Managing Marketing is a podcast hosted by TrinityP3 Founder and Global CEO, Darren Woolley. Each podcast is a conversation with a thought-leader, professional or practitioner of marketing and communications on the issues, insights and opportunities in the marketing management category. Ideal for marketers, advertisers, media and commercial communications professionals.
Lyndon Brill, Senior Consultant at TrinityP3 and Darren discuss the sessions and topics that captured their attention at the annual Advertising Financial Management Conference, this year in San Diego, USA. Covering everything from Block Chain, to Transparency. Bot Fraud to Compensation and more.
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Transcription:
Darren:
Welcome to Managing Marketing and we’re here in sunny San Diego. My guest and I have just completed three or four days at the ANA Advertising, Financial Management Conference and my guest is Lyndon Brill, the brilliant Lyndon Brill who is a senior consultant and financial expert at TrinityP3. Welcome, Lyndon.
Lyndon:
Hi, Darren. It’s good to be here in San Diego.
Darren:
It was actually quite a good few days, wasn’t it? It’s a good conference, the Advertising, Financial Management Conference, isn’t it?
Lyndon:
Yeah, it certainly is and I think especially with all the transparency issues that have been in the market over the past 12 months, it’s really interesting to see where the industry’s moved as a body and where we’re heading into the future.
Darren:
This was your third year, wasn’t it?
Lyndon:
Yeah, that’s correct. My first one was Phoenix a couple of years ago and then we went to Florida last year and now we’re here in San Diego.
Darren:
One of the reasons why I started coming to this is while there’s a lot of marketing / procurement conferences, this is probably the only one I’ve found anywhere in the world that has the agencies, the marketers, the vendors, and procurement all in together—it makes it quite a unique opportunity to find out what’s going on.
Lyndon:
Yeah, it does. It’s certainly important to understand both sides of the story so if you’re coming at it from a marketer perspective or an agency perspective, as an industry we’ve all got to work together and it’s the reason I think it gets such strong support from both sides of the relationship. It’s a great event and it’s always addressing topics that are important to both units going forward.
Pre-conference session on compensation and more
Darren:
So it was actually the first day, the pre-day. The one topic that really stood out to me was David Beals from Jones, Lundin, Beals and Partners; he’s been doing their agency, compensations, trends, and best practices survey for the ANA for years but there were some really good insights from that as far as compensation (I prefer to say remuneration). One of them was the rise again of the commission.
Lyndon:
Yeah, you’ve got to vet how the survey was completed because I think the rise of the commission is slightly confused, I think from creative relationships certainly the retainer or value-based remuneration is taking a strong-hold but the rise of the commission really relates to programmatic trading desks and their relationship with their media agencies being compensated or remunerated by the marketers.
Darren:
My feeling is that marketers still haven’t quite got their head around the alternatives and so commission is almost like the default position that they’ve taken, isn’t it?
Lyndon:
I think where marketers are looking to increase their investment across this area a commission is just easy because it’s basically a user-pays whereby the agency gets remunerated to service the media planning and buying for digital inventory on a commission basis.
But certainly, we’re seeing a push for retained trading desks as the market tries to move into a more transparent era. And certainly, we still believe it’s about value and commissions are not always going to represent the best value for the marketer.
Darren:
Because commissions have always acted as an incentive for the marketers to spend more and you could well argue if they spend more, then the agency has to do more but that’s not necessarily so with programmatic.
I mean they’re certainly setting up the algorithm for the buy and then optimising that over time but when you get down to the price of each individual impression what’s the incentive beyond delivering the lowest impression cost for the agency because there really has to be an incentive to make that as big as possible?
Lyndon:
Yeah, and I think that’s something that we’ve really seen change over the last 12 months that marketers are really trying to get an understanding of the breakdown of the cost of digital inventory. So, in the push towards transparent remuneration agreements we’re now starting to see agencies break down what the fee is for the agency record, what their demands for platform fee is (which can vary depending on which platform they’re using) and also a better understanding of tech costs.
