The rumble in the jungle -- ANA vs. 4A’s

“In this corner… the Association of National Advertisers (ANA) a heavy-weight known for its pummeling attack.  And in the opposite corner the American Association of Advertising Agencies (4A’s) known for quick moves and ability to dodge an opponents attack.”

Media transparency… the issue which has shaken the advertising/media industry this year continues to be a discussion vs. a solution.  But where to go from here?  Is it the 4A’s of ANA’s responsibility to solve the issue?  Or is it the client?  What about the agency?  And how about the media property?

Yes to all of the above.

-       Associations. 

o    The ANA and 4A’s should “attempt” to come up with guidelines for both associations members. 

o    However, I don’t believe it’s possible that they could ever come together with a single guideline document. 

o    Does this take the teeth out of each organization?  Not sure, but time will tell.

-       Clients.           

o    Need to clearly define any financial compensation that the agency receives. This needs to include, but limited to, any cash rebates, discounts, bonus inventory, barter rebate, agency fees, media fees, etc.  

o    Next, clients need to clearly state what happens with those rebates, fees, etc. 

o    Who has to approve all of these compensation opportunities? 

o    It needs to be put in contract language in the Master Services Agreement and applicable across any/all units within a holding company.

o    Get tighter control over tracking of media spend and fees in general.

o    Take a hard look at the compensation model you have setup with your agency – perhaps you need to call off the Procurement Dept. and actually put a bit more money in the agencies pockets. 

o    Consider putting specific contractual language with your main media partners describing your expectations in regards to media rebates, etc.

o    Continuosly audit the agency.

-       Agencies.   

o    Get over it.  You and the clients agreed that a 3^rd party audit was needed.  Now you didn’t agree to agree with the results, but come on, the results are pretty clear.  Just move forward and fix the issues.

o    Speak to your client about your compensation challenges… if the rebates were providing the revenue you needed to meet your financial targets then there’s a bigger issue.  Look most clients actually want you to make money.  But if a client’s procurement department has wacked away all your profit… it’s time to have a serious conversation with the client.

o    Don’t try to get squirm out of the issue with interpretive analysis of legal documents put forth by clients.

o    Be transparent – this is a chance to hit the “reset” button on your client relationships if you work it correctly.

-       Media Properties.  Ahhhh, I didn’t forget about you!  You’re part of the issue as well.

o    Stop playing the victim in these conversations… “I had to do it to get the business.”

o    You need to be transparent with clients on the full compensation picture – rebates, payments, discounts, etc.

o    Make your rate card and prices more transparent.  Break down the costs so clients can understand what they’re paying for. 

o    Stop playing both sides of the fence with the agency and clients.  Stop telling clients how the agency isn’t fair and stop telling the agency the client loved the idea.  You’re feeding the issue.

The Dalai Lama had it right when he said “A lack of transparency results in distrust and a deep sense of insecurity”

See my previous posts on this subject on my Linked page or on my blog.

Scott

My Daddy is Bigger Than Your Daddy

The latest article regarding chest thumping between the AAAA’s and the ANA reminds me of two kids playing on the playground and proclaiming their Daddy is bigger than the others.

The continuing saga of transparency whether media agencies have received financial compensation from media properties has clearly drawn a line between clients and agencies.  Each seems to have taken a strong stance for each organizations constituents.  The AAAA’s issuing transparency guidelines and publicly naming clients and the ANA expressing displeasure  of the client names being released and setting up a confidential reporting hotline.

This entire situation is all about money — plain and simple.  The word transparency is just a substitute for whether agencies or clients receive the proposed media property compensation. 

At this point in the saga, I wonder if any results which come back from the auditors will be accepted by both sides of this issue.  My gut tells me this situation is far from being over…

Scott

Agency Negotiations - Tips

Agency Negotiations are critical to the success of marketing initiatives.  I’ve done a number of negotiations over my career.  Here are a few things I’ve learned.  The below are some thoughts… you are responsible for anything you implement, I’m not responsible for anything you do.

