Many people in agencies and the film production industry complain that production budgets are not increasing in line with CPI or costs, but what they fail to consider is the overall context of the production budget, primarily the media investment.

The traditional TV only model



The brand manager has an advertising budget of lets say $3 million per annum. Each year they spend $500,000 on production and the other $2.5 million dedicated to television media over the year. The production cost is 20% of the media investment.

The fragmented media model



The same brand manager is now following a strategy of using multiple media options to target their audience and create a media multiplier effect to increase the effectiveness of the media investment.

Now he has executions across a number of media including magazines, outdoor, internet, and television. The $3 million budget is now split $800,000 for production and $2.2 million for media.

The ad agency argues that the TV production cost should remain the same or increase. But with a production budget of $500,000 for television, the media investment for television is now only $1.5 million with the other $700,000 across outdoor, magazine and internet.

This means that the production cost for television is now 33% of the media investment and now much higher than their competitors.

The arguments for and against

The agency argues that the same or higher budget is needed to create the cut-through and that a decrease in budget will compromise the creative effectiveness.

Meanwhile the media agency is struggling to deliver the reach and frequency objectives across the duration of the campaign. It could be you end up with a highly creative television execution that your target audience may never see.

The problems with this argument:



1. There is no direct correlation between cost and effectiveness. There is evidence to suggest that creative cut-through increases communication effectiveness, but need not impact production cost.
2. If the media multiplier factor works, then why would you over invest in one medium at the expense of the other media productions and the media investment itself? After all, it only appears to be television production where this is critical.
3. If the audience does not see your message, no amount of creative cut-through will make it work.

The solution

In briefing the creative agency, marketers should be very clear on not just the production budget, but give them the media budget and the marketing objectives this budget is to achieve.

While the budget split of media to production (often termed productive and non-productive expenditure) varies depending on category, brand and strategy, we can provide assessment of budget allocation based on our category benchmarks and we often assist in discussion on investment level.

How do you apportion your budget across the various agencies and outcomes?

Media planning and buying are usually undertaken by the media agency, but in recent discussions with marketers here and with global marketers in Europe and North America, there is an increasing question on why media buying should be in the hands of the media agency.

Why?

Two main reasons are:

1. Digital media buying, especially SEM / PPC is cost effectively being brought in house for those advertisers whose investment in this area warrants it.
2. There is a growing concern over the lack of transparency in the relationships between media owners and the media agencies that is often difficult to clarify

So should advertisers explore bringing their media agency functions in-house? And what if any should they take on-board?

There are many examples where major advertisers have effectively achieved this by setting up their own media agency or taken the media planning and buying in house. This has been done to provide greater focus and accountability in this area and is achievable when the media spend is significantly large enough to warrant the investment.

At this point it is important to differentiate the two functions provided under most media agency agreements and that are:

1. Media planning or strategy – developing channel and media strategies and plans against specific briefs to achieve media, marketing and business objectives
2. Media buying or trading – implementing those media plans through negotiation, both annual and campaign based, with media owners to achieve the objectives of the media plan.

There are already a number of services being taken in-house outside of media, such as:

1. Social media management, which allows both corporate affairs and marketing to share responsibilities,
2. Paid and natural search as mentioned earlier, as it allows for a dedicated and focused team to manage the category
3. Video and film production to produce the increased quantity of content, especially for online use, quickly and cost effectively
4. Studio and print services for those advertisers who have reasonable volumes to justify the investment.

So could you take media planning and buying services in-house?

The answer is of course, but should you?

There is a high profile regional retailer Harvey Norman who has taken all of their marketing and advertising function in house including media planning and buying. And at the other extreme many small advertisers also manage their planning and buying in-house, especially when they are using a small number of media. There are also quite a number of B2B clients such as pharma-companies who buy their trade or professional media in house because they often have close industry relationships with the media in the category.

The main considerations if considering bringing any services in-house are:

1. Do you have the volume, not just in marketing, but across the whole business? Often there is a duplication of needs in the various areas of the business and these need to be taken into consideration.
2. Does the company have head count limits, which could mean that you are unable to resource the requirements to the levels required? In one situation we saw cuts made to the marketing team to accommodate the “production insourcing”.
3. Can you recruit the expertise from the market and hold them within the structure of the organisation? In the case of community or social network managers, it is often easy to recruit good implementation resources, but much more difficult to retain high quality strategic skills in this space.
4. Will insourcing these skill sets deliver the savings, control, transparency and / or governance you require to justify the initial and on-going investment? Often what looks attractive up front can become unmanageable and costly if not closely managed.

In specific regards to media, there are definitely opportunities for large organisations to take over the management of their media trading. But they need to plan to resource effectively and put in place suitable measures against performance as they would for an agency. In regards to media planning, there is a significant investment required in proprietary media research and the benefit of the cross pollination of ideas and strategies that occurs in media agencies is hard to replicate within a single organisation.

In many ways this reflects the predictions of media agency PHD and their global strategist Mark Holden in “2016: Beyond the Horizon” where they believe technology will be used to make trading more cost and time efficient, while media strategy will be increasingly informed by data and analytics with insights being drawn by highly skilled practitioners.

Clearly, if this is true, the value is in the thinking, which means that the focus of media agency remuneration will need to change from a focus on buying efficiency to strategy effectiveness.

Our Business Director in Melbourne, Tony Quail, sent me this article from CFO.com with the headline: Finance vs. Marketing - Why they still don’t see eye to eye on measures of return.

