Do you really want “transparency” from your agency? (TLDR: It involves sharing risk and working harder)

For some time now, clients all over the world – especially in China – have been getting worked up about media transparency. They don’t believe they’re getting it. They keep firing agencies who don’t appear to be delivering it and hiring other agencies, who turn out not to be delivering it either…

As someone who’s run agencies as well as worked at a “media auditor” let me try and reframe this argument and suggest a better way for clients to work in partnership with their agency.

Let me first define “transparency”, since I find most clients aren’t entirely clear what they want when they ask for it. Transparency means disclosure of information – in the context of media buying it means agencies tell clients exactly how much they paid for a specific item of media inventory, which means also disclosing any rebates or other discounts they received for buying it.

Now, that does not imply that the agency then passes on all the rebates / discounts for that item of inventory and it does not imply that they charge the client what they paid for it – that’s a different topic than transparency which we’ll come to in a moment.

Let’s go back to the way most media buying pitches are done nowadays. With or without the help of a pitch consultant, clients ask agencies to place very specific bids on a very detailed media inventory list. Those bids aren’t based on last weeks rate or last years rate – they’re bids for the future – the next one year or in some cases, even further out.

Additionally, in many pitches, these rates are expected to be committed. That means, come rain or shine, the agency that wins the business is on the hook to deliver those prices and make up the difference when it can’t. To make matters worse, some clients insist on tracking EVERY single rate – not looking at the total and letting the savings and dis-savings cancel each other out.

What happens as a result? In most cases, agencies will try and make an estimate of future pricing with some buffers built in. This is a very natural behavior if you’re asking them for a cast iron guarantee. Occasionally, they get it wrong and in their zeal to win a client, bid prices that they are ultimately unable to achieve – often they have to pay the difference out of their pockets and also lose the account on the next pitch.

To my mind, in these situations, a client asked for a guaranteed price (and possibly a guaranteed rebate level) and that’s all they’re entitled to. If you’re only interested in that fixed outcome then you don’t get to see any of the variable information – because it doesn’t change the outcome you’ve insisted on.

What is likely to happen in this case is that if the agency manages a few wins in some of its negotiations, its going to try to keep the difference.

Is that wrong? The agency had to make guarantees and take the risk that it wouldn’t be able to meet them – if it’s able to get better pricing / terms than it guaranteed then doesn’t it deserve to benefit from them as a reward for taking that risk?

Unfortunately, agencies have got into the habit of claiming 100% transparency without understanding it, just as clients have got into the habit of asking for it without understanding it.

The conversation that is not happening is about the terms of the deal – fixed guarantees on pricing as opposed to shared agreement of targets and shared risks and rewards from underachievement or overachievement of them.

For clients, if you share the risk, you can share in the reward and participate in the process to make sure you know exactly what is happening.

For agencies, stop framing transparency as good and non-transparency as bad (and then offering 100% transparency to every client and not delivering on it). Instead, have an honest conversation with the client about the different kinds of risk/reward scenarios and how they affect pricing and information disclosure.

That might mean more work on both sides – 3 party contracts with media, fair penalty and incentive schemes and more open sharing of information – but that would lead to a much better result – the rebuilding of trust between clients and agencies.

With over 30 years experience managing agencies, ad-tech startups and consulting Sriram has a deep understanding of how media and ad-tech services work, especially in China. Most recently he’s had experience managing pitches for over 20 clients in the last 3 years. Reach out to him for advice on how to define and select your marketing services partners in China.

d.sriram@searchlightchina.com