1. Negotiate each price piece separately.  You need to understand the exact costs you will be charge for each function.
2. Salary’s — you do NOT have the right to see the agency’s staff salaries.  But you can identify the salary bands.
3. Identify the definition of each salary band and the number of staff members who will be in each band.  Not the names.
4. Determine the exact number of people on the account — full time, part time, as needed, etc.
5. Provide the agency with a very clear statement of work.  They can’t tell you the cost if you don’t tell them the work.
6. Thus, the statement of work will help determine the resources and allow you ensure you have the right level of staff.
7. Take a look at how Executive salaries and time are applied to your account.  These salaries are higher so the more time on the account the more the cost.  Are you going to be engaging with them that much?  And what type of engagement?  Is it a check in?  If that’s the case, I’d question whether you should pay anything.
8. Overhead — the hidden costs. Understand every single piece of overhead for each office, geography, etc.  Here’s my thought… there are overhead fees which need to be paid, but you should pay your fair share.  Larger clients usually cover a larger portion of overhead vs. smaller clients just based on shear overall billings.  Watch these expense carefully.
9. Rebates.  As I’ve blogged about earlier you must clearly state what your position is with rebates.  Do it in the contract so you’re not dealing with this issues later.
10. Data security and privacy.  You don’t think of this one until either your company data is leaked or your customer data is leaked.  Make sure you are clear as to who has access to your company marketing data.  And I always want my agency to have the same strict data privacy and security rules for any customer data they might possess.  Anything less will probably cause heartburn.
11. Media Rates — are you paying a percent of media only, which covers everything?  Or are you paying a media rate and also a fixed fee for staff.  Or something in-between.  This can get very complicated.  I always like to look at it from different options and see what makes sense — both cost and support wise
12. Individual Media Rates — check out all of the rates for each media type.  Digital, search, TV, etc.  Negotiate them all individually if possible.
13. If you can cut to the chase and get everyone to sing from the same hymnal… get agreement with the agency for a set a profit percentage.  If you get to this, then you need to work on reporting and quarterly adjustments as appropriate, etc.
14. Setup quarterly reviews with the account team, etc.  Discuss performance.  Identify what and how any issues will be dealt with and a correction plan.  these will be carried out.
15. Set the rules — sounds easy right?  Do the advertising, place the media.  But what about entering your ads into award contests?  How about paying for tickets for your staff?  All without your knowledge?  Put some parameters around some of the big areas.  You won’t get them all, but everyone will know your intentions.  Also, make damn sure your staff is aware as well to avoid the “didn’t know syndrome.”
16. Bonuses. Just like your employees, bonuses will probably be a form of most agency staff compensation packages.  This one gets tricky… is the agency responsible to pay for this out of profits?  Or, should it be something which is worked into the overall compensation you pay the agency.  I’ve done it both ways.   
17. Clearly identify the business performance metrics and apply these to the agency’s performance metrics.  Get the scorecard defined, agreed upon by all and put in the contract.
18. kick backs or added fees preferential vendors
19. Always have the right to audit every single dollar and invoice which flows through your account.  Get the agreement on how many times an audit can take place, but the circumstances, scope, if any costs will be applied for doing an audit.
20. Procurement.  Have them lead any negotiation, but for God’s sake, keep the pitfalls at bay.  This should not become so intense that you and your agency questions whether they should actually have this relationship.  
21. Don’t get carried away.  You’re not going to get everything you put on the table.  Make it clear with Procurement what you can and can’t live without.  And make sure you understand what Procurement can and can’t live without.  Usually indemnity gets dicey. 
22. Structure.  Lay out your agency organizational structure ahead of time.  This can be an addendum, etc.  But get something down on paper so you understand what/who is being hired, for what positions, who they report too, etc.
23. International aspects.  If you’re an international marketer, check to see if they have translation experience.  Cultural knowledge is key.  Knowing the media within the market.  Don’t get the typically “yes we do that” — get examples, speak to clients.
24. What will constitute past due billing for the client and what the agency will charge you.  Again, they are not your bank.  Pay them on time.  Don’t play the “float” game after you’ve negotiated the time for payment to be received.
25. Make sure the agency is paying it’s vendors on-time for your business.  At one point, media company’s wouldn’t buy media for me, because the agency had not processed previous payments due to them.
26. Professional Agency Negotiator.  This might be a good idea if you or your procurement team are new at these types of negotiations.  Agencies are different than your typical vendors and you need to understand this prior to going into negotiations.
27. Scope of Work — make the scope of work the agency is responsible for very tight.  Make it      clear, understandable, with notes and examples.
28. MSA.  Align your statement of work as close as you can to that of your normal contracts.  One note, media agencies are shelling out a great deal of money to media companies, so pushing the agency’s payment to 60 or 90 days is unrealistic.  I prefer 30 days… an agency is not your banker.
29. How to add in other work.  You want a control point for moving additional work product under an agency.  Hopefully, you’ve already negotiated the pricing, but allowing your entire company to move business around without a control point is problematic.  It’s not that you’re telling people they can’t move the business, but rather, you’re making sure you know what the agency is doing… as this can impact service levels and the like.
30. Indemnity.  I wish I had a lot of input on this delicate topic.  Basically, who takes the blame and is legally responsible.  Experience has taught me this is a mid point type of discussion.  Be smart on what the agency is fully responsible for, but also realize you have responsibility as well.
