Last week the Association of National Advertisers issued a study alleging “non-transparent business practices" at media agencies, eliciting strong reactions from the industry. Here’s background and our point of view…
For decades, key opinion leaders in economics, finance, and policy have demonstrated the importance of trust for maintaining a stable economy. On the micro-level, trust is equally vital across all verticals, predicated by transparency in all business practices. So when an ANA member survey four years ago revealed that 28% of respondents claimed American media companies were providing rebates and other incentives for unfairly influencing spend, a flurry of association activity ensued, including white papers, more surveys, and ultimately the highly comprehensive and detailed bombshell report on transparency issued last week.
“An Independent Study of Media Transparency in the U.S. Advertising Industry” was released on June 7, and immediately elicited strong reactions from stakeholders on every side of the issue. Stewarded by the ANA Board of Directors’ Executive Committee and conducted by the independent firms K2 Intelligence and Ebiquity/FirmDecisions, the report was designed to clarify and identify non-transparent behavior, understand the role and level of engagement played by agencies, determine if media plans are being compromised, and evaluate marketers’ practices and policies impacting agency behavior.
Although Richard Plansky, executive managing director of K2 Intelligence insisted in the official press release that the study was “not an investigation or an audit,” and “at the ANA’s insistence, this has never been about pointing a finger at any individual or company,” defensive holding companies quickly lashed out. Publicis CEO Maurice Levy called the report “unfair” and an “unwarranted attack on the entire industry” that had the “potential to cause great financial and reputational damage.” Levy also considered it “shocking” that the ANA would issue such a study without naming specific agencies.
Omnicom also released a statement expressing its “disappointment” with the study, asserting support of establishing media industry standards, and imploring outside legal counsel to ask “the ANA, K2, and Ebiquity to provide specifics on any information their investigation has uncovered relating to Omnicom agencies.” The 4A’s issued its own statement similarly demanding substantiating detail, stressing that “a healthy and constructive debate about media buying can only happen with a bipartisan, engaged, industry-wide approach, and that is precisely the opposite of what the ANA has pursued.”
The association added: “Without an opportunity for agencies to assess and address the veracity of information provided to K2, sweeping allegations will continue to drive attention-grabbing headlines; this does nothing to foster a productive conversation or to move our industry forward and could cause substantial economic damage to all media agencies.” Stressing bias, they warned: “Faced with a report that views media buying from the perspective of only one of the three parties to such transactions, agencies are hard-pressed to defend themselves, which could cause substantial economic damage to all media agencies.”
Backlash and blame have already gone beyond verbiage, as one agency has ironically broken ties with the 4A’s “until they further identify who is in violation, and how they plan to take action.” Client comments have been understandably more sympathetic, and in some instances highly supportive of the study. Leadership from P&G and Unilever “appreciate the ANA’s diligence” and “take the ANA’s findings very seriously.” Despite such strong reactions from both sides of the ad buy, for the time being Wall Street doesn’t seemed to care. But they certainly will if the disruption continues, and revenue gets significantly impacted.
From our vantage point as healthcare marketers, the study is already shaking things up, with pressing questions raised and urgent calls made. Our clients are concerned and wondering: What exactly does the report allege? Was their methodology sound? What should buyers know and expect? How are agencies’ partners responding and taking action? Most importantly, as a media strategist and buyer, what is the Klick Health point of view? So let’s dive into the study, discuss its allegations, implications, and recommendations, and provide our clients and the industry at large with the assurances we all need to proceed.
“Non-transparent business practices” include:
- Took various forms, including cash, free inventory, or “service agreements” for non-media work provided by media companies directly to agencies
- Payment amounts were allegedly based on amount of spend
- Advertisers revealed they did not receive or were in any way aware of these various rebates.