I have always been interested in the perception of misalignment between the CFO and the CMO or between the CEO and the CMO, because I believe, like many marketing professionals, that marketing has an essential role in business performance and success.

But yet again, here is research that indicates that marketing has done a poor job in marketing itself to the financial decision makers within organisations.

A study by Marketing Management Analytics (MMA), found just 7% of CFOs are satisfied with their companies’ ability to measure marketing ROI.

Yet 23% of CMOs think they are “doing a good job of measuring returns”.

Lack of cooperation is also hindering efforts to develop ROI measures.

Just 19% of CFOs reported “full cooperation”.

More than 8% report “frequent conflicts with marketing over budget and strategy”.

And 13% reported “no meaningful relationship at all with Marketing”.

Is the perception real? And what can be done to address this?

How important is it for the CFO and the CMO to be talking the same language?

Let me know your thoughts by leaving a comment.

I was having a coffee with a friend who was a recently-redundant creative director at one of the larger agencies around town. He had decided to now go out on his own, funded by the redundancy package from the agency. And while in the past he would rib me about “lowering the quality and price of television productions” I suddenly had something he needed and that was advice on how to calculate “charge out” rates. (i.e. What rate per hour he would need to charge out himself and others to make profit).

I pulled out my iPhone and started to show him the TrinityP3 Resource Rate Calculator Business App available from the iTunes App Store.

Taking him through the steps and how to use it, he looked at me and said “I wish I had this to negotiate my pay rises with the CFO at the agency”. Looking at him quizzically, he went on to explain that for the last three years his annual pay review involved the agency management explaining that times were tough and there were no pay rises for him or his staff. A message he begrudgingly passed on to his creative teams.

However, if he had known about the relationship between salary and billable hourly rates he would have realised that him and some of his staff were being billed at multiples of 3 and 4 times based on the billable hours per annum and salary rates.

This provides a great negotiation point when looking for a salary increase. Using the example in the video above:

An overhead and profit multiple of 2.5 and billable hours of 1650 hours per year means that being billed out at $400 per hour means that the annual salary (cost to business including pension / super and package) should be $264,000.

Try out the TrinityP3 Resource Rate Calculator iPhone Business App. It is free and it could earn you a pay rise.

Let me know how you go.

PS: For those without an iPhone the calculators are available here.

It is constantly amazing the industry media frenzy that is associated with an advertiser reviewing their business. I am sure many marketers wish that their new product launch or their campaign results attracted the same level of media interest that a pitch does. But this is why running a review or agency selection is not something to be entered into quickly.

It is important that before you even contemplate contacting an agency that you agree on some fundamental processes and issues including:

1. WHAT is the purpose of the review
2. WHAT process you will adopt
3. WHO will manage the process, and
4. WHO will be involved in the decision making

For the purposes of this discussion, lets limit ourselves to the process, but we are happy to discuss all of the issues associated with pitching at any time.

Define your requirements – what are you looking for?

The process you adopt depends on the objective of the review and desired outcome. If, as is often the case with Government Communication Campaigns, the desire is to have a creative strategy and execution to a specific brief, then having a group of short listed agencies respond to the specific brief is a legitimate approach.

But it would be worth considering paying pitch fees to compensate the agencies for their efforts and paying fees if you require the agencies to assign their IP to you whether they are successful of not.

But if, as is more common, you are looking to select and engage a provider who will be engaged over a period of time to work with you to develop innumerable communication solutions to a wide number of briefs, then the ability to respond to a single brief or a number of briefs is not necessarily the best process of selection.

A process of elimination – separate the wheat from the chaff

Of course, there is rarely one criteria on which a service provider is selected, and especially not in an area as complex and diverse as marketing communications. Therefore it seems ridiculous to expect a single selection process such as a traditional tender to effectively sort out the preferred provider from the rest.

It makes more sense to have a series of stages that focuses on evaluating and selecting the preferred providers on specific and discreet criteria. In this way you can cast the net as wide as possible initially and then quickly and efficiently reduce the preferred providers down for more detailed and rigorous evaluation.

At the widest point you would look at agencies that have the reputations and experience in the areas you are looking for and then you would next look at their capabilities in more detail through case studies before evaluating the potential relationship chemistry of each of the agencies with the marketing team. Consider this the John West strategy, in that it is the providers that you reject at each stage that make the ones left the best.

The role of workshops – take the agency for a test drive

While creative pitches are still popular in Europe and the US, increasingly marketers and consultants, aware of their limitations are moving to alternatives. These limitations include the risk of providing confidential information to the agencies, not seeing or knowing who is doing the creative work, concerns over the pitch team not being the people working on your business if the agency is successful and the time and cost of the process.

Instead of using creative to select agencies, they are taking the shortlisted agencies (two or three) for a test drive in a full day strategy planning day workshop.

In this way the marketers can see how the agency thinks, but more importantly identify the valuable thinkers within the team as there is nowhere to hide. See how the agency and the client team work together. Ensure the agency supply the people to the planning day workshop who would be working on their business if successful.

Equally the agency can see how the client thinks, works and communicates and the whole process reinforces the importance of relationship compatibility.

What is the industry best practice?

While there are certainly many mistakes to be avoided, there is not one process considered industry best practice either here or overseas. As stated, the right process depends on the purpose of the review or selection process and the desired outcome.

We have extensive experience managing search and selection projects across all marketing communications including creative and digital agencies, media planning and buying, and marketing services including public relations, direct marketing, event management and the like.

In my experience, while understanding the various methodologies and processes is essential, in most cases we customise the process in some way to suit the needs and circumstances of the client.