Trust is an important component in business relationships, and especially in professional services. Companies employ lawyers, accountants, management consultancies and other advisers for all sorts of reasons, but the expectation of trust will play a role in every appointment. Clients rightly expect their strategic partners to identify any conflicts of interest that may compromise the partner’s integrity. Long-term relationships are built this way.
There has been a lot of recent comment in the advertising industry about the perceived erosion of trust in client/agency relationships, especially in media. The recent report from K2 Intelligence on behalf of the Association of National Advertisers (ANA) in the United States went a long way to exposing the often undisclosed ways that media agencies make additional revenue from handling client budgets, and helped to explain why advertisers feel that there is a growing conflict of interests between their media agency’s duty to them as client and to the agency’s holding company. The report can be downloaded here.
The growth of arbitrage
This is exacerbated by the increasing incidence of ‘principal’-based media trading, where the media agency groups essentially sell media to their clients through a series of linked transactions, much of which is invisible to the client. ‘Agency’ versus ‘principal’ media trading is now a major bone of contention for advertisers, who do not generally understand the difference. This was highlighted in the K2/ANA report (section 4.1.3).. It is a natural expectation among clients that their media agency will only ever act in the client’s best interests, and will say if this isn’t the case.
However, it is clear from the ANA study, that clients can no longer automatically expect that their media agencies will always put the client’s interests first.
This poses a real dilemma for the media agencies. They have long aspired to be considered a strategic partner for advertisers, advising them on a broad range of communications subjects in the multi-channel age. Media is now a major subject for brands, with social media in particular a key part of their customer experience strategy. The media agency groups like to see themselves as trusted advisors in a critical subject matter.
It’s hard to see how they can achieve this aim while operating in an untransparent way. Clients need to know that there are no hidden areas when appointing a professional service provider, and expect full transparency. For example, if their preferred law firm encounters a conflict of interest, they expect it to be brought to their attention without having to ask.
It’s not in the contract
Another issue that damages trust that was clear from the ANA study was that the media agencies deem their contract with clients to delimit their responsibilities (section 4.1.2), whereas clients see the relationship as one based on good faith beyond the contract. It’s what they should expect of a trusted advisor.
Clients also expect their agencies to voluntarily comply with their mutually-agreed contracts, with spontaneous notification of non-compliance. They also expect their agencies to facilitate contract compliance verification, without artificial barriers to the client’s ability to independently monitor compliance.
Media agencies complain as being seen as ‘vendors’, and yet this is what they are increasingly becoming, not just through a lack of transparency but through ‘principal’ trading. If they aspire to being trusted advisors, they may have to choose to only transact as agents, and this could lose them the additional margin that ‘principal’ trading can deliver (section 4.3.1).
Another common complaint from media agencies is the e-bidding process in some tendering competitions. These are generally not especially popular in any professional services environment, but media agencies have to accept that such processes are a part of the sourcing process in the internet age, and are designed to provide a level playing-field. In themselves, they rarely predominate over other selection criteria. E-bidding is here to stay and media agencies need to respect the clients’ wishes when it comes to their use.
Furthermore, media agencies who act as vendors through principal positions, especially where the client’s transparency rights are restricted through ‘opt-in’ agreements (section 4.3.1) can barely complain that e-bidding features in clients’ decision-making.
Driving transparency and Trust
Being a good business partner to a client is built on trust, and trust is achieved through a relentless focus on the client’s business. It is hard to achieve that focus and also limit its scope.
If the media agencies still aspire to be partners not vendors to clients, they must learn to embrace transparency and be committed to it, beyond the ambit of the contract. They have to accept that ‘principal’ trading can lead to conflicts of interest, and therefore avoid it when it does, and rationalise it where no conflict exists.
They have to demonstrate that media plans have been constructed without consideration for agency margin, and prove it.
They have to provide full transparency into the technology and data being employed on the client’s behalf, with as much detail as the client specifies, including all the relevant costs.
They also have to accept that contract compliance is an absolute requirement for clients, not a subject for negotiation.
All of this used to be true before media agencies became the large global entities they now are, with major profit responsibility for the holding companies. There is no reason why the media agencies’ intrinsic duty to their clients should have changed.
Yes, of course it means that the agency business model has to change. Fee structures need to be recast, advertisers need to get used to transparent agency charging and compare it to its untransparent predecessors. The industry has to get used to operating in a transparent world.
If this doesn’t happen, there is little chance that media agencies can aspire to emulate other professional sectors and truly become trusted advisors to their clients.
All of this is happening at a time when other professional services firms are entering the advertising sector. The management consultancies and accountancy firms are investing in marketing businesses that may challenge the hegemony of the major marketing communications groups.
The new players already enjoy the trust of the senior managers within client companies, and can use this as a springboard for other services. It doesn’t take a giant leap of imagination to forsee these new entrants offering fully transparent media planning and buying in digital. The technology is freely available to enable them to do this.
The media agencies may see new competition for media services if they choose not to embrace the advertisers’ expectations of transparency. The re-establishment of trust will only come if the media transparency issues exposed in the ANA study are addressed by the media agency groups and not swept under the carpet.