Agency Rebate Allegations – “RebateGate”

In the October 20^th issue of Advertising Age, it was reported that the ANA and the AAAA’s have come together to investigate allegations of “agency rebates.” 

Basically, the situation(s) is this:

-          Media agencies purchase media on behalf of multiple clients.

-          Media companies have allegedly provided incentives to agencies for buying more inventory from       them.

-          The agency then received a “rebate” for spending more money with one media-company.

-          Rebates haven’t been passed back to clients but pocketed by the agency.

-          Clients have been kept in the dark for the most part regarding this practice.

This isn’t anything new… it’s been going on for years.  Media audit companies have been pointing it out to clients for a number of years.  And savvy large advertisers have been able to claw those dollars back.

The rebate situation brings up:

1.       Transparency – why haven’t clients been informed of these rebates by media companies and others?

2.       Trust – if the “value” of a media agency is to strategize, plan, measure and frankly buy media at the lowest possible cost for clients… how do I know they’ve been purchasing the right media for my campaigns? 

3.       Motivation – is the agency motivated to meet my needs or thinking about how they can make the rebate?  And, have those fees helped make up the delta for lower costs on media buying fees paid to the agency?

So what to do?

1.       Ask the question of your agency – Are you receiving any rebates from any media partners, vendors etc. for the work you do on behalf of my company?

2.       Hire a media audit company to look at the media and vendor purchases… audit the numbers and report back on rebates and other financial concerns.  Hopefully, a clause such as this is included in your agency contract.

3.       If rebates are found, have the amount calculated by a 3^rd party.

4.       Ask for a rebate check, not media credits or agency fee credits.  A check makes this a clean transaction, getting media or fee credits will just make things more complicated.

5.       Current agency fees – make sure you keep an eye on any additional fees which might start being applied to your bill.  This could be to make up for any media rebates which might be taken way.

6.       Future Negotiations – when you look at negotiating for a new term (or with a new vendor/agency) make sure you understand if fees are going up because rebates might be taken away.

7.       Quarterly Review – if you don’t already do it… start a review to keep this and other potential issues in the windshield vs the rear view mirror.

8.       Provide very clear contractual language on rebates, etc. in your agency contract

9.       Make it known to media companies your input on this situation.  It’s your money the media company gets… so they will listen.  As my Dad would say you need to have a “come to Jesus” conversation with them.

10.   Follow the Money – this is a simple situation to follow who’s getting the cash and why.  Start investigating.  Don’t stop with the agencies … look at media companies as well.

If agencies aren’t transparent with clients… it will eventually come out.  It might take some time…you can run, but you can’t hide.  And if this investigation yields specific names as to company’s potentially involved in the rebate allegation… restoring trust of clients will be tough…and explaining this at pitches is going to be interesting to say the least.

Getting in front of the Marketing community with your cocker spaniel named “Checkers”, getting on TV and saying “I am not a crook” or getting rid of 18 minutes on tape… ain’t gonna work. 

Scott