Advertisers and their agencies are heading in opposite directions when it comes to working out terms of business to ensure mutually benefits, said a new report from media change consultants ID Comms. According to the 2017 Global Media Terms Survey, agencies are still regarded with suspicion by advertisers.
A number of respondents for the survey said that agencies’ non-transparent income makes it harder to use tools such as fees and terms of trade to incentivise agencies to “behave”. The report, which is based on responses from senior executives from both client and agencies, found 80% of respondents “agreeing” or “strongly agreeing” with the statement that:
Media agencies that are incentivised by fair terms of business with their client, will be more transparent and more aligned to their client’s business outcomes.
The survey also highlighted continuing skepticism around transparency with some advertiser respondents believing that agencies, and particularly holding company behaviour, is more deeply embedded and won’t be changed by terms of business alone. One responded said:
Fees are not as important, media agencies will continue to want to maximise revenues in a non-transparent way regardless.
The study also said that 41% of respondents think it is unlikely that terms of business between advertisers and media agencies will become fairer overall in the next 12 months. 18% of advertiser respondents believe fairness of terms of business will improve but just 3% of agency respondents believe that things will get better.
Tom Denford, chief strategy officer at ID Comms said a clear scope of work, fairness in fees and payment terms and a great contract that protects both sides are the must-have tools, for aligning agencies with advertisers and creating a productive, trusting working relationship.
“However, it’s clear from these results that there remains a huge variety of opinions on what should drive these beneficial behaviours and the other factors that might be in play,” Denford said.
Fees and payments
There was, however, a clear split between procurement folks and agency representatives, with the latter rating both fees and payment terms at 2.6 (where 1 is never fair and 5 is always fair). But, procurement specialists suggested otherwise, ranking the current practice as more mutually beneficial to both parties.
Meanwhile, 52% of respondents believe 0-30 days payment terms on agency fees is the fairest solution. Respondents perceived the fairest payment terms on media inventory to be 0-30 days (35%) or matched to vendor terms (32%).
The payment model that is perceived as fairest is the “fee only” or “fee plus bonus” model, which was supported by 30% of respondents. The next highest scoring model is value/performance based at 21%, followed by hybrid commission and fee at 18%. A return to commission-only payment is supported by just 3% of respondents.
Some client side respondents also say that performance-related incentive plans might be the best way to ensure that agencies are not driven to spend (commission-based) but rather deliver on metrics important to the advertiser. Clients side respondents also said that hopefully, the market push for transparency will bring parties closer together in a true collaboration mode and likewise (encourage) fair remuneration.
This 2017 Global Media Terms of Business survey is the fifth in a series of ID Comms’ investigations into the seven critical media behaviours of successful marketers. ID Comms conducted this research between 2 May and 19 May 2017, and received 102 responses. The respondents comprised of marketing, media and procurement professionals with a range of global, regional and local market responsibilities. 71% were Europe-based, 22% were from the US and Canada and the remainder representing the rest of the world.
Respondents to this survey represent a wide variety of brands in diverse categories including telecommunications, pharmaceutical, food and drink, technology, insurance, fashion, jewellery, automotive, luxury and entertainment. All major media agency holding-groups and some independent media agencies were also represented by the participants of this survey.
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