparency (see box on page 18). Of the major markets, China is probably the worst, says Greg Paull, principal of R3. “There’s so much pressure on media vendors to show business growth, and so much pressure on agencies from procurement,” he says. 

Ranji David: "Advertisers must be more conscientious across contractual
specificities and be meticulous in ensuring these are delivered against."

What lurks beneath

A popular argument agencies deploy against the need for full transparency is value. If a client is getting effective media placement for less money, do they really need to know how that’s accomplished?

But how does a client determine ‘effectiveness’ and the value of ‘less money spent’ without transparency? Quite often, Manning says, clients are offered an ‘opt-in’ contract where the client opts-in on a non-disclosed model with the agency in exchange for a better deal. But the client has no way now of knowing the actual cost of media the agency is purchasing on its behalf, the rebates the media agency may be gaining and the subsequent bias it may have in the deployment of client funds, he explains. 

A simplified example provided in a presentation by Ebiquity shows that in the non-disclosed model, the media supplier could potentially negotiate a deal with the agency’s trading desk that sells its media at, say, US$50. The trading desk then sells it on to the agency at a marked-up rate of $95. In a show of ‘generosity’, the agency waives its commission for the client and passes on the rate of $95 to the client. 

If the client opts for the fully disclosed model, however, then there no special rate is provided between the media supplier and the trading desk. The trading desk passes on the media at a rate of $100 plus its commission to the agency, which then passes it on to the client at a rate of $100 plus its commission as well as the trading desk’s commission to the client. 

On the surface, it would appear the client gets the better deal with the non-disclosed model, but in reality, with the agency managing both ends, it’s truly hard for the client to determine actual value. 

“Within the programmatic space there are challenges where the agency is acting as the owner and are not making transparent what price they’re purchasing media at and what price they’re selling things on for,” says Patten. “We believe clients have to understand at what price media was purchased, and what savings and rebates are being passed, or not passed, on.” 

Another argument against full-transparency questions the client’s rights. As one regional media agency head, who asked not to be named, put it: “When I buy a bottle of shampoo at the supermarket, I don’t ask how much each ingredient costs, the number of hours it took to formulate it, the cost of the bottle, marketing and distribution, and even if I asked the company wouldn’t disclose it to me. Why then does the client get to do this to my business?”

Patten chuckles when this line of argument is put to him. “I’ve heard that one before,” he says. “And the answer is that the agency has a commitment to deliver the best possible media value. It’s one of the assurances clients are purchasing. When you buy a bottle of shampoo, it’s to wash your hair. When you employ a media agency, it’s to deliver the best possible audience for the best possible price. To understand if they’ve been successful you have to understand that part of the equation.”

The question of “best possible audience” is likewise caught up in this tangle. If one media supplier offers a 20 percent rebate, says Paull, and another offers 5 percent, it’s natural for the media agency to want to recommend the former — whether or not it’s in the client’s interest. “Now, if that same client asks me to return rebates, pays me fairly for my services, and offers me a huge incentive for effective and efficient work, then I become a partner and not a vendor,” he adds.

Antiquated contracts

For a worried client, it’s not as simple as ringing up the agency and demanding an audit. Depending on the nature of the contract they have entered into, clients may not have the right to do so. 

“Advertisers must be more conscientious across contractual specificities and be meticulous in ensuring these are delivered against,” advises David. “Clients should view agency reviews, as an opportunity to define and deliver against promised values rather than cost-savings alone.”

It was the need to tighten up contracts that contributed, in part, to the round of global media reviews that took place in the past year. Manning explains that the contracts as they stood may not have extended to all the partners and vendors that the agencies worked with.

David also advises considering whether the problems cropping up are “a case of existing contracts drawn up during ‘simpler times’ not being as robust as they need to be to deal with the complexities of the modern media ecosystem”. 

“These contracts can look almost antiquated when viewed with a modern lens,” she adds.

An industry problem

While the onus currently appears to lie on advertisers to keep their agencies honest — given it’s their marketing investment that’s at stake — the truth is the entire ecosystem must work together.  “Not just agencies, but platforms and publishers as well as advertisers,” says David.

“Where this might have been a responsibility that advertisers would have delegated to agency partners to tackle previously, questions have been asked if all parts of the agency ecosystem necessarily have client interests at heart,” she adds.

Agencies need to start being proactive, says Paull, or risk having work taken away from them. 

“Clients are already looking at setting up data management platforms internally, something they would never have thought of doing five years ago.”  He adds that niggling distrust between agency and client would hamper productivity. “At present agencies are mostly handling auditing internally, or worse, paying third parties to have a direct relationship with them and share data with them. There needs to be third-party auditing.”