- Rebates allegedly amounted to between 1.67 and 20% of aggregate media spending
- On media sold through principal, transactions ranged from 30 to 90%
- Agencies also allegedly pressured or incentivized media buyers to direct spend to this marked up media
- Was allegedly conducted regardless as to whether such purchases were in the clients’ best interests
- Special Rates
- Agencies also allegedly negotiated separate rates through dual-rate cards with media suppliers when acting as principals or agents
- Conflict of Interest
- Agencies allegedly held equity stakes in certain media suppliers they implored the client to buy from
These “non-transparent business practices” are “pervasive” and “systemic”:
- Covered all types of agencies, including holding companies to “certain independent agencies”
- Covered all types of media, including digital, OOH, print, and television
- Were allegedly a routine part of doing business
- Senior agency executives were aware and allegedly even mandated them as part of negotiated and signed contracts
These “Non-transparent business practices” are at odds with the traditional advertiser/agency relationship:
- Advertisers generally expressed a belief that their agencies were duty-bound to act in their best interests, a business obligation extending beyond agency contracts
- However, some agency executives alleged that their relationship to advertisers was solely defined by the contract between them
- And some even admitted to a direct conflict of interest with their clients
Relatively small percentages of interviewees cited specific reasons for executing “non-transparent business practices” of various form. The study categorizes them into three top-line reasons, including:
Client Pricing Pressure
- Shifting emphasis from campaign strategy and ideation to pricing
- Increasing role of procurement in buying decisions
- Establishing new and more stringent payment terms
- Making upfront demands on cost-savings
- Insisting on a “Get more and pay less” mentality
Media Buying Landscape Complexity
- Increasingly complicated market place ecosystem is difficult for clients to fully understand and monitor
- Lack of client understanding creates opportunities for “non-transparent business practices”
Audit Rights Limitations
- Complexity and confusion surrounding ecosystem often make audits misunderstood or incomplete or both
Outside the scope of its June study, the ANA has compiled a list of recommendations for marketers. The organization is also developing suggested contract language to address media-buying transparency, along with guidelines and recommendations. A full report from Ebiquity/FirmDecisions focusing on contract provisions, principles, and re-establishing advertiser primacy in the industry is coming soon. For now, the ANA recommends clients:
- Re-examine all existing media agency contracts and meticulously review all terms and conditions using “third party” expertise
- Implement media management training, particularly in the areas of contract development and management of the digital media supply chain
- Confirm and reaffirm the basis on which a client’s media agency is conducting media business; ensure full transparency and no conflict of interest
- Assess whether contract terms permit clients to “follow the money” by having full accountability for every dollar that is invested with a media agency
Lack of Transparency
As early responders have already observed, the ANA’s study on media transparency ironically lacks transparency. As the report itself states: “K2 kept the identities of all participating sources—and all of the individuals and corporate entities names in their accounts—confidential from both Ebiquity and the ANA throughout the study.”
Although such an approach seems necessary and appropriate to maintain scientific objectivity and protect respondents, the secrecy necessitates complete trust in a third-party, and removes all accountability from those individuals and corporate entities making the allegations. Given the seriousness and impact of the results, the opacity is cause for concern.
The methodology utilized throughout also remained internal, the study stating: “At all times, K2 maintained complete authority over the methodologies utilized by the study team, as well as full editorial control of this report.” Again, given the sensitivities and implications, a more open-ended and participatory approach could have assuaged alleged bias.
Relatively Small Sample Size
As stated in the study, K2 ultimately conducted 143 interviews from 150 sources. Of these, 117 were directly involved in media buying. And of these, only 59 reported any direct experience with “non-transparent business practices.”
Given the depth and breadth of the allegations, including purported involvement from senior leadership to media teams, a sample of only 59 sources seems small—especially when the results are used to represent inappropriate business practices for media across multiple channels, including digital, out-of-home, television, and print.
Disproportionate Industry Participation
In addition to the relatively small sample size, the study also notes that the degree of participation varied significantly between media types. Specifically, K2 interviewed sources from digital and OOH, but very few from television and print—and none from radio.
Although the absence of “non-transparent business practices” outside of mostly digital admittedly can’t be construed as conclusive evidence that such practices do not exist within the larger media-buying ecosystem—the lack of direct evidence across these other channels exacerbates the limitations caused by the small sample size overall, and the complete lack of transparency regarding surveyed individuals and corporate entities.