It was interesting; some of the surveys presented at the ANA conference indicating up to 27% of total inventory spend can be spent on tech fees. If you add it all together the whole eco-system, it can be quite inefficient and therefore has a substantial impact on the actual dollars that are actually reaching the target audience.
Darren:
And one of the other things we saw from the results and one of the limitations was that the number of people that responded was about 86 or something and that’s out of a pool of 1,000 companies so it’s actually quite a small sample.
But a real trend away from performance-based compensation, sorry, remuneration.
Lyndon:
Yeah, that came as a real shock because it’s certainly not what we’re seeing in the market. We’re entering into a period now where everything is measurable in the digital space and therefore accountability should be front and centre.
So, as much as the survey said there was a move away from this, it was interesting to note that there was a stat put up on the screen that of the members that were interviewed 62% believed that performance-based remuneration did actually improve effectiveness and results. So, it was a bit of a shock to see that come up in the survey.
Darren:
And what else did you take out of that session?
Lyndon:
Yeah, one of the other interesting things was only 50% of the respondents indicated that they had read the K2 report and interestingly of the people that did read the K2 report more than 50% had actually changed their contractual agreements with their suppliers because of what was identified during the report process.
Darren:
The behaviours were identified and the need to actually change that. Well that leaves a large number, 75%, still need to either read it or take action.
Lyndon:
The report has really helped the industry move forward. There’s been a number of stumbling blocks over the last couple of years of why it’s taking so long for the industry to move forward. However, the K2 report was certainly the catalyst at a global level and marketers have taken action and therefore we’re starting to see a lot more disclosure in contractual terms and agreements.
The state of the marketing union – lack of growth
Darren:
Then, on Wednesday, we got into the actual start of the conference and one of the things I always look forward to is Bob Liodice, the CEO of the ANA always gives, almost a state of the union address as to where marketing is and the big theme that I heard coming out of it is this thought and the numbers about growth and decline.
So, what did you think about that?
Lyndon:
It was really interesting. Bob opened the conference with a quote, which I thought was really great and that quote was, ‘great marketing isn’t great unless it produces business and brand results’ and that’s certainly what we push for at TrinityP3. Performance is imperative to getting great value. It’s not just about costs; it’s about the value that the outcomes of campaigns deliver.
Darren:
He had a fact up there: 48% of the Fortune 500 had shown revenue falls in the last 12 months and it averaged around a 7.3% fall in revenue. That’s pretty shocking, isn’t it?
Lyndon:
That’s a really interesting stat. The big brands really need to be pushing their agencies to concentrate on delivering performance. Another reason the Fortune 500 is being scrutinised is that a lot of smaller companies are coming and disrupting their business model and categories and therefore we’re seeing a substantial amount of revenue coming out of the top 500 and you’ve got these fast-growing tech start-up companies that are really getting big slices of the pie.
Darren:
Do you think that part of the problem is that we’ve seen more than a decade of cost-cutting in marketing? While cutting costs is great to boost bottom line it does nothing for the top line. We’ve actually cut to the point that growth is being compromised. Or is it just the fact that these companies are no longer relevant and they’re not competing so growth is impacted?
Lyndon:
Certainly the old saying, ‘you can’t cut your way to growth’. And that was a big talking point at the conference that innovation really is the key to driving growth and using technology to help grow businesses and grow revenue streams and they’re not specifically in what the business is currently in at the moment.
Where’s the market heading and looking for new revenue streams, and new industries, and new categories because if you’re not innovating you’re certainly going to get left behind.
A lot of marketers out there and businesses need to be taking risks because if you don’t take risks you’ll end up where Kodak ended up in the film industry.
The battle against bot fraud
Darren:
The rest of the market disrupts you and you’re left holding the ruins. Later on that morning there was a terrific session on bot fraud from Michael Tiffany of White OPS. I know you got some real insight out of that, didn’t you?
