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.
The importance of chemistry meetings in the advertising agency selection process
December 6, 2011
I was talking with a colleague in the UK about the “pitch” process and he mentioned that they do not run chemistry sessions because “they are a waste of time”. I was surprised and curious. I asked him why and he explained that just getting the agency and the marketing team together to see if they liked each other was rather pointless.
But the point is that chemistry meetings are so much more than simply the business equivalent of a date.
Of course there are procurement professionals who when running an RFP or RFT to select an advertising agency do not bother with any meetings, preferring to choose an agency based on the tender response. But this fundamentally ignores the fact that in most cases you are buying a professional relationship. Therefore it is important to test the relationship and the chemistry of the teams.
Therefore the chemistry meeting is an opportunity for the agency and the marketing team to meet and assess the alignment of values, culture and personality. Interestingly, in these situations you find that most people have made judgements on the chemistry fit within a blink and then spend the rest of the meeting looking for evidence to justify or challenge that instinct.
But these meetings are more than just bringing the two parties together. When we run a chemistry meeting we see this as an opportunity for the marketing team to get insights into what it would be really like working with the agency.
The chemistry meeting takes place following the submission of the credentials documents or the RFI. It is usually 45 – 60 minutes in duration for each agency. Although we had a client who wanted to speed date the agencies with 15 minute meetings. And it is usually held at the clients’ offices.
The problem is that obviously the agency will want to give the best presentation of their team and will be putting on their best performance. Therefore we do a number of things to challenge that performance and potentially let the marketing team see the real agency.
- We are not prescriptive on the agenda or the composition of the agency attendees other than to ask to meet the team they propose for the business.
- We challenge the agencies, to see how they respond to the challenge, but also to test their thinking, strategy and team dynamics.
- We look at how they have planned the use of the time in regards to the content, their use of time, the level of engagement and the team and their participation.
This means that within 45 mins to an hour you have gone beyond simply a meet and greet, which I agree is a waste of time. Instead we have tested:
- How well they have considered and planned for the meeting – it is interesting how many agencies will come to the meeting with no formalised agenda
- How they use time to best effect – so many agencies spend all of the time presenting to the marketing team and no time engaging them
- How well the team perform – agencies will often bring a number of members and then only the CEO talks while the rest stand around like props.
- How they react under pressure – like the time the CMO challenged the premise of a strategy case study that was being presented and the agency CEO turned on them angrily saying “What would you know!”
- How well they know their materials – by asking questions straight from the credentials case studies and no one knows the answer, or even worse do not know the case study.
- How well the agency is prepared – like the agency whose main reason for wanting to work together was the lack of a client from that category on the agency roster.
I have heard about consultants and procurement professionals who place strict formats and guidelines around these meetings. But we have found when asked to do this it becomes a barrier to developing any really understanding of each party. While the whole process is contrived, it is imperative to make the process achieve the most effective outcome possible and the chemistry meeting is an important part of that process.
Do you hold chemistry meetings? And what formats have worked best for you? And what has not?
Top 10 most common ways advertisers waste money
December 4, 2011
While a lot of effort goes into negotiating lower prices with agencies and other suppliers, there is a much larger opportunity in focusing on reducing the waste in the advertising process. Some of these are easy to address, others can be much harder. The first step is to identify the waste.
1. Incomplete or poor quality briefing – if you don’t know what you want or need how is the agency going to know?
2. Being too prescriptive in your requests – you are paying professional rates, treat the agency like professionals and get their recommendations before dictating your own.
4. Lack of confidence in providing feedback – garbage in leads to garbage out in IT and advertising so be careful and concise in providing feedback to the agency.
5. Convoluted approval processes within the organization – every person in the approval process can have an opinion, but in the end the only one that counts is the ultimate decision maker.
6. Poor understanding of the advertising process – can lead to making decisions at the worst possible time in the process. Know the process and you’ll get better results.
7. Having the agency do tasks you should do yourself – as the agency is one of the more expensive outsourcing options and in the end they end up owning that knowledge.
8. Excessive last minute changes – never enough time to get it right up front, but always time to fix it in the end means you end up paying way too much.