Klick Health POV
The Agency of The Future is Here Today
We were founded on the belief that great leadership demands taking on the status quo with innovation and inclusivity. Since inception, we’ve practiced what we’ve preached, exponentially growing from a digitally native startup to a full service healthcare agency of over 500 employees. Our organic evolution has been in parallel to what Eric Topol has identified as the “creative destruction of medicine,” the singularity where science, communications, and technology converge to meet within the Agency of the Future.
Embodying those AOTF characteristics today, we continuously innovate for our clients, explore broader health perspectives, forge industry partnerships, and provide cutting-edge thought leadership. We believe the traditional agency model is broken, genuine relationship-building succumbing to transactional selling based largely on price. The complex, fragmented market place has already exposed the old agency model as dysfunctional, already replaced by technology-driven organizations, such as Google and Apple—and Klick.
Along the way clients have become increasingly knowledgeable and demanding. The insistence on “faster, better, and cheaper” has been augmented with brilliant ideation that demands an entirely new business model and agency structure. At Klick Health, our mission is to synthesize creativity, data, and technology to promise our clients full transparency and measurable results. Since clients have become exactly like healthcare end-users—expecting personalization and progress—our business strategies and practices have similarly evolved.
So in addition to redefining how healthcare is delivered through relentlessly driving innovation, we believe what our co-founder and CEO Leerom Segal has called the power “of individual genius and generosity, talent and tenacity, and undaunted courage to inspire progress.” That spirit of inclusivity explains how we’ve empowered our employees and become one of the best places to work, and compels us to build environments and workplaces ripe for collaboration. These partnerships—with employees, clients, key opinion leaders, and other agencies—are built from the ground up on transparency and trust.
Welcome to the Media Partner of the Future (MPOTF)
At Klick Health, we understand that “media” is not a discrete agency capability or line-item on the tactical spreadsheet. Instead, our ability to understand, identify, target, and engage diverse healthcare audiences with important content is foundational to everything we do. Educating patients and their caregivers, physicians and other health system stakeholders about treatment information demands a strategic approach seamlessly integrated within and throughout creative, data, and technological expertise. As such, we approach media as we do everything else we offer: From the vantage point of relationship-building and proven value.
We therefore analyzed the contentious ANA study through that filter, reiterating that our best chance for success is creating and sustaining long-term relationships. First and foremost, that means being completely transparent with our clients about underlying costs, margins, and markups; revealing any and all commercial arrangements or partnerships with media suppliers; and never compromising the quality of the media and all information about the audience we mean to target. Time and time again, our frankness has engendered the trust necessary for faster growth as our clients look to us for more and better opportunities.
All relationships are built on trust, especially in business. And trust goes two ways, and demands awareness and commitment from both parties. Just as a safety-conscious buyer should be suspicious being directed away from a Volvo toward a Ferrari, clients should become instantly leery if prices mysteriously rise, and their goals aren’t being obviously and effectively met. Clients therefore need to actively seek and hold accountable media partners who similarly insist on reciprocal transparency, and always practice the golden rule: “Do unto others as you want done to you.” The approach demands education, but also discretion.
That also means advertisers can negotiate fees, but in a manner open to learning and understanding what it takes to run a business and be willing to pay for it. Conversely, agencies must share their negotiations and hold themselves accountable to performance metrics, and appreciate how transparency will ultimately pave the way for more business. Bottom line, agencies should treat client money as if it were their own, and be willing to adapt—for example, sacrifice commission rates for time and materials. Advertisers and agencies need to be strong enough to walk away from those partners who don’t have the same level of transparency and commitment to guaranteeing client value.
From a tactical level, rebates are not inherently a bad thing, so long as they are shared with all parties involved. That could mean many different things to different stakeholders throughout the buying process, but all parties need to agree on what they get out of it, and every transaction should be fully transparent to everyone. As a general rule, no media deal should ever be done with a partner unwilling to share their rates, or assure a complete audit of their buys and processes. The onus is on agencies to comply—also on clients to demand and sometimes check that the audits are being conducted, and results remain favorable.