31. Do NOT have any work start before negotiations are completed and contracts are signed.
32. Don’t screw them — come on, they’re not in business not to make money.  And this is down right stupid.
33. Administration — how solid is their accounting/billing function… how about legal?
34. Meet the entire staff — everyone who will be on the account.
35. Have your finance/accounting department meet with the agency to determine strength in billing function.
36. Legal — same for your legal team… understand if they experience in particular advertising based legal research… and what will be the split between responsibilities.
37. Industry experience — is it important they have it or a nice to have
38. Determine if they are going to bill you for the pitch.  And frankly, you might want to offer to pay each agency a certain amount to offset their costs… it will show a partnership spirit.
39. Find out the exact date that the billing starts — I’ve seen arguments start at the beginning of an agency/client relationship over this very question.
40. Ensure a cultural fit between the client team and agency team.
41. Make it clear when the metrics for performance start… and ensure the agency has the numbers/criteria, etc.  And of course make sure everyone is in agreement on these areas.
42. References — speak to the ones the agency gives you, but research others or past clients and try and connect with them as well… let’s be honest, everyone doesn’t always have a bad experience… but, finding out the warning signs at least gives you heads up when you need to course correct.
43. Don’t be an asshole during the negotiations… respect is critical all around.
44. Set a schedule of when and what you want done during the first 90-120 days. e.g.  when all staff will be on-board, when media is transferred, when international operations will start, when the first campaign will launch, etc.
45. Determine what you own, vs. what the agency owns as it relates to IP, research, modeling, data, creative, etc.
46. Make sure you feel comfortable with account management, research, database marketing, and other disciplines… I always like to have the client teams meet with the agency teams to get a feel of strength/weaknesses, etc.
47. Conflict of interest.  This one is difficult with large holding company’s.  I just like to make sure any of the agencies working on the business do not have a conflict.  
48. International culture experience.  Sounds simple, but having those people in country to advise and work with your country teams is imperative.
49. Working with other agencies/vendors.  Make it clear that everyone will play in the sandbox nicely.  This is your responsibility.  The statement of work needs to be clear, and ensure one agency doesn’t play the blame game.
50. Technology — do they have the proper tech to service your account… how about servers, a Digital Asset Management system, the right statistical modeling software?  And if they don’t, list out your expectations, and find out if you’re responsible for the cost.
51. And speaking of a DAM — make sure YOU own the content on the DAM.  And make sure you own any and all work product.
52. Who’s the “one throat to choke” — you’ll need to know who it is, trust me on this.  And I mean the very top… meet them, know them, etc.
53. What’s the agency’s employee policies as it relates to background screenings, etc.  Make sure they are similar to yours… I once had an agency employee who’s background was flagged by our security team when we did our checks given they were going to be on-site.  You don’t want that stomach acid.
54. T&E — I like to match them identical to the company’s.  Reason?  There isn’t any bitching by your staff when they see an agency person sitting in first class, having a top end hotel room, etc.
55. Define your competition and product categories.  Determine if the agency is in anyway working with those you consider competition.  And if so, are you willing to live with it.
56. Qualify if the agency can pitch others in your category.  There is nothing worse than being dumped by the agency because they went fishing for a larger client.
57. Put in place a time period in which the agency can not work with those in your competitive set.  And make sure this applies to the actual people who have been on your account.
58. Ensure that agency staff must sign confidentiality documents on your specific account information, etc.
59. If the agency resigns the account, determine the time period they will need to continue to manage the account, until a subtle agency is found to replace them.
60. Determine how you will notify the agency of a dispute, the time period associated to fix the issue and ramifications if it’s not fixed.
61. Check if the agency’s holding company is working with a competitor and what your stance will be.  And again, put it in writing.
62. Make sure you inform the agency of special circumstances… the one I always had to deal with while at HP, was agency staff coming into the building with a Dell or Apple PC.
63. New skills — how does the agency staff on top of new skills, products, etc.  For instance do they really understand SEO and social media and the like.  Make sure this is specifically called out and defined.
64. Clearly identify the fee schedule for everything… I mean everything conceivable.  Document everything.
65. Identify when you’ll have discussions on compensation in the future.  Face it, inflation happens and your costs will probably go up at some point.  If you can limit this contractually, all the better.
66. International agency alignment — in Japan, more than likely you’re going to work with either Dentsu or Hakuhodo… their the biggest players.  Make sure BEFORE you sign the contract what those terms are so you don’t have to negotiate again.  And ensure that your primary agency is responsible for and manages that work with the international agencies.
67. Currency buying — ensure you know if the agency is hedging currency for media buys.  And make sure you don’t end up having to pay the price if they hedge incorrectly.  Frankly, I don’t like this practice…
68. Is you're working with an agency who is part of a holding company, it’s probably a good idea to get agreement that the rates you negotiate are applicable across other agencies in the holding company. 
69. These are just a few thoughts, check with the ANA and the AAAA for more information and thoughts on agency negotiations.
70. Finally, this should not be “us vs them” — it really should be a discussion of the needs of each side of the equation.  Respect should be key in all of these discussions.

