Advertising Agency Fees

Not that many years ago, advertising was a sweet business. Commissions were a very generous 15%, production could be marked up and any number of expenses could be billed back to clients. Over the years, much of this has eroded and the commission structure with its guaranteed income is but a fond memory for people who invariably are no longer in the business.

Recently, two global marketing and food giants, Procter & Gamble and Unilever, have announced that while they are ramping up their emphasis on advertising, they will be putting ad agency compensation under greater scrutiny than ever. All of that grabs headlines but, in reality, this has been going on with mid-sized and smaller ad agencies for some time. Hence this post.

Interviewing several marketing directors and small to mid-sized company CEO’s, a few interesting comments emerged. Here is a sampling:

“Like many companies, we now spend more on promotion than advertising. The agency hates this but we have prospered through the tough economy of the last few years. The accountability of various promotional tools let us know what is working instantly. With advertising, it is always hard for us to gauge. Was it worth the big expense? They say that we are eroding our brand, but I have had five straight years of earnings increases.”

“Agencies don’t do thorough analysis anymore. We have two young guys who break down every coupon that we drop. After 18 months on the job, they can tell us redemption rates before we drop and come close to forecasting it by DMA. We know just how much value to put on each coupon. These kids have optimized our promotional activity tremendously. When I used to have the agency do this for us, they had college interns look at it and charged us an arm and a leg. Our in-house data driven junkies love the work and run rings around the agency team.”

“We hired a new CFO a few years back. He said that he could save us a few million if we squeezed expenses everywhere. Our agency’s chief met me for lunch and said that he was sick of how our bean counter nickel and dimed his shop. I put the account in review and they shaped up. We have cut fees but don’t ask for as much either.”

“TV production is still way too high. The agency submits three bids but my CEO just smiles and says they give us three expensive bids. He forced me to go outside last year and we saved a nice six figure sum. We don’t want crap but the average consumer can’t tell the difference between a $100k and a $250k spot.

“Never let your agency copy anything. Just have them e-mail you almost everything or have work embedded in a PDF. There are hidden charges everywhere.”

“As we have ramped up our digital presence, we have far less of a need for collateral material. Agencies always made a lot here but they are going to have to adapt.”



“Mobile couponing is going to be big for us but it is not there yet. The potential is huge and I don’t think agencies see it or how we will bypass them.”

“We go to specialized boutiques for a lot more work, especially digital. The young people there are fast and unpretentious, low cost and they listen to us. Our main agency spends three days to get a work starter going and then assigns a team. By then, the boutique has already delivered our project. Sometimes it is good and sometimes work man like, but there is no BS with them. Established agencies take note.”

“This past year, we invaded two countries in Latin America with our brand. The TV that we ran there worked like gangbusters. This year we are shifting more money there and running more promotion in the states. Our results were “impossible” thundered my US agency head. I responded that our work far south of the border is being received as it might have been in 1950’s America. He just does not want to get what is going on globally. Sadly, I think that I need to make a change.”

My sample was highly unscientific and there is definitely a bias among people willing to talk with me. For example, no one wrote to me and said that they were getting excellent value from their mid-sized shop.

If you are a client reading this, your takeaway might be to examine your fee structure very carefully. Also, how current is your shop, especially a long standing one, with what is going on in 2013 marketing?

Should you wish to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

TV Reach & Frequency Revisited

When I began Media Realism just over four years ago, one of the first posts was entitled “TV Reach & Frequency--Obsolete?” (See Media Realism, January 13, 2009) It generated some online comments but I also received hundreds of direct e-mails about it. Even today, it usually generates 4-5 hits a day many from outside the United States.

A lot has happened in the last four years so I thought that a brief revisit might be a good idea. My premise four years ago was that sadly many people especially at smaller shops where using performance estimate data (Reach & Frequency) from curves developed way back in 1978. Since that time I am happy to report that the number of people using those ancient projections appears to have declined somewhat. Smaller agencies who survived the crunch of the great recession are now investing in more up to date software and the price is a lot friendlier. Managements of smaller shops have told me that, as they have cut staff, they have been more willing to spend on basic technology in many cases.

To me, however, some nagging issues remain. All a Nielsen rating does or has ever promised to do is measure the number of EXPOSURE OPPORTUNITIES. Everyone in advertising knows this but I still hear and read that clients are being told that the recommended TV schedule will reach 91% of target prospects in a particular market. These days, with a few exceptions like Coke, McDonald’s, Bud and a small handful of others, that is virtually impossible. Actually, it always has been. That is why projections of Reach & Frequency are always much higher than recall scores on commercials.