9. Changing agencies when you change marketing directors – because the loss of brand and market knowledge within the incumbent agency is one of the great unaccounted assets.
10. Contact TrinityP3 to have your advertising processes benchmarked against the best practices in Australia and find out how you can reduce waste and increase value in you advertising.
Imagine if you could save 10% – 20% of your current advertising spend. What would you do with the savings? Why not comment here and let me know.
Improved creative agency selection using strategic workshops
December 1, 2011
Since 2007 we have been offering our clients an improved and more effective way for selecting their strategic and creative advertising agencies. The Strategic Workshop approach has provided agencies and our clients with a methodology for really being able to assess each other and evaluate more effectively how well they would work together.
Unlike the traditional creative pitch approach or as some call it the “creative beauty parade” where you only get to see the outcome to the brief you provided, our strategic workshop approach really lets you test drive the agency before you make a choice.
The strategic workshop approach differs from the typical creative brief in that when a shortlist of agencies is decided, instead of providing a creative brief for the agency to develop recommendations, we provide the agencies with a strategic problem / opportunity and then undertake a full strategy planning day with each agency. During the strategy workshop the marketing team work with the agency using the agencies own strategic planning process to develop a solution.
- It allows the marketing team to work with the agency to discover how well they work together and see the process unfold before them.
- It allows the marketing team to see how and who in the agency drive the process and insights (often marketers can be left wondering who worked on the idea as in the traditional process this is hidden).
- The marketers get to work with three agencies on a problem or project that is important to them.
- It takes no more time than the traditional process once you account for briefings, question and answer sessions and the final presentations.
- Often the strategy and the concepts are more suitable due to the fact they are effectively co-created as will be the case when appointed.
- Marketers report being able to make more informed decisions on agency best fit.
Both marketers and the agencies that have used the Strategy Workshop process report better and more sustainable outcomes. Even the agencies that are unsuccessful find the process more open and transparent.
How does this compare with the agency search and selection processes you have used? Let me know with your comment here.
The right media strategy is more important than the right price
November 29, 2011
Cheap media can be like discount beef for a Hindu or half price pork for a Hasidic Jew. There is no point saving a fortune on the buy if the product you are buying is wrong for the audience.
Yet many marketers can be so obsessed with how much they are paying for media they forget to consider if what they are buying is right.
Almost anyone can buy for a good price these days
With a collection of major buying groups, client specific media agreements and buying strategies depending on the state of the media market, most advertisers are in a position to buy cost effectively.
In fact, in seven years of media buying benchmarking, the only time we had an advertiser who was buying above the market rate was because they had poor buying processes in place, consistently allowing too little time to effectively negotiate the campaign-by-campaign deals.
Based on this experience, at best, marketers need to ensure they have the appropriate processes in place to ensure they are buying media effectively.
Media options are expanding and changing rapidly
The issue of media strategy has become critical in the face of unprecedented audience fragmentation and the ever-increasing number of media options available to advertisers.
While much of the discussion is about the emergence of the digital platform and the many channel options this has provided, traditional media channels are embracing technology to expand the options they offer. Interactive and digital OOH, print publishers carrying video and television facilitating social media.
The increasing number of new channels and the corresponding decrease in the effectiveness of traditional media means that developing effective media strategies is becoming more complex.
Many advertisers are being left behind in the rapid change
The problem is that many advertisers and their media planning and buying providers are still working within a traditional paradigm. Focusing primarily on media cost overlooks the increasing importance of strategy in ensuring the right media is being selected.
Even at the lowest possible price, the wrong media selection is no bargain.
Therefore it is important to focus on ensuring the right strategy process and resources are in place. The right strategy process delivers maximum value.
About four years ago we developed a benchmarking process to ensure advertisers and their agencies have the most robust and effective media planning and strategy process.
The TrinityP3 Media Strategy Benchmarking evaluates both the advertiser’s process in creating a platform from which the media strategy can be developed and then evaluates the media strategy process to ensure the agency is delivering the full potential of that platform.
Scores are provided for all elements of the strategic process providing absolute clarity on the quality of the media planning process undertaken.
What do you do to improve your media strategy?