Lyndon:
Yeah, you spend a lot of time addressing where the industry’s been and the good news is that the industry as a whole is starting to win the war against bot fraud. And also the way that the market is changing and certainly the highest areas of bot fraud are in sourced traffic but the market really is moving towards tightening down and utilising as much as possible non-source traffic.
Darren:
So, just to explain that; sourced traffic is where an advertiser comes along and says, ‘I want to buy 50 million impressions’ and the publisher’s going, ‘Oh, I don’t have 50 million but I’ll just dial up the bots and deliver 50 million impressions’ but they’re not actually real people. That’s basically the fraud that occurs, isn’t it?
Lyndon:
Also setting too narrow a targeting or lower cost per reach is what does support bot fraud. It’s about the quality of the inventory that’s being bought more so than sheer volume of impressions served.
Darren:
It’s funny, isn’t it? We live in a world where we think we can buy volume and quality at lower and lower cost. It’s almost counter-intuitive but that seems to be the direction it’s going.
Lyndon:
The digital supply chain is already extremely complex so it’s really about making sure that as part of your contractual agreements you don’t support payment to bots. So, having terms included in your contractual agreements that only remunerate for impressions that are served to a human.
And certainly we’ve got to continue the push against third-party fraud with the walled gardens of Facebook and Google.
Darren:
The digital duopoly they keep calling it.
Lyndon:
Given that they own pretty much 50% of the digital ad space it’s really important that we continue to push for transparency across the two big players.
Programmatic continues to be problematic
Darren:
Just to follow that theme—on the first day we started talking about bot fraud and we finished the day looking through the financial fog of programmatic with ADFIN Solutions. That was quite an enlightening presentation as well.
Lyndon:
It’s been well presented in the media that approximately 40% of every dollar only ever reaches the consumer audience.
Darren:
The publisher.
Lyndon:
The publisher, yeah. The complexity and fragmentation in the lunarscape is making the whole process inefficient from end to end and therefore there needs to be a continuous push for efficiency not just across agencies but also demand-site platforms the add exchange process, viewability, auditing.
There are a number of different entities at the moment that are extracting fees off of media budgets and therefore I think it’s important that we push to make the process as efficient as possible be it through the introduction of bot chain or the like and also push for consistency in measuring the effectiveness of impressions in the supply chain.
Darren:
I like the idea that programmatic and the digital supply chain started off as an infant and it’s grown rapidly and now it’s in this sort of awkward adolescence where the growth is starting to be questioned and the performance.
There are starting to be rules and I think we’re going to see significant consolidation. That fragmentation that the lunarscape shows – we’re going to start to see the larger players swallowing up a lot of those.
One of the key areas for me is that a lot of the verification companies that are actually engaged in verifying the delivery of performance or delivery of inventory are actually largely working for the agencies and not the clients direct. That seems a little counter-intuitive to me. What do you think?
Lyndon:
Certainly, companies like Integral Ad Science and also Moat and the like are about double verifying and providing analytical data of effectiveness of current digital inventory buying. The validation it provides is also vital for any attribution modelling and the likes as well.
Darren:
But effectively, in most cases, they’re being paid by the agencies that they’re verifying to actually verify them—that seems crazy to me. I don’t know why advertisers are not paying them direct and getting those reports direct.
Lyndon:
That’s correct and at the moment those costs are just wrapped up in the CPM and in a lot of situations the amount that marketers are actually paying for those services is technically unknown. Certainly a direct relationship would be a solution going forward.
Marketing to Millenials who are having children and marrying
Darren:
That brings us on to day two, Thursday and there was a terrific session on marketing to millennials. I found that really interesting. What did you think because neither of us are millennials are we?
Lyndon:
No, we’re not, Darren. Certainly the way that the market is engaging with millennials is certainly changing. Millennials are living in a mobile world these days. The way that marketers, from a comms perspective, can get their messaging across is very different and they expect everything to be tailored. It’s no longer, with millennials, the old days of mass media. They’re looking at very specific comms across the various different channels.
