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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?