Across all sectors and in all markets, marketing directors are now under pressure to do more for less. As a result, budgets are being assessed and squeezed in granular detail.
But focussing entirely on the bottom line is dangerous, because other factors can quickly come into play. When you’re being tasked with cutting your advertising spend, your media relationships can also be affected. The trick that most marketing directors miss is finding a way to reduce marketing costs without losing the quality of service from media agencies.
In this article, we’ll show you eight ways to keep your finance colleagues happy by reducing media costs while simultaneously ensuring your media service remains unaffected by skilfully maintaining your media agency relationships.
8 marketing procurement strategies to use
1. Make sure you have a best-in-class media contract
Developing a best-in-class media contract and making sure all your media agency relationships are governed by it relies on one thing: you need to take control from the start. You should be proactive in your approach here. Don’t rely on your agency to supply a contract: it is crucial that you, as the client, are in control of the terms and conditions from the outset.
Two elements are essential in your final agreement. First, your agency should be operating as an Agent, not a Principal. This forces the agency to disclose all prices and discounts on your purchased media. When the agency acts as a Principal, they are under no such obligation – meaning you could be overcharged, or miss out on AVBs, without ever knowing. Media transparency effectively disappears.
Secondly, you should also have full control of the use of proprietary media. This is another critical step in ensuring ongoing media transparency.
2. Get media cost and quality commitments / guarantees
When you negotiate your media agency contract, make sure the contract details the cost and quality KPIs that your media agency makes during its pitch. These KPIs should be broken down by media channel. Your contract should also include a set of indices needed for like-for-like comparisons. By outlining all of these details in your contract, you are able to hold your agency to account in a crucial area of your advertising spend.
3. Get AVBs commitments / guarantees
Outlined as a percentage of your net media spend and split by media channel, AVB commitments in your media agency contract are a major step to ensuring ongoing media transparency throughout the relationship. They also ensure your spend is minimised wherever possible, by providing you with the discounts that may otherwise be kept by the agency.
4. Get digital media technical cost guarantees
According to several industry studies, less than 50 cents of every dollar spent on digital promotion goes to the actual ad display. So more than half of your spend is not doing anything of direct impact to your bottom line. Instead, it is covering technical costs and agency fees, such as ad serving fees, demand side fees, supply side fees, viewability tracking fees, and brand safety and ad fraud detection fees.
This is an extraordinary accumulation of extra costs, and a clear opportunity for media costs to spiral. At the same time, it is also an area ripe for potential media savings. Getting digital media technical cost guarantees included in your contract prevents these media costs rising over time.
5. Get service quality commitments
We’ve lost count of the number of advertisers we’ve seen who, during the pitch process, have been blown away by the quality of a media agency’s staff and expertise. Putting our business in these people’s hands is, they think, a surefire winner.
But then, once the business is won, those experienced agency figures are never seen again and the advertiser finds itself serviced by younger, inexperienced and less skilled practitioners – all in the name of maximising the agency’s profits.
To prevent this situation, you should secure service quality commitments as part of your contract. You should clearly detail the number of agency staff servicing your account, their job details, the FTE your agency will commit to working on your account, the seniority level and average salary of those workers, the overhead mark-up, and if a profit mark-up is included in the agency’s base fee.
Getting these guarantees helps to avoid the risk of your account being under-resourced to increase the profitability for your agency.
6. Get a savings validation methodology embedded in your contract
How do you assess whether your agency has delivered on its pricing commitments? It’s not an easy task, but it is made almost impossible without having a clear and precise savings validation methodology detailed in your contract.
Outlining all the indices and calculations in full enables all parties to avoid ambiguity and eliminates any room for interpretation. Assessing any savings becomes an objective, rather than subjective, exercise. And by removing that element of subjectivity, you can also avoid conflicts that can arise from competing points of view.
Embedding a savings validation methodology lets you determine whether your agency has met its pricing commitments – and your agency is much more likely to do so, because it knows its moment of reckoning cannot be avoided.
7. Get an effective PRIP scheme
The best way to hold a media agency to account is with the implementation of a strong, robust and easy to understand PRIP scheme. Structure your PRIP scheme well, and it effectively acts as both the carrot and the stick in your media agency relationship.
A bonus mechanism incentivises your agency to deliver its best work, because it knows that it will be rewarded for doing so. Equally, a malus mechanism ensures they are financially punished if they do not service your account to agreed standards.
8. Get your unbilled media back
In some instances, your media agency may not get billed (either in full or in part) by its media supplier for media for which you have paid. This is called unbilled media, and the practice of agencies not reimbursing clients for unbilled media is a potentially significant source of lost funds.
Unbilled media occurs in all channels, and only the sharpest advertisers make sure they include clauses around unbilled media in their media agency contracts. Make sure you are one of them, with a watertight contract that helps to keep your media costs as low as they can be.
Lower media costs and better relationships are not mutually exclusive
Throughout this article, you’ve seen eight areas where it’s possible to smartly cut media costs without reducing the quality of agency management. Acting in any one of these areas will deliver some kind of result. Act across all eight areas, and you are much more likely to enjoy a best-in-class media contract that serves your business for years to come.
An experienced media consultant can help you identify all of these media savings, plus others that are specific to your situation and contractual agreements. At Abintus, for years we have been working with clients like Nike, Philips, and Pernod Ricard by harnessing the experience of our founders Philippe and Tatjana to deliver strategic and systematic improvements to media agency relationships.
Contact us today to book your free media agency contract review.