The Klick Health policy is to accept rebates in the form of additional inventory or cash, which are not only revealed to the client but are passed directly back to them. But that’s not all: We structure all deals strategically, and keep ourselves on point by insisting clients judge our performance based on key performance indicators (KPIs), such as overall return on investment (ROI). Insisting clients see all contracts ensures trust, and passing savings back improves our overall results; together, we end up winning by staying true to the tenets of the core advertiser-agency relationship, and continually providing value throughout the process.
Understanding Programmatic Buys
Our opinion is that the “complexity” of programmatic buys should never be an excuse for non-transparent activity. In fact, we believe exactly the opposite: Programmatic or network buys offer you a diverse mix on inventory for average rates, all from a single point of contact. You get easier management and lower costs, but without any guarantees. The decision is therefore whether the simplicity and affordability are worth the risk—you get what you pay for. At Klick, we prefer fully transparent networks, but more to help ensure brand protection than pricing. End of the day, we determine success by comparing cost to results, period.
Maximizing Social Ad Spend
On popular networks, such as Facebook, Klick charges a flat fee, which keeps it clean. And since pharma budgets in social are generally lower than other verticals, the opportunity for free inventory or “kickbacks” is reduced if completely non-existent. That simplicity, transparency, and honesty is reflecting in all our communication with social platform reps, none of whom have ever intimated any sense of bias, conflict of interest, or “non-transparent business practices.” As the social space continues to increase engagement and spend inappropriate practices might manifest—but when and if they do, Klick will be ready.
7 Klick Health Recommendations
The majority of views from all stakeholders seem to be what we at Klick Health already genuinely believe and actively practice: The agency must act in the best interest of the client at all times. Although the ANA study primarily relied on digital whistleblowers, anyone who has ever done a deal with traditional media vendors have had similar exposure, from double-rate cards to other “incentives.” No one should be surprised that at least some “non-transparent business practices” take place. Importantly, given the chaotic and contentious marketplace, the vital question remains: Is your media partner on your side, or their own?
With this spirit in mind, Klick echoes many of the ANA’s own recommendations, seeing them more as routine and standardized best practices, including:
- Define Goals
- Set clear “key performance indicators” (KPIs) that reference the total cost numbers (i.e. CPA, CPC, ROI, etc.)
- Be clear that within that set cost is included all spends associated with the campaign (OOP and fees)
- Set clear “key performance indicators” (KPIs) that reference the total cost numbers (i.e. CPA, CPC, ROI, etc.)
- Be Visible
- Ensure your media partner is completely transparent, with open contracts
- Ensure periodic audits for all costs, including OOP and agency fees
- Be Integrated
- Ensure your media agency has capabilities fully integrated with your campaign strategy, creative, content, and analytics
- Be Smart
- Ensure your internal media managers are well educated on the latest tools and technologies
- Be Honest
- Be realistic about what you will really do, and build in “cheats”
- For example, auditing vendor contracts might not be something that a client really wants to put man hours to
- So place clear intervals where you are shown things like “savings report cards,” imploring your agency to show the value-ads you have received
- Be realistic about what you will really do, and build in “cheats”
- Reward Good Behaviors
- Be willing to reward agencies that meets or exceeding KPIs, whether that be in a performance incentive or additional lines of sight into new business
- Be willing to rebate your clients when they hit thresholds of economies of scale
- Punish Bad Behaviors
- Insist on punitive action for violative vendors
Partner with Klick
Here at Klick Health we live and breathe data, and appreciate the value of accountability and transparency for long-term relationships. Our dedicated media experts are also fully integrating with our client services, strategy, creative, and technology teams to ensure that “media” isn’t a bolt-on capability fraught with confusion and concern, but becomes a seamlessly synergized extension of your overall brand campaign and audience engagement strategy.
Do you trust your media partner? Are they part of the problem, or offering you effective solutions? We’re eager to share everything with you—including the success we will build together. Call us.