Darren:
They want their experience to be personalised. They want it to be relevant specifically to them, which is quite different. The baby boomers were the products of mass marketing—you know the Marshall McLuhan, ‘the media is the message’ and then you’ve got the Gen X’s that have been the backbone of the economy.
What was interesting for me was that first of all millennials, who everyone is inclined to think are teenagers, are actually now in their 30’s and they’re having families and they’re getting on with life but they’re not following the same linear approach to life. It’s not education, career, marriage, and then children; they’re playing it their own way.
Lyndon:
Yeah, that’s correct. It’s interesting they put up a slide of Maslow’s hierarchy of needs and for millennials the most desired, basic need is Wi-Fi, Wi-Fi, Wi-Fi because they live in a digital world. But certainly for millennials it’s about making sure that customer experience is paramount, that products are engaging and tailored to their needs and this engagement comes across on social –platforms because that’s where the millennials are.
Darren:
That’s where they live.
Lyndon:
That’s where they live these days. There is so much data on millennials because they are using their devices and they’re where the push for artificial intelligence is coming because it really is quite easy to capture look alike audiences as far as in the programmatic space to engage with millennials.
Darren:
It was Jeff who was actually the co-author of Marketing to Millennials and Millennials with Kids. He said that millennial behaviour is actually impacting on the baby boomers and the Gen X. The things that they do and because they’re so engaged in social media and sharing and interacting that they’re actually impacting the way baby boomers and Gen X purchase things as well, which was interesting.
Lyndon:
Because we live an on the go life all the time these days, certainly the uptake of baby boomers on the likes of Facebook to keep in contact—quite often grandparents these days find out what their grandkids are doing more from Facebook than actually having a conversation with their sons or daughters.
Certainly, the uptake of social media platforms, Instagram, Facebook and the like with millennials and the Gen Y’s is certainly a key part of all comms these days.
Could blockchains clean up digital media?
Darren:
So, then there was a session and this was quite interesting because I’ve had lots of conversations about this topic with a lot of people and there’s a lot of confusion. But we had Babs from IBM Corporation talking about Blockchain. Now, I had someone only the other day tell me that they thought Blockchain was just like Google docs and I just shook my head and went ‘oh my god’.
But his big thing was he saw Blockchain could absolutely revolutionise and solve many of the problems about the digital media supply chain, didn’t he?
Lyndon:
Blockchain is an end to end audit system, which basically process-maps all of the different touch points along the way in a transaction from start to finish and I think IBM sees this as an opportunity in the digital media space for marketers to be able to identify right from the time they look to buy digital inventory for instance.
Or where they’re being billed by their agency right through to where the last cent ends up with the publisher and all the different steps along the way be it the demand side platform or the supply side platform and then all the different ad view ability and then the different data tech charges along the way.
So, the opportunity that’s been put on the table by IBM (these things do take a substantial amount of time and investment to set up) it it also requires all partners in the relationship be it the marketer side or the agency side and also the supply side in the digital media space, they’ve all got to work together. And ultimately if they do you’ve got a completely transparent arrangement.
However, I think it’s one of those things that’s going to take a long time to implement. I think probably a bigger catalyst for change in that space is going to be the entry potentially of consultants into the digital buying space, which they’re not currently in.
But I think when they bring that extra competition into the industry the big six holding companies are going to have to become a lot more efficient, a lot more transparent faster because you’ve got big players like IBM, PWC, and Accenture in this space who are notoriously known for being transparent.
Darren:
It’s good you brought up the consulting firms because most people forget that these consulting firms could buy most of the holding companies with their loose change—they’re that much bigger.
You see I don’t necessarily see a holding company embracing Blockchain technology to provide their clients with greater accountability to the transactions but I could absolutely see an IBM or a PWC or an Accenture actually embracing this technology and using that as a way of differentiating their media offering from everything else.
