The Association of Canadian Advertisers (ACA) is endorsing a series of recommendations made by its U.S. counterpart around the issue of media transparency, but says it has no plans to introduce a similar study of its own.
This week’s recommendations by the Association of National Advertisers (ANA) are aimed at curbing non-transparent media practices. They come on the heels of a wide-ranging investigation, which found the practice of media vendor rebates and kickbacks is “pervasive.”
Judy Davey, the ACA’s vice-president of media policy and marketing capabilities, told Marketing this week it was “no secret” that such rebates existed in Canada, and they are of “great importance” to its members. “We do have a lot of members that are getting rebates back, [but] we also have some members who are not,” she said.
Davey said there was no inherent problem with agencies accepting rebates from media vendors, a practice traditionally associated with high-volume purchases of media inventory. “When it doesn’t go back to members if you have a contract that states it should, that’s when it gets problematic,” she said.
She said rebates were a common practice in several regions including Asia, Europe and South America, but have traditionally been an “under-the-radar” practice in Canada.
The ACA is currently working with its legal department to strengthen the language in its own “Marketing Communications Services Agreement,” a 162-page (non-binding) document that provides guidelines for the client/agency relationship, with sections covering everything from remuneration and expenses to billing procedures.
Davey said the ACA would issue a 5th edition of the guide in “short order,” saying it is a priority for the organization and its members.
The ACA is also sending out specific communication to members informing them an update is in the works. It is also preparing a best-practice document featuring a list of questions clients should pose to their media agency to ensure transparency in future dealings.
The ACA’s reaction follows the ANA’s second report on agency transparency, which contains a long list of recommendations aimed at maintaining a transparent relationship between clients and agencies and countering what it called the “rising tide” of media transparency issues.
The 36-page report, Media Transparency: Prescriptions, Principles, and Processes for Marketers, was developed in association with the independent marketing analytics firm Ebiquity and its subsidiary, FirmDecisions.
It comes on the heels of a damning June report indicating non-transparent buying practices, including free media inventory credits and cash rebates that were not returned to advertisers, were “pervasive” among media agencies.
The study also uncovered rebates structured as “service agreements,” in which vendors paid agencies for non-media services such as “low-value research” or consulting initiatives that were frequently tied to the volume of media spend. K2 Intelligence was informed that such services were used to obscure what were essentially rebates.
Other problem areas identified by the report included the fact that media technology, particularly in the digital realm, could obscure both money and data flows and affect insights, specifically where access to data regarding those transactions is restricted.
While neither report mentioned agency names, the first – based on confidential interviews with approximately 150 people representing a cross-section of the media-buying ecosystem between October and May – suggested the practice was widespread.
The report was immediately debunked by several leading advertising holding companies including Publicis Group, WPP and Omnicom Media Group, with the latter noting the findings were based on a small sampling of unnamed sources.
The ANA said the report underscored a “fundamental disconnect” between advertisers and agencies about the nature of their relationship.
“Opaque business practices, rebates, agency principal transactions and more have shaken the bond of trust between advertisers and agencies,” the report said. “This erosion must stop if the concept of ‘business partnership’ is going to be the basis of future advertiser/agency relationships.”
The ANA said it would attemp to turn the disconnect into a positive connection that would add “material value and deliver positive business outcomes.”
Davey said there were no plans to conduct a similar study of agency practices in Canada. “We know there are rebates happening in Canada, and what we’re doing is taking action from a contractual perspective and answering our members’ queries,” said Davey. “It’s always been something on our radar, but the fact that the ANA went a little bit deeper has brought greater awareness to the matter.”
The new ANA report contains three key recommendations aimed at ensuring “full transparency” between agencies and clients:
- Establish overarching agency management principles that can be easily understood and executed
These include requiring media agencies to ensure “complete transparency” in all transactions with parent companies, subsidiaries, affiliates and third parties. The report suggested agencies should endeavour to achieve the “best available” media value for advertisers’ objectives; execute agency duties in the best interests of the advertiser, and err on the side of “communicating everything” to their clients;
- Establish primacy over the client/agency relationship, and regularly evaluate upgrade internal processes and practices
The report said it was essential for marketers to have a “thorough understanding” of the client/agency relationship and know when the agency is acting on behalf of the client or as a principal representing itself (in which it buys the media itself and resells it to a client).
The K2 Intelligence report said the media sold through principal transactions was marked up anywhere from 30-90%, with sources indicating the buyers were occasionally pressured and/or incentivized by agency holding companies to direct client budgets to this type of media, regardless of whether it is in clients’ best interest.
It said advertisers should view the stewardship of their media investments as a “shared responsibility” with their media agency and affiliated/related parties, and the existing relationship be re-evaluated on a “regular basis” to optimize the business relationship. “It is imperative the advertiser is absolutely clear on when the agency is acting as a principal or as an agent,” the report concluded.
- Create a uniform code of conduct between advertisers and agencies
The code of conduct between an advertiser and its AOR would be mutually agreed to, signed by both parties, and act as an addendum to the master services agreement.
The report also listed seven strategic recommendations aimed at reducing or eliminating potential conflicts identified in the original study:
- Where the agency is acting as a principal versus an agent, the advertiser should have a “disciplined and reliable” process for managing conflicts of interest;
- Advertisers should ensure contracts with media agencies include “robust language” to deliver full transparency;
- Advertisers should insist on “thorough and far-reaching” audit rights including tracking, contract compliance and measuring delivered media value;
- Marketers must implement “disciplined” internal process to deliver contracts that ensure strict accountability, rigorous process governance and senior management oversight;
The other three recommendations contained in the report addressed client ownership of data and technology, advertisers’ stewardship of media investments and fair agency compensation models, and establishing a “culture of trust” between agencies and clients.
The report concluded that the K2 Intelligence report was “serious wake-up call” for the ad industry, highlighting the level of “conflicted and suboptimal behaviours” that developed from advertisers and agencies. “This behaviour corroded the bond that existed between the two constituencies,” the report concluded.
The report said agencies could no longer deny the “rebate issue,” along with a “host” of other transparency-related issues, exists in the U.S. “To continue that denial would seriously undermine any hope of restoring the equity in the client/agency relationship,” it concluded.
