The relationships between chief marketing officers and their agency partners can have a significant impact on overall business performance. Done right, and brands can fly and outperform the market. Done wrong, and there’s the risk of serious wastage. For many businesses, marketing represents the biggest single investment of resources, and the well-established, annual CMO study shows that more than 11% of total company budgets go on marketing today. For consumer packaged goods, this figure is typically as high as 24%.
Marketing spend now includes developing ads with creative agencies, buying ad space via media agencies, investment in marketing and advertising technology to deliver ads, digital posters (out-of-home), TV, social media, mobile marketing, and ecommerce. Increasingly, it also includes marketing analytics to assess and demonstrate return on marketing investment.
The advent and rapid ascendancy of digital and online marketing has made the ecosystem much more complex and challenging to navigate. There are now many more links in the transactional chain between brands and their customers. The chain used to contain just media agencies and publishers. Today, it also includes trading desks, demand- and supply-side platforms, ad exchanges, and ad networks. The opportunity for value erosion exists at every step of the value chain, and in recent years many companies have rightly turned the spotlight on all aspects of marketing investment. Transparency has become the buzzword of the sector, and both procurement and finance departments have started to demand clarity on where their CMO’s money is going, for what purpose, and with what return.
Transparency in the marketing supply chain leapt from the marketing and business pages to the front pages in 2016. Three years ago, the US Association of National Advertisers (ANA) published a ground-breaking study and report on transparency in the US advertising market. For the first time, the study found evidence of non-transparent practices in the country. This included agencies withholding bonus payments that rightfully belonged to advertisers, who fund the whole marketing ecosystem. This made front-page news and rang alarm bells with CFOs around the world.
Marketing leaders from the world’s biggest advertisers stepped up and pledged to tackle the problems that the digital ecosystem had amplified. Procter and Gamble’s Mark Pritchard set out commitments to tackle the “murky at best, fraudulent at worst” marketplace, while his opposite number at Unilever, Keith Weed, declared it was time to “drain the swamp”. Advertiser industry bodies both sides of the Atlantic – with the help of our expert team of contract compliance specialists – drew up model agency contracts to drive transparency into these critical relationships.
And then in 2018, the ANA published a second study reporting non-transparent practices in the production services offered by advertising agencies. The study found evidence, for example, of a production incentive system, providing benefits to agencies choosing particular locations – a scheme that was not transparent to advertisers. As a result, benefits were not being passed back. Following the publication of the ANA reports, the FBI – the law enforcement department of the US Department of Justice – launched an investigation into media buying practices in the advertising industry. That investigation is ongoing and the potential for this to be a global issue has not gone unnoticed.
Transparency in the marketing supply chain is now no longer a niche issue of interest to just CMOs and their teams. The active engagement and involvement of CFOs and procurement teams in scrutinizing all aspects of marketing investment is helping to clean up the space. Where historically CMOs may have protected their personal relationships with agency heads and teams from finance, today they are welcoming finance in to help ensure they get what they’re paying for. And increasingly, client contracts are demanding 100% transparency on every transaction made by an agency on a client’s behalf.
But brands should not be complacent that the transparency issue has been solved, and CFOs have a critical role to play, ongoing, in ensuring that transparency becomes an ever-present in advertiser-agency relationships, and particularly in the contracts between both parties. There’s a balance to be struck between having a friendly relationship and having the wool pulled over your eyes. The ANA reports have shown that it had been too far in the wrong direction for too long.
Finance teams can help CMOs to work only with transparent partners and to reject non-transparent financial models. After all, 11% – let alone 24% – is a hugely significant proportion of turnover that demands proper scrutiny.
By Stephen Broderick, global CEO and managing partner at FirmDecisions, the world’s largest independent marketing contract compliance specialist