People within a category can never disrupt themselves because they’ve got a legacy buy-in that they don’t want to give up but certainly, as you say, the consultants are not in the media space in any large way to date but if they make that move it could completely disrupt it.
Lyndon:
Definitely. The big accounting firms that are now moving into the digital and technology space like PWC they’ve got reputable brands, they’re transparent, and they support corporate governance and the like and the rigour they put around it (although it will come at a premium—they’re certainly at a premium in the market at the moment—they’re not cheap those business units) but certainly they will push significant change and disrupt the traditional holding company networks.
Darren:
Just to finish off on Blockchain; I hear lots of people trying to describe it and it just confuses the hell out of everyone but in my mind the way to think about it is a block is a collection of information around either a process or an agreement or whatever and that what makes it secure is its position in a chain of these blocks, that each block is verified by where it sits.
And there can be 100’s of 1,000’s of other blocks in that chain so it makes it impossible for anyone to replicate it because to defraud someone you need to be able to change it or replicate it to create duplicates.
The other thing that annoys me is that everyone starts off by saying, ‘’oh, Blockchain technology was developed for bitcoin’ but most people don’t understand bitcoins anyway. It’s like they use a reference point that confuses people in the first place.
Lyndon:
For every transaction in Blockchain there can be literally 1,000’s of audited record points that essentially makes up the whole chain in an end to end transaction.
Having full transparency from the start through to the finish is exactly what marketers are looking for but, as you mentioned before, I think there will be some substantial stumbling blocks with the uptake there from end support from the agencies until something comes along that’s cost effective that will change the direction and the focus to provide transparency and efficiency.
The transformation of procurement from savings to growth
Darren:
There was a lot over the four days about production, which I don’t think we’ll even touch on because it was all about transparency and production and the like but certainly on the last day there were two sessions that really got my attention.
And the first was Mark Passy from Bristol-Myers Squibb who is a marketing / procurement person and he was talking about transforming marketing procurement. I know you had some terrific insights from this.
Lyndon:
Yeah, he actually started as a record producer for about 16 years and then transitioned into procurement but I think one of the key takings from his presentation is that he said as procurement you should treat yourself as the CEO of the business.
You need to consider procurement’s role within the broader business and you need to know when to spend money and support investment but also know when to cut spending in an effective way.
So it’s really about turning the tap on and off and making sure that when you do go and negotiate it’s not so much about the costs; it’s about the outcomes and the impacts that negotiations have. And as long as you’re always thinking about the outcomes and performance– cost is one thing but procurement’s role is to deliver value and performance.
Darren:
Well, it should be except that so many procurement people are brought into marketing with the objective of cutting costs and that’s what I liked about Mark’s perspective. I thought of all of the speakers over the four days he was the only one who really picked up on the point that Bob made on the first opening day about the need to drive growth.
Because that’s what he was talking about: having someone work with marketers that is really focused on making the tough decisions, where to invest, where to cut back, where to look for increased productivity—really start to help marketers pull the levers, financial levers to maximise performance in marketing.
Lyndon:
For a number of years there were challenges between marketers and procurement departments but I think that’s really changed especially with the procurement departments that are really getting away from cost-cutting and focusing on delivering value and performance because ultimately if procurement departments make savings that’s often extra budget that goes into the marketing function.
Therefore they can deliver more campaigns that can help drive sales and deliver that growth and I think if procurement can really grow that relationship with the marketing departments and they work together hand in glove that ultimately is the best outcome because then procurement is really seen as a growth driver the same as marketing, as a business unit, being seen as an investment centre rather than a cost centre, which it used to be seen as.
Darren:
The way I see it, it allows marketers to focus on chasing growth but it then puts the financial management, the underlying investment management with procurement who are then able to perhaps help marketers make decisions about where it’s best to invest and where they should be looking at either pulling back on that investment or making it work harder through increased productivity.
Because I think sometimes marketers are so into the strategy for delivering marketing results that the actual financial management becomes secondary and I think by having that allocated to a procurement person who is also aligned to producing growth you’re going to get a better balance between the two.
