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Media Agency Remuneration Agreements - Global versus Local
 

Media Agency Remuneration Agreements - Global versus Local

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TrinityP3 © Copyright 2013

Global versus Local Media Agency Remuneration Agreements

Total Media Spend - There are economies of scale in media, but not always as much as you may think and not always in the places people look.Therefore many of the principles here can be used no matter what your media investment. From $10 million in media spend to $1 billion in media spend

Media Spend vs. Agency Fee - For large global advertisers, the agency fee as a proportion of the media spend has reduced over time, with traditional media fee half the digital media fee. The difference isdue to the higher resource requirement to spend for digital.

Media Owners Sales Incentives - For the media owners, the proportion of their revenue available to incentivize sales (discounts, rebates, added value, etc.) is more than double for digital over traditional as digital has low fixed cost, making the digital media market more dynamic.

Comparing Agency Fee to Media Incentives - The average agency fee paid by advertisers is very much smaller to the size of the sales incentives the media owners offer to secure a sale. Advertisers should ensure their agency is negotiating more than their fair share of these incentives on their behalf.

Global Economies vs. Local Opportunities - Even with the global media owners selling their media on a market by market basis, there is a very small economy of scale in buying media through a single global media buying agency. However, if you are willing to overlook the inconsistencies in the media planning and buying across markets of various agency networks, then there is a much larger economy of scale in media agency fees.

Global Media Agency or Local? With a global network you can negotiate agency fees as low as 3% and 6% or lower due to economies of scale. But this could come at the expense of the 97% and 94% buying effectiveness as you could end up accepting convenience over consistency.

Are You Still Paying Media Commissions? - While some markets continue to protect commissions (India, Brazil & Canada), most have moved away from commissions with the ANA recently reporting that the media commissions have fallen to just 7% of all media agency contract arrangement.

Most are using a Cost Based Resource Model - The most popular model is a resource cost based model in retainers and fees.Yet this focuses on a cost that only contributes 3% - 6% of the total cost of media. No wonder it leads to questions about resource levels, overhead costs, profits.In fact everything except the media value actually delivered.

Bonuses & Value Based Payment - With so much at stake outside of the media agency fee, compared to the fee itself, why has there been such a focus on reducing the agency cost? Isn’t it smarter to give the agency incentives to raise performance and increase media value delivered?

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    Media Agency Remuneration Agreements - Global versus Local Media Agency Remuneration Agreements - Global versus Local Presentation Transcript

