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By Christine Moore, Managing Director – North America, FirmDecisions
What should we expect for media contract compliance in 2022?
Seven key trends for 2022
“Many factors are conspiring to make marketing ever more complex, including supplier risk, changes in consumer behavior, and advances in communications technology. This heralds a bigger role for procurement, working in partnership with other functions in advertiser businesses, including marketing and finance, sales and insight”
As the world starts to get used to living with Covid and not under its shadow, there are several key learnings and trends in the areas of agency contract compliance that we at FirmDecisions have observed in the media and marketing ecosystem. These are:
For each of these seven trends, we spell out what this means for marketers in the paragraphs below.
Non-transparent buying and service models are well-established in media, enabling agencies to encourage marketers to trade-off apparent savings against assumed risk. For example, some agencies offer guaranteed pricing discounts on media or studio costs in exchange for marketers agreeing to waive their rights to actual cost transparency. Agencies acknowledge that they collect incremental margin in these kinds of deal, but they claim that this represents a fair trade-off for lower rates. Marketers have started to assess the absolute share of their spend for which they cannot validate costs, assessing both the costs and the benefits of a lack of transparency. This will accelerate in 2022 and beyond.
Centralized services – in media buying, creative, and production – can deliver real efficiencies to marketers, reducing duplication in staffing and ensuring more consistent and coherent strategic thinking on a global or regional level. Hub service models are highly efficient for agencies, too, reducing potential down-time resulting from fractional, local, FTE staffing allocations. Hub models tend to be set up in regions with high rates of third-party media and production vendor benefits’ practices. As such, brands are increasingly required to audit at the hub and the global level – and not just in individual markets – to verify any monies earned through volume investments which may be due back from the agencies. Greater use of hub service models demands closer scrutiny from marketers. Both will increase in 2022.
In an effort to minimize risk and manage overheads, some agencies are increasingly using subcontractors to deliver services to brands. Subcontractors are different from affiliates and may present different transparency challenges. If agency contracts exclude the right to audit subcontractors from the Master Services Agreement (MSA), then service costs, resources, redundancies, and fourth-party vendor benefits earned from brand investments may not be apparent, hiding the true cost of the service to the business. We are already helping marketers to ensure subcontractors are included in MSAs as a matter of course, and this guidance will increase in the months and years ahead.
In recent times, access to data has been in constant demand across all industries. During the past two pandemic years, it became evident that data alone wasn’t sufficient to give brands a meaningful edge. We now know that genuine competitive advantage comes from how available (or accessible) data mitigates loss or takes advantage of growth. Those companies that have up-to-date data about consumers, clients, partners, and vendors are much quicker to react to shifting market needs, behavior, and attitudes than those that do not.
Sector-specific issues aside, there were several factors that determined success for brands under the pandemic and their ability to respond to super-fast changes in consumer behavior, trading conditions, and marketing imperatives. These included marketing organizations that: (i) had an updated contract in place with their agencies, (ii) had audited their contract in a regular cadence (at one-or-two-year intervals), (iii) had up-to-date insight into the levers of a fit-for-purpose agency partnership – scope of work, payment terms, talent requirements, transparency, and opt-ins for affiliate options – and, (iv) could work with their agency partners to meet the new market environment in a fair and balanced way.
As the world starts to emerge properly from the pandemic, we will see a much more focused approach to collecting and deploying near real-time data to make better decisions in marketing investment.
Because of the recent, well-documented struggle in global supply chains, 2022 will see a much more focused approach to mitigate partner, supplier, and vendor risks. In some industries, this focuses on physical goods getting from A to B on time. In marketing services, it is about financial, contractual, and reputational risk. Increasingly, marketers are looking to validate agency partners’ delivery of contractual obligations. By performing an annual contractual audits, advertisers have relevant, timely information at their fingertips, enabling them to address areas of concern during the relationship rather than using a contractual audit with a “gotcha” mentality to claw back funds from the past.
FirmDecisions published a research study in August 2021 which showed that many marketers are starting to expand contractual audits from media to creative, production, digital, influencer marketing, and other categories of spend. This trend – set to accelerate in 2022 and beyond – will help advertisers better understand their partners across the full marketing suite. It will help determine which agency partners have good commercial knowledge, how they manage talent, and how their agencies help to deliver transparency. This approach is welcome news for companies’ procurement, legal, and finance teams, as it significantly reduces supplier risk.
The cost of media bounced back in 2021 from historic, pandemic lows in 2020, and inflation looks set to accelerate throughout 2022. Marketers who operate under compensation models – models that are not exclusively based on labor fees – will see an exceptional surge in their commission payments to their agency partners this year. In addition, there are many technical and “other” charges that are based on media spend which also look set to soar. Marketers need to find ways to mitigate this increased cost of planning and buying media and seek out innovative, alternative compensation models to limit increasing costs.
Many factors are conspiring to make marketing ever more complex, including supplier risk, changes in consumer behavior, and advances in communications technology. This heralds a bigger role for procurement, working in partnership with other functions in advertiser businesses, including marketing and finance, sales and insight. In many client organizations, marketing procurement has developed vital skills during the pandemic, and the exposure this has given them across the C-suite will put them in even greater demand. In the months ahead, we are likely to see keen interest from procurement specialists for earlier involvement in the procurement process. The function will also take on an innovation role, where it brings alternative sourcing strategies into the mix earlier and with more impact.
Christine Moore is Managing Director, North America at FirmDecisions.