Lyndon:
Yeah, and the investment in technology these days is also substantial so the marketer is not only just looking at its brand and comms plan, it’s looking at working with its IT departments and also procurement to drive innovation from a tech investment perspective so procurement can also be a key assister in helping negotiate these kinds of contracts with the likes of IBM and other big tech companies.
A Wall Street view of Madison Ave and the Holding Companies
Darren:
For me the final one (I know there was one more) was the Wall Street view of Madison Avenue and great to hear from Brian Weiser from Pivotal Research who had some terrific insights into the performance of the holding companies.
Lyndon:
Yeah, that was really interesting for the first quarter in North America the big five holding companies actually delivered zero organic growth. It’s a pointless statement; it’s organic because obviously there’s a lot of acquisition activity out there. But he pointed to a number of key reasons why the big five are struggling for growth across this area.
There’s been a big push for zero-based budgeting by marketers whereby there are no committed marketing budgets upfront; everything is looked at from a return on investment perspective. There is certainly the growth of media dollars that are going to the walled gardens of Facebook and Google these days more in the US than Australia for instance.
There’s a lot more in-housing going on be it in-house production or in-house programmatic trading desks for large marketers that have got size and scale to invest in that area and then obviously, as we mentioned before, you’ve got the rise of consultants. They’re certainly competing at a level with the likes of Accenture, PWC, and IBM.
Darren:
I actually liked one of his quotes. He was talking to the CEO of one of the big agency networks who said, ‘oh, we don’t come up against the consultancy in pitches’ and he said, ‘that’s because they’re in the pitches you’re never going to be invited to’, which I thought was insightful but also a bit sarcastic.
Lyndon:
Certainly in the US it’s been there for a little while but the death of the agency of record because marketers are now having a number of partners across this space and then there’s a lot more specialist suppliers that are taking away what was traditionally a creative-led or lead agency-led model or it could also be a media-led model but certainly it’s having a big impact on the holding companies.
And obviously the K2 report coming out last year has had a major impact and people have been looking for alternative options because there was some distrust there but the challenge ahead for the big five or six is to restore that trust.
I think this might be the last year that we talk about the big five or the big six because it’s actually the big ten now because certainly in the digital space now we’re seeing the likes of PWC and Accenture have revenue that exceeds the revenue of some of the big holding companies and that’s going to be a massive transition.
I don’t think it’s going to be long before the consultancies enter the digital buying space. Certainly we’re going to be seeing Accenture or PWC in the top five in the next probably two to five years.
Darren:
In fact, I read about three or four weeks ago, a prediction from one of the MNA specialists that they think one of the small holding companies will get snapped up by one these big consulting firms as a mass buy sort of like WPP picking up STW Group. They’re sitting there waiting for the holding company share prices to collapse and then they’ll just pick them up for the cost of the debt that they hold.
Lyndon:
Certainly, there’s a lot of debt in the big networks because they have been going on aggressive acquisition streaks and they’ve been paying multiples which is more than the market.
Darren:
Their debt to equity ratios are completely out of whack.
Lyndon:
Yeah, that’s correct and with the disruption coming from the consultants and also the technology, the holding companies are really going to have to change their models rapidly or we’re going to see continued decline in organic growth.
Darren:
So, that’s the week we’ve had; no wonder we’re booth feeling a bit tired but it’s certainly been a terrific few days, hasn’t it?
Lyndon:
Yeah, we always look forward to this conference every year. I know I certainly do and it’s really great to get an understanding of where the USA or North America sits, as such a major player in the global market and it’s so relevant to a lot of the global business that we do on a day to day basis.
It’s certainly a great conference and this year we’ve gone from the transparency discussion last year to where the market’s really evolved so I’m really looking forward to where the market moves to in 12 months’ time when we’re back here again.
Darren:
We’ve got 52 weeks of resting up before that, so thanks for coming to San Diego.
Lyndon:
No problem. Thanks, Darren.
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