At the same time, the landscape is changing and at a quickening pace over even the recent past. DVR (time shifting devices) continue to grow and the “Second Screen” is hitting many demographics and hard. The itchy trigger finger on the remote is still prominent and when people send Tweets while watching or look up an advertiser on line they are missing the message of other advertisers (See Media Realism, December 16,  2012, “Will The Second Screen Kill the Couch Potato?” ). It is safe to say that attentiveness to commercial messaging is at an all time low. Yet with the second or third screen, the TV commercial experience may be enhanced as well for a small but important group of people.

Where does this leave us? It means that whatever figure that we give for delivery is perhaps more overstated than ever. Yes, I agree, that you need to have some method of  schedule comparison but does your software system manage to integrate the impact of a package of carefully targeted cable networks with a couple of network affiliates in a Nielsen DMA (Designated Market Area) effectively? I still see planners hiding behind a dubious printout and choosing a daypart mix because one hypothetical mix delivers one or two more reach points than other alternatives. Sharp buyers, on the other hand, often eschew such rubbish in execution and craft a solid mix of cable channels plus broadcast. They cannot prove it definitively but the result is often a very savvy blend of media art and science.

What to do? Well, a few things to keep in mind are:

Good advertising executions still work. Not as well as in the past most of the time because fewer people are seeing them due to audience fragmentation and commercial avoidance. TV alone without a digital component is usually a terrible idea except for maybe a few small market retailers.
Be careful about trying to overanalyze the data that you have. Some people put probability of exposure weights on each daypart and tend to not buy early morning or late night as a result. It is hard to argue that these dayparts have the same attentiveness as prime but I have had tremendous success in Direct Response running only in late night. A formula driven approach does not always work.
Have your planner TALK with the negotiator (buyer). He or she should know the market well and get a feel for whom you want to reach beyond age and gender. They may some good ideas about programming especially in local cable.
Stop lying to clients and say that a schedule reaches 90%. Tell them the truth about what and R&F really is. Long term this can pay big benefits especially as TV morphs in to something different than it is today.

When I wrote to some old friends about this piece, a few told me not to write it. The tone was “why stir things up”, “the clients expect R & F projections” and the “I am going to retire soon” line. Well, it is never too late to speak the truth. As digital options give us  increasingly tighter measures of whom we reach, it is sad that the estimates of real world delivery for the time honored medium of television may be getting increasingly divorced from reality.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

Lifestyle--The US vs. Western Europe

In recent weeks, I have been reading a great deal and talking with people about the comparative advantages and disadvantages of living in the US versus Europe. The results are a bit surprising and I thought that I would share them with you.

The basic battle line is that in the United States we have relative economic freedom and low taxes while in much of western Europe you have social democracy. Depending on the American with whom you are speaking and his/her political views, Europe may be described as “the Middle Way” (between the free market and socialism), the provider state (my favorite term), the nanny state or merely “land of the socialists.”

The core defense of the European system is that they deliver five things to all citizens: universal healthcare, a strong public transit system, virtually free higher education, child care, and solid retirement plans. They pay for it with higher taxes for all and sometimes confiscatory taxes on higher earners.

Much of the back and forth concerns lifestyle issues as well. Most Europeans have very short commute times while Americans may live 60-75 minutes from work to be in better school districts for their children. Perhaps as a result of short commute time and a solid public transit infrastructure, newspapers still reach 70% of Europeans daily (how American publishers would love that). In general, European cities are safer than the US and public transit is as well.

Interestingly, despite lower wage rates and after tax income in Western Europe, people save far more than Americans. Part of this is that they have far fewer gadgets and less “stuff” than Americans. Housing is tight and cramped in most cities. We have big yards and abundant closet space; most Europeans do not. They pay as much as $9 a gallon for gasoline while we are addicted to cheap oil which allows us to commute long distances and see the USA in our Chevrolets.

Western Europeans live two years longer than we do and many say there is far less stress. To me, they make a point here. How many Americans stay in jobs or take jobs because of excellent health care? In Europe, that is not an issue. In most continental countries, your old age in not lavish but you are cared for in a decent facility.

Also, people work less. While we fear for our jobs, Germans work 400 hundred hours less a year than Americans and the French 300 less. Vacations are usually six weeks while American workers new to a company get two.

Economically, the European way is hard for Americans to swallow. Here, we strive to be among the top 1-2%. In Europe, getting to that level of wealth is much, much harder. Realistically, in many countries, the average European may live better and with less uncertainty than most middle class Americans. Yet, the brass ring of the American dream does not exist for them at all. America remains an aspirational society.

Others say that an industrial base is necessary for democracy. With it, the climate is easy for labor to organize especially in Germany and France, where a vibrant and empowered middle class exists. Bitter left wingers in the US say that our system gives tax breaks to billionaires and pay day loans to the poor!

