1. The document discusses media transparency and rebates (known as Agency Volume Bonuses or AVBs) in the advertising industry. It notes the complexity of the current rebate system managed by agency holding groups and the lack of transparency it provides advertisers. 2. It provides an overview of how different advertisers react to the issue, from complete denial to demanding all rebates back. However, it notes the legal complexities regarding agency contracts and ownership of rebates. 3. The document proposes a 10-point action plan for advertisers to improve transparency, including clarifying agency roles, defining rebates, negotiating rebates centrally, and ensuring cash/value is returned and reported properly. The goal

1. Media Buying Leadership 2012
Media transparency:
Are you getting enough?
Complacency vs. complexity – or both?
Morten Pedersen, GLUE2020, takes a view on how advertisers and agencies can turn media transparency
and rebates into an advantage, and why having a plan is key to success.
Headline focus any persistent advertiser that wants to A third group of advertisers seems to
If we are to believe the headlines in recent gain clarity. accept that the problem exists, but are
international and regional trade press, unable to quantify the problem and find a
advertisers have never been so Should advertisers care? solution. In a sense they “side-step” and
disgruntled by the opaqueness of the There are few fundamental reasons why try to recover lost value elsewhere, e.g.
media trading system currently used by advertisers should act more decisively on lower fees, free space, free tools and
agencies. And adding the murkiness of AVBs: research, more and smarter resource,
digital trading desks and other digitalized - Most consumer facing companies advantageous payment terms etc. Whilst
seller/buyer platforms, it is no wonder spend 50%-60% of budgets on media “side-stepping” in itself is not a bad
that advertisers ring the alarm bells. buying – making it the single biggest solution for the unaware, it however
But when it comes to actually confronting capital expenditure. These are the merely focus on improving the non-
the issue of surcommissions, surprisingly amounts that AVBs apply to. working budget (less than 5% of total
few advertisers engage constructively - The current economic environment budget), so it can never produce benefits
with their agencies, to ensure reach deals demands that brands achieve similar to the levels that full transparency
that deliver both optimum transparency optimum value and campaign does. Moreover, it doesn’t create an
and value for their brands. effectiveness. And with AVBs often agreeable long-term solution, but instead
representing several $Million, there it temporarily brushes the problem under
An evolving rebate system should be no excuse to leave any stone the carpet (at least until the agency
Going back only a few years, the rebate unturned. contract is next up for renegotiation).
system was still relatively straightforward - Brands should benefit from fully
whereby an annual cash transaction took impartial media planning at all times. Whose money is it anyway?
place between the vendor and the media Unfortunately, when kick-backs are The most common knee-jerk reaction
buying agency. involved this is not the case. from many (ignorant) advertisers is to
Today, agency holding groups have taken - Whilst operating agencies may find state that any money the agency makes
over the management of surcomissions themselves under pressure, holding as a result of placing their clients’ media
and Agency Volume Bonuses (AVBs), and companies many times prefer to find a budgets should be returned to the clients.
they run it through a well-structured, yet workable solution to the rebate Even if this theoretically makes sense,
complex web of sister companies, problem (instead of compromising an reality is that in 99% of cases, the agency
intermediaries, whole sellers, brokers, otherwise healthy client relationship). remains the principal in any media deal
aggregators, and various other third party they have negotiated (in it’s entirety). And
set-ups. How do advertisers react? as the principal, they have the legal right
This evolution has inevitably made it Considering the complexity of the issue to negotiate additional benefits which,
much harder for clients to navigate many advertisers simply refuse to depending on the specific commercial
through (and next to impossible to trace acknowledge that the problem exist (or terms and conditions in individual client-
from an accounting standpoint). they don’t know, which is even worse). agency contracts, they may chose to keep
But more importantly, with more links in In the other end of the scale, few or to pass back.
the supply chain, it has opened the door advertisers have historically demanded It is therefore recommended that
for agency holding groups to build in profit “everything” back, predominantly using advertisers seek advice on specific
margins across more places within in the arguments based on fear and intimidation contractual language, clauses and
chain. where any fraudulent behavior definitions, to ascertain to which extend
Blanketing the whole system with a automatically excludes the agency group they can rightfully reclaim ownership of
“Three Wise Monkeys” policy at central from the agency roster (yet, full value is rebates generated by their agency.
and local level (i.e. speak no, see no, hear rarely returned to the client).