Good luck.

Scott

Gotcha’s When Hiring an Agency

• Overhead
• This is one of those “hidden” expenses which tend to slip through the cracks when discussing compensation with an agency.  Usually the cost per title/person is discussed and negotiated, but overhead is where the agency makes up or adds profit.  I’ve seen overhead, etc. 32-52% above the cost per person.  The question you should always ask is why am I paying for the electricity when they have a ton of clients…. How is that separated between clients?
• Bonuses
• Look I’m not beyond saying people shouldn’t get a bonus.  But make sure you understand how it’s calculated and the process associated with determining who gets what and the amount.  If it’s not coming out of what you’re paying per person, but the agency profit… they can do and should do what they want.
• Staffing
• Miss-aligned staffing is a big issue.  You have to decide the type of staff you want on the account.  But be wary of high dollar agency executives being billed on the account.  Are they adding value?  Or are they just pressing the flesh?  My starting goal has always been to have 40% on executive billings and the rest on lower level staffers – this way the agency gets off to a good start and transitions quickly.  Then over time, I like to move the percentage split to be 20-25% over one year for executive management and after one year approximately 15% with the rest being staffers. 
• Billing
• Media invoicing usually takes some time to consolidate and validate billing… with some taking 120 days to be completed.  However, having the agency NOT bill you for headcount or media on a consistent basis – or not calling out problems with billing is an issue.  Monthly you should get a list of invoices not paid and the date of the invoice.  If they don’t provide it, make sure you have agreement you won’t be responsible for invoices you haven’t been informed of after 1 year.
• Indemnity
• This is always the “big issue” in all the negotiations.  As clients we want to hold them responsible for everything, and agencies don’t want to be held accountable legally.
• My take – they should be responsible for the work product.  For example if an employee steals code from another company… the agency should take the hit.  However, if the client doesn’t do the appropriate trademark search when the agency wasn’t asked to do so… the client is responsible.
• Also, don’t get so hung up on this… use common sense.  Remember, your legal department is geared to limit as much risk as possible.
• Overstaffing
• Yes, the big issue… let’s get it out on the table.  It’s in the nature of most businesses to add staff to grow.  Frankly, I believe that’s the wrong strategy, especially with the agency.  You should work to decrease the number of staff by 2-7% per year… this forces you and the agency to get more efficient and eliminate non valuable projects or processes.
• Auditing
• You must have the ability to audit at anytime – period.  Naturally, you shouldn’t have access to individual employee’s records, but you should have the ability to look at time cards, etc. 
• It’s a good practice to audit every 18 months – even it’s just a spot audit.
• Also, hiring an audit company experienced in agency audits is a plus – they can ask the tough questions, take the heat with the agency, etc.  Make sure that’s included in the contract as well.
• Reviews
• Quarterly performance reviews are critical!!  Sitting down with the agency team and saying “what could we have all done better?”
• If you don’t do this on a continual basis, improvement won’t happen and you’ll quickly end up in a “blame the agency” situation.  And that usually ends up in an agency review.
• Non-Compete
• Ensure you have a minimum 6 month non-compete regardless of whether you or the agency discontinues the relationship.
• Media
• Consolidated media buying offers clients the benefits of reduced costs as their buys are integrated with other clients.  Here’s the rub… some media outlets will provide additional bonuses back to the media agency buying arm.  Some agencies pocket those bonuses themselves, when they should be split and given back to the client.  Make sure you get those extra media bonuses back in your pocket!
• Make Goods.  Ensure your contract includes the use of make goods prior to utilizing your media budget for the same property.   You’d be surprised how these can become a surprise.