Media negotiations and media buying benchmarking
December 8, 2011
One of the many services we provide our clients is media buying benchmarking. Our methodology looks at not just the discount rate but also the added value negotiated on behalf of the advertiser by the media agency in the context of the media strategy. The purpose of this service is not just to benchmark the agency’s media negotiation and buying, but to also diagnose the cause of any underperformance in this area.
The annual contractual negotiations form the basis of any advertiser’s leverage in the media buying market by ensuring that the full weight of anticipated media billings are used to negotiate advantaged rate positions with each media proprietor.
Whether as a two-stage or three-stage process as described below, the most important incremental values in terms of rate discount and added value aspects will be garnered during this annual negotiation that allows recognition of advertiser commitment.
In the media buying market, as in most markets, volume speaks terms.
In the case of television, there is a clear three-stage negotiating process that the media agency makes on behalf of each of their clients.
1. The media agency (or buying group) size sets the initial discount off base rate (usually known as the ‘ceiling’ for agency-based advertisers). In the current market, this discount is typically between 15-20% off the market ‘casual’ rate (variable on a network-by-network basis) and becomes the media agency’s ‘base rate’ for their client advertisers.
The negotiating ‘clout’ that is used to leverage this negotiation is made up of the combined volume represented by ALL the media agency’s (or buying group members’) advertiser clients.
2. Each advertiser’s individual spending volume then comes into play, as the client- specific discount structures are set based on individual volume or share. At this stage, a number of ‘added value’ aspects will also be built into the client-specific benefits including such things as bonus spots, sponsorship opportunities, position- in-break levels, etc.
This second level of negotiation sets the individual client’s rate structure for the buyers to use and is therefore the most definitive measure in terms of the relative benefit that accrues to each advertiser compared to other competitive advertisers.
3. The actual rate paid on a campaign by campaign basis is the result of the leverage the advertiser’s buying team can bring to bear on top of these first two discount levels in the context of then current market conditions, lead times, placement strategies and a range of other variables that can affect the way they buy the advertiser’s media. Naturally, this process means that the ‘final’ rate position can be variable depending on a range of seasonal, process and market factors.
In all cases, the rates that apply to the advertiser’s business are ‘net’ rates (that may include a rebateable media ‘commission’) and reflect the ‘deal’ negotiated on the advertiser’s behalf with each television network during the second stage as described above.
Importantly, in this country, the practice of ‘space farming’ is illegal and with certain historical exceptions where the miscreants have been caught and charged, is virtually unheard of in today’s market.
[‘Space farming’ means a situation where the media agency negotiates a rate ‘floor’ for themselves with the media that they then ‘mark up’ for each client depending on their volume and the remuneration deal they have struck. This is a practice that exists in some overseas markets but does not apply in Australia.]
The complexity and competitiveness of the television market and the generally high volume of spend in this medium sees the above trading philosophy work well for media buyers and advertisers. The inherent volumes of the media agencies or buying groups bring strong negotiating leverage to the initial deals and this flows on to the individual advertiser client negotiations.
Other media generally lack the volume and complexity to drive the agency or group deal level so in most cases, the process becomes a two-stage procedure that basically reflects the second two stages of the television negotiating process described above.
However, it clearly becomes even more important that the initial contract negotiation is handled effectively to ensure that each advertiser derives maximum benefit from their individual buying volumes and the agency’s expertise in negotiation to ensure the best possible rate and added value deals.
Here again, these contractually based rate structures become the ‘apples with apples’ comparative measure between advertisers as they provide the basis on which each market buy will be predicated. As with television, seasonal and market conditions may vary the final ‘rate paid’ but it will be in relation to the contracted rate set.
There are several different ways to benchmark media buying efficacy. But we have found that this approach allows us to not only provide advertisers with a metric on the current media negotiating and buying performance in the context of their current media strategy, but takes this beyond the relatively one dimensional approach of cost alone, eg. CPM. to provide a diagnosis of where there are opportunities for greater value.