no) furthermore complicates the task for
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2. Media Buying Leadership 2012
How widespread is the AVB issue WHICH MARKETS & MEDIA LOAD THE PIGGY BANKS MOST
Bearing in mind the multiple shapes (allow for local custom and practice)
AVBs can take, and the complexity of
deals negotiated, there are only very few E.g. Belgium, Brazil, China, Colombia,
Selected markets
media and markets in the world where E.g. Argentina, Germany, Greece, Hungary, Philippines, Ukraine,
India, Italy, Mexico, Nordics, Spain, Turkey, Venezuela
this trading system doesn’t overtly play a Poland, Russia, Singapore,
role. E.g. Australia, South Africa, Thailand, UK
Canada, France,
In the US, rebates have caught much New Zealand, USA
more attention recently, and as a result
agencies have started asking clients that
they sign up to inventory management
systems (traditional media and digital). LOW MEDIUM HIGH
This has, in turn, allowed the buying
agency to exert pooled buying, which
Selected media
inevitably has opened the door to Financial Print
additional benefits above and beyond Large national TV
Smaller TV (national/regional)
what clients receive. As expected, the National/Regional Radio
Online Display
Pan-regional TV
upside to this change is that agency deals Pan-regional Outdoor SEO and SEM
can deliver significantly better value than International Print National/regional Outdoor
Specialist Magazines
client deals – the downside is that the Broadsheets
Tabloids/People Press
Sponsorship
buying agency no longer act as an Ambient
“Agent”, but instead becomes the Sources: WFA, GLUE2020 database, industry data Retail
“Principal” in law.
operations. And it helps clients make aware that prompt, upfront and pre-
What is holding advertisers back? decisions based on informed, independent payment discounts are counting against
The single most important obstacle for and carefully measured basis. rebates (specific advantageous payment
advertisers is the lack of knowledge terms are more reliant on client behavior,
amongst the people involved in contract A surefire process and can be "earned" if adhered to).
negotiations. Rarely do advertisers have Advertisers need to know exactly how to
sufficient in-house experience to handle approach the issue, and then build and 3. Align base for calculation
the difficult issue, let alone have people implement a carefully thought-out plan. Once you’ve defined what’s considered a
who can navigate a successful negotiation From two decades experience in helping rebate (and what’s not), you need to make
covering multiple commercial intricacies. clients maneuver though transparency sure that rebate value is calculated using
Then there is the fact that many clients recovery programs, we see the biggest the same base all over the world. As this
worry about destabilizing their day-to-day challenge to any advertiser being the task is a relative straightforward discussion,
agency relationship. This may be right or of always keeping a cool head. Even so, your agency should be able to clarify this
wrong, but is it enough to accept improper the voyage will be rough and onerous for without too much discussion. Things to
business practice? everyone concerned, and it will be filled look out for here is whether the base for
Also, a misconception as to whether the with pitfalls for even the most experienced rebate calculations reflects local
AVBs replace lower agency fees seems to negotiator. terminology, i.e. gross, net, net net, net
exist. From the advertiser’s perspective So to help navigate through a client etc. Once set out in the contract,
this may be a “reasonable” way to look at transparency program, we strongly there should be little room for confusion
things, but from an agency perspective it suggest that advertisers follow our 10- and misinterpretation. Simple step - yet
makes no sense at all as the two revenue point action plan when approaching helps focus the conversation immediately.
sources are in no way directly linked transparency negotiations.
(again, referring back to AVBs being 4. Look beyond the operating agency
linked to working budgets as opposed to 1. Clarify the role of your agencies With the agency world adjusting its
operating agency remuneration). Validate in which markets your agencies operating structures all the time, it’s more
The last thing that holds advertisers back act as Principals in law and not as Agents. critical than ever to secure access to the
from investigating is a lack of openness This is important as it determines who benefits negotiated throughout the agency
and experience. Everyone involved need owns the rebates, and where recovery is supply chain, including agency affiliates,
to remain open to work towards a possible (unless stipulated otherwise in subsidiaries, legal media buying entities,
workable solution that responds to both the client-agency contract obviously). partners, barter companies, digital
the client’s and the agency’s expectations. Once clarified, verify if your interpretation trading desks, brokers, aggregators,
It may take time and efforts, but it is only conforms to local customs and practice. admin companies (financial
by confronting the transparency issue Once clear, this should reduce any knee- intermediaries), holdings companies, and
head-on that light is shed, and jerk reactions from people who don’t know any other entity involved in handling your
sustainable solutions are found. what they’re talking about, and you'll media buying practically or financially. A
have a much clearer view on what’s word of warning; it's much harder to gain
Getting professional help potentially recoverable and what’s not. full access throughout the web of
Unless a company has highly specialist companies without the relevant
media people working in-house, it is 2. Define rebates clearly contractual T&Cs, hence appointing a
highly likely that getting external help The first aspect in any rebate third party auditor in this conversation.
