There is the joke about two guys on an African safari. Suddenly a huge lion jumps into the centre of the camp and the two start running away from the lion.
One of the guys stops and starts to put on his running shoes.
His incredulous friend asks “What are you doing”.
He replies “I want to put on my Nikes”.
His friend shouts to him “There is no way you can outrun a lion”.
He replies with a grin, “I don’t have to outrun the lion, I just have to outrun you”.
The same philosophy is required to win in the current media trading situation marketers now find themselves in with a soft media market. It is well reported that marketers are concerned about the lack of transparency in media trading with media agencies setting up trading desks to trade media inventory.
Much of this inventory appears to be “bonus” inventory provided by media owners at no cost to the agency networks as part of the sales incentive used by media owners to secure share of market and share of advertiser budget.
While most discussion is about how to stop this practice, this approach is flawed as the situation has been created by a short term view taken by most advertisers to reduce the agency-cost of their media, with the media agencies compliant in this endeavour.
And the only people that seem to be profiting from this strategy are the industry auditors who get paid to go looking for “value bank” of “bonus” inventory and end up only finding refunds due to poor agency accounting practices.
Instead of begrudging the media agencies finding a way of profiting from the soft media market, the focus should be on how to benefit from this “value bank” of media inventory to a greater extent than your competitors and at the same time effectively reduce your media costs.
Most media owners have budgeted into their cost of business up to 20% and in some cases 30% or more of revenue as sales incentives. Compare this to the average fees paid by advertisers to their media agencies, which average at 3% – 5% of media spend globally according to the WFA.
So now the media agency has reportedly hundred of millions of dollars in inventory as a “value bank”. The question is not how to stop this, but how to benefit from this situation and get a greater share of the “value bank” and that is to run faster then your competitors.
The media agencies need to convert this inventory into income. They currently do this by:
- Using it to provide a more competitive buying position to win business in pitches
- Using it to to earn buying performance bonuses by exceeding buying benchmarks
- Using it to achieve total payments based not on cost of media but related to sales or lower cost per acquisition
Smart advertisers are not seeing the inventory as their property and complaining that it should be given back to the advertisers, but work out how to cost effectively get your hands on more of this “bonus” or “value bank” than your competitors.
Here are two ways you can maximise your share of this “value bank” of media inventory:
1. Create significant financial incentives for the media agency to use more of their “value bank” to lower your media cost either against rates card or CPM or some appropriate measure. Spending $50, $100 or even $200 to get $1,000 in additional media above and beyond what everyone else is getting for a similar media spend is a good deal with a 5 times ROI even at the highest spend.
2. If you are in a more direct response category, such as financial services or telcos etc, put the direct response media cost and associated agency fee on a payment per sale. Work out what your typical media and media agency fee contribution to cost per acquisition, year on year, and then provide the agency with the opportunity to earn the media and fee as a payment per sale. This creates an opportunity for the agency to legitimately turn the “value bank” of inventory into cash. Price the level of payment correctly and you will be enjoying lower media costs against guaranteed sales.
There are possibly more ways, but the point is this situation has arisen because of the downward pressure on agency fees and the soft media market. It will not last like this forever, as the economy recovers media owners will be less likely to provide the level of incentives they are now.
Rather than complaining about the situation, the quick and the nimble have an opportunity to yield the benefits of the situation. But of course it is not for everyone. You need to have a very clear understanding of what is your current cost per media and where your buying position stands against the particular market to make sure you get the benefit, rather than just end up overpaying for the agency’s bonus.
So how can you benefit from the “value bank” of media being held by your agency? Leave a comment here or maybe get in touch with me directly to discuss.