Two recent Singapore government entity tender awards for media agency work caught my eye for the low commission levels charged by the winning agencies. As a tax payer, I am happy that government entities are no longer seen as â€˜cash cowsâ€™, and are aggressive in using marketplace tensions to maximize their advantages. Here are a few things I hope these entities kept in mind as they awarded the contract.
A low-cost bid in a high-cost market like Singapore means only two things:
- Your media agency is using its other clients to subsidize you.
This is not something you would worry about now.
But soon enough, you will end up subsidising the agencyâ€™s other clients.There will now be a new race to the bottom in local media agency commissions. If I am one of the winning agencyâ€™s clients, I am definitely looking at my contract right now.
- Your agency is going to make money off your spend volumes i.e. rebates & AVBs.
There is no free lunch. The agency will make money off your business. You just wonâ€™t realise or know how this money is being made. The risk of course is that in the quest to turn a profit on your account, the agencies may look to make media decisions based on their bottom-line, not yours.
The government entities have got significant value from the lower media prices & the lowest agency commission. However, they are leaving multiples of that value unrealized on the table.
Define a clear scope of work, have tight commercial terms, pay fairly according to the resources invested by the agency, have a fee linked to KPI, and ensure that you get the most of the intellect, people & resources that media agencies can offer.
Trust but verify. That will unleash the best of what agencies can offer.
The writer is Bharad Ramesh, founder & chief analyst at eMVC-a media advisory firm. He was previously head of trading & partnerships for VivaKi South East Asia, the regionâ€™s second-largest media buying group.