    • marketing management consultantsGlobal versus Local Media Agency Remuneration Agreements TrinityP3© Copyright 2013
    • marketing management consultantsTotal Media Spend There are economies of scalein media, but not always asmuch as you may think andnot always in the placespeople look.Therefore many of theprinciples here can be usedno matter what your mediainvestment.$1 billion inmedia spend$10 million inmedia spend
    • marketing management consultantsMedia Spend vs. Agency Fee WFA 2012Traditional Media Digital Media3%6%For large global advertisers, the agency fee as a proportion of the media spend hasreduced over time, with traditional media fee half the digital media fee. The difference isdue to the higher resource requirement to spend for digital.
    • marketing management consultantsMedia Owners Sales Incentives Traditional Media Digital Media20% - 30% 60% - 80%For the media owners, the proportion of their revenue available to incentivize sales(discounts, rebates, added value, etc.) is more than double for digital over traditional asdigital has low fixed cost, making the digital media market more dynamic.
    • marketing management consultantsComparing Agency Fee to Media Incentive Traditional Media Digital Media20% - 30% 60% - 80%The average agency fee paid by advertisers is very much smaller to the size of the salesincentives the media owners offer to secure a sale. Advertisers should ensure theiragency is negotiating more than their fair share of these incentives on their behalf.
    • marketing management consultantsGlobal Economies vs. Local Opportunities Even with theglobal mediaowners sellingtheir media ona market bymarket basis,there is a verysmall economyof scale inbuying mediathrough asingle globalmedia buyingagency.However, if youare willing tooverlook theinconsistenciesin the mediaplanning andbuying acrossmarkets ofvarious agencynetworks, thenthere is a muchlarger economyof scale in mediaagency fees.
    • marketing management consultantsGlobal Media Agency or Local? WFA 2012Traditional Media Digital Media3%6%With a global network you can negotiate agency fees as low as 3% and 6% or lowerdue to economies of scale. But this could come at the expense of the 97% and 94%buying effectiveness as you could end up accepting convenience over consistency.97% 94%
    • marketing management consultantsAre You Still Paying Media Commissions? 7%ANA 2013While some markets continue to protect commissions (India, Brazil & Canada), mosthave moved away from commissions with the ANA recently reporting that the mediacommissions have fallen to just 7% of all media agency contract arrangement.
    • marketing management consultantsMost are using a Cost Based Resource Model CO$TFTEsVALUEFTEsFTEsVALUE VALUECO$TCO$TCO$T??????OVERHEADOVERHEADOVERHEADThe most popular model is a resource cost based model in retainers and fees.Yet this focuses on a cost that only contributes 3% - 6% of the total cost of media.No wonder it leads to questions about resource levels, overhead costs, profits.In fact everything except the media value actually delivered.
    • marketing management consultantsPerformance Bonuses & Value Based Payment $?With so much at stake outside of the media agency fee, compared to the fee itself,why has there been such a focus on reducing the agency cost? Isn’t it smarter to givethe agency incentives to raise performance and increase media value delivered?
    • marketing management consultantsValue Remuneration vs. Performance Bonus FINANCIALLYMEASURABLESUBJECTIVEHIGH AGENCYINFLUENCE(100%)LOW AGENCYINFLUENCE(0%)DIRECTRESPONSEAGENCYSCORE CARDSALES /REVENUEMODELMEDIA BUYINGPERFORMANCEMARKETINGAND BRANDMETRICSThere are many ways to measure valueand performance in media and marketing.But you must consider the subjectivity ofthese measures and the level of influencethe agency has over them.This will determine the level of risk andreward in developing the model.
    • marketing management consultantsImplementing a Value & Performance Model Example: Financial Services*Media Investment= $100 millionMedia Agency Fee = $2.4 million (incl. 15% profit margin)30% DirectResponse =$30 million50% Network Television =$50 millionThe advertiser had a traditional retainer model based on resource required.Yet we discovered that 30% of their media spend was effectively direct response andthat they measured their TV buying – both of these are ideal for performance andvalue based remuneration. * Actual numbers changed for confidentiality
    • marketing management consultantsA Composite of Fee, Value & Performance Example: Financial Services*Media Agency Fee =$1.36 millionPerformance Bonus –10% of fee or$240,000 at risk with30% upside fordecreasing CPM onNetwork TV.Value BasedRemuneration – made$800,000 of agency feepaid per sale. Plus anadditional bonus forreduced CPA.While the agency base fee dropped 40% this was more than compensated by theopportunity to earn bonuses based on the TV buying performance and share in thevalue created by optimizing direct response sales and reducing CPA.Media Investment= $100 million30% DirectResponse =$30 million50% Network Television =$50 million
    • marketing management consultantsConsiderations on Media Agency Remuneration •  Commissions are out.•  Cost based models most popular.•  Performance bonuses increasingly popular.•  But measures increasingly subjective.•  Global and regional deals deliver fee savings.•  But media value more valuable than fee reduction.•  Consider remuneration based on business & mediavalue delivered.
    • marketing management consultantsFor more information please contact… TrinityP3 Pty LtdSydney+612 8399 0922Melbourne+613 9682 6800Hong Kong+852 3589 3095Singapore+65 6884 9149people@trinityp3.comwww.trinityp3.com@trinityp3www.trinityp3.com/blog/TrinityP3Darren Woolley