Low cost education is amazing for those of us who have written huge tuition checks over the years. Yet, a university education is not for everyone. Childhood in Europe is not stress free. By 12, in some nations, you have taken exams that determine whether you are university bound or not. Pressure on youngsters to achieve in school is intense and the competition is very stiff. If you are late bloomer, you have to make a spirited effort with night school and pass some stiff exams to get a college degree. When I think of my carefree childhood in rural New England, I feel sorry for European youngsters.

The big issue facing both the US and Western Europe is my old favorite, demographics. Look at major European countries. Many have a negative birth rate and the number of active workers paying in to pensions and healthcare keeps dropping. At some point, the provider state has to collapse. It is simple mathematics. In the US, we face similar problems with Social Security and Medicare but our bomb has a somewhat longer fuse attached to it.

In my life, I have always ignored security and gone for freedom. For me and many of you reading this, it has worked out splendidly.  For many , however, the European model may seem very attractive although I find it hard to believe that it is sustainable.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

Is Management Often Immoral?

Happy 2013!

Over the years, many large companies have been caught in actions that many of us would consider to be immoral. The big auto companies have often been singled out as not making small inexpensive changes in design that could have saved a significant number of lives on our highways. And, depending on your politics, Shell Oil, Dow Chemical, Monsanto or Nike may make your personal hit list of organizations that have not always acted in the public interest.

Whether these companies committed crimes or not is beyond the scope of this post. Yet, many have found their actions offensive at times. What has always intrigued me is that it is that the corporations seem to be doing the questionable acts rather than the management. I refuse to believe simply that unfeeling and amoral sociopaths run these corporations.  Canadian journalist Wade Rowland struck a responsive chord with me when he wrote that, in a sense, “the corporation manages it managers”.  When poorly made products cause damage or are made via exploitation, complaints are generally swept away under the banner of “progress”.  Air or water pollution issues, for example, are often cast aside, according to Rowland, as an “externality” as profits rise and jobs are created. It is a challenging thought.

Recently, a few readers have contacted me about a similar problem in our industry. One was a young media planner way out west. He explained that he had put together the best media plan of his life for a substantial client. It had a nice mix of digital and conventional components and he felt did a great job of hitting the majority of their target audience with a real chance of breaking through today’s substantial clutter. He presented it internally a few days before the client planning session and his CEO said it was a complete non-starter. The creative chief had a great idea for a TV campaign and that was where all the money would be spent. My young friend countered that the production expense on the spots would mean that the market support list would have to be cut substantially and not all that many people would see the spots. His CEO ended it by saying “it is important that this agency produce some quality TV executions this year”. My brave friend then said “but what about the client’s needs?”  “Screw the client, we need to do this”, replied the agency chief.

Distraught, he thought of quitting. But he tells me that he has a new baby, a fair sized mortgage and he does not exactly work in an advertising Mecca so he would have to move several hundred miles away for a similar position and would need to sell his house first. That may not be easy these days. So, he may be stuck in his situation for a few years. I informed him, in an attempt to be soothing, that I suffered similar issues a few decades ago when I recommended radio and we were forced to do TV in a small roster of markets due to production costs. He e-mailed back moments later that “20-25 years ago, TV worked better than it does now. So, you were forced to do something that was not optimal but still might have worked. With no digital and hardly any local cable allowed, this is doomed and I am part of it.” That shut me up pretty quickly.

Separately, I heard from a radio salesperson that I have known for about 15 years. He lives and breathes his medium, customizes some marvelous promotions, and is a man whose word is truly his bond.

At 52, he is going through a bit of a mid-life crisis. He says, “I know my station(s) do not work nearly as well as they used to even five years ago. Old clients who trust me are probably paying too much and come to me because of our long-term relationships. My college age kids belittle me by saying that no one listens to local radio anymore.  I suggest that radio has sent them to nice schools, bought them great clothes and sends them to sunny spring break destinations and they laugh in my face. My wife tells me to stop complaining, go to work, pay the tuitions and keep funding the 401k. I am in a tight spot. My general manager is a decent sort and he tells me that headquarters just wants the money every month. They lecture him about debt service and the need to increase revenue regardless of the local economy. What should I do?” I suggested that he consider going to a TV station with a manager who “gets it” or apply to a local cable interconnect.

Both of these men are thoroughly decent and are real pros. But, given the current climate and their personal situations, they simply cannot resign and find something better in a few weeks. Digging a bit deeper, are their managements immoral? Or, are they simply being manipulated by the corporate entity itself. Profits must rise, as must revenue and ad agencies need to produce good TV to attract new business. Are both managements simply so immersed in the now that they cannot step back and see the reality that my two friends do? There is no easy answer but as our world changes rapidly over the next few years, these issues will hit all thinking professionals.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com