can dramatically improve any clients’ conversation with your agency should be
chances of reaching optimum about the definition of rebates. Once 5. Maximize central vs. local
transparency. There are also many agreed, your contract could then cover off opportunities
operational advantages that should be all the variants, including Agency Volume Once the definitions and the scope are
discounted, not least the consistency of Bonuses, Agency Volume Rebates, extra- clear, it is time to enter negotiations either
messages shared with the agency, as well tipos, extra-primas, end-of-year discounts, centrally and/or locally. Based on our
as the constant disconnect of the surcommissions, bonuses, super experience, and due to the complexity of
transparency negotiation from day-to-day commissions, etc.. When doing this, be the rebate issue, we generally recommend
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3. Media Buying Leadership 2012
that clients handle rebate negotiations to get around this eventuality is to About GLUE2020
centrally – and return of cash/value stipulate in the contract that any local GLUE2020 is a leading-edge consultancy
happens locally. Agencies are more open arrangements affecting transparency and that enables corporations and brand
to this approach so it helps get everyone free space will have to be squared off with owners create, quantify and capture value
aligned (which is critical on such a the central clients (and/or the external from marketing and media investments.
delicate issue). Handling negotiations third party). Entrepreneurial, we defy the old
centrally also gives all parties involved the consulting guard by offering innovative
opportunity to pro-actively manage any 10. Reporting value back into the services that design enterprises and
gaps that may occur between what’s being organization agency relationships of the future. We
offered by the agency and what is really One of the hardest jobs for client help Fortune-500 companies exploit the
being received locally. Also, for the few Marketing and Procurement is to report ever-changing consumer landscape, the
markets where rebates cannot be cash and value add back to risk adverse latest technological developments, and
returned to clients (half a dozen corporate management. To address this, pioneering agency remuneration models.
worldwide), then a centrally managed clients should work with their agencies on
system will help circumvent this issue. addressing this specific issue, with the
outcome being a clear and detailed plan
6. Recovering the cash/value on time showing how recovery will take place, and
The old concept of "we pay back in April how much is owed. The reporting should
after we've received the full amount from happen on a quarterly basis to ensure
vendors" doesn't always reflect what potential gaps/opportunities are identified
happens in local markets. Return dates and corrective action is agreed and
vary by media and by market, so make implemented.
sure your contract is clear on repayment
frequency and dates. Concluding thoughts
Over recent years, high-profile cases
7. Allowing for budget and media mix related to mismanaged rebates have
changes made headline news, most noticeably the
With rebates varying by vendor and Aleksander Ruzicka/Aegis/Danone cases
volume, it is important that clients and in Germany. IPG UK, VivaKi China, and
their agencies establish a clear start point more recently Posterscope US have also
on a per-medium, per-market basis at appeared in the news as a result of a mix
least. A simple excel sheet stipulating of accounting irregularities, malpractices,
budget and rebate levels for each media and personal enrichment – all associated
(sometimes down to vendor basis) is often with opaque media trading systems.
sufficient here. From here-on-in, clients However, there should be no doubt that
should make sure that the rebate this is only the top of an iceberg, and we
calculation system is flexible enough to are yet to see the full extent of increasing
accommodate and (fast) track both budget AVBs.
and media mix changes on an ongoing Agency consolidation will carry on, and
basis. with that, the holding groups will
continue to nurture a system where
8. What’s the best currency? kickbacks and rebates are an integral
Going beyond black and white “100% part of their business model.
returned in cash” mentality remains the If advertisers want to stand a chance and
single biggest opportunity for clients to maintain impartiality and transparency,
improve the value due from rebates. Our they will soon need to start putting their
experience shows that integrating other foot down more than they have done until
valuable assets in the negotiation can now.
really bring massive additional value to This means that procurement will have to
clients' media budgets. From a go well beyond the easy (short-term)
contractual standpoint, clients should solution of cutting fees and receiving (poor
make sure that both cash and value add is quality) free space. But then again,
identified and quantified, and it should be improving transparency is right for so
clear how all value is accounted for many other reasons than just lowering
financially and admin wise. costs; first and foremost rebuilding the
trust between advertisers and agency.
9. Local gentlemen agreements To do all this, advertisers will need to get
When conducting rebate recovery projects, much more acquainted with the ins and
central clients can discover that local outs of today’s media trading system;
clients have over-ruled any international meaning no “false” ignorance, no more
contract arrangement and put a local complacency, and certainly no more
gentlemen’s agreement in place (often monkey business.
linked to exchanging rebates with free
space). Unfortunately, unless this
agreement is monitored down to the
smallest detail, free space received from
such arrangements is inherently much
worse quality than “paid for” space - plus
when an agency is asked to justify the
delivery, the value is often blown up to 2-3
times what it’s really worth. The best way
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