The American Association of Advertising Agencies, whose members produce roughly 80% of advertising volume nationwide, naturally becomes alarmed when a matter threatens the very trust that defines the bedrock of the agency-client relationship. That issue is media rebates and, more specifically, what detractors derogatorily term "kickbacks" on Madison Avenue.
A former agency executive triggered the clamor this spring, claiming that rebates are widespread in advertising. A subsequent survey by Ebiquity and a sibling marketing analytics firm contributed. In it, 62% of advertising procurement officers polled said they consider rebates a "hot topic" within their company, and 63% said they are "moderately" or "extremely pressured" annually to lower agency compensation.
While rumors and innuendo have exaggerated the matter, the hubbub it sparked offers the opportunity to explore the issue of how advertising is bought and sold and related performance metrics.
It provides the chance to define the essential meaning of transparency and trust. Further, the polemic opens up an avenue for exploring and establishing fresh guidelines for serving clients in today's increasingly complex media ecosystem.
Lightning rod for transparency
Briefly, let's clear up the matter of media rebates or volume discounts: They are not inherently conflicting or illegal, but they are not an accepted business practice in the U.S. And while we are a U.S.-focused association, we hope and expect every agency adheres to the contractual obligations of their respective regulatory environment.
Still, media rebates have become the lightning rod for the broader issue of transparency.
Financial partnerships between media sellers and agencies are confidential arrangements, and media clients need to understand when their agency may hold stakes in a diverse portfolio representing a range of interests that can impact these arrangements.
This becomes concerning, of course, when those interests are at odds with a client's business or, worse, go undisclosed by their agency partners. These partnerships are just that: mutually beneficial relationships where terms are disclosed on a confidential basis, and fully understood by all parties. This principle has served as the foundation of our association since its founding nearly a century ago.
Industry best practices
Our 750 members work daily to uphold these values. Still, the air of distrust and questions raised about the arrangements between agencies and media companies is why we have begun proactively examining and establishing industry-best practices to reflect the evolving media marketplace we inhabit. Together with the Association of National Advertisers, a multidisciplinary task force is conducting an in-depth consideration of these issues. Our industry reflects many perspectives, and the task force will work to better communicate those views between agency and client. We expect to issue new best practices and guidelines resulting from this work within the next few weeks.
While our association has no regulatory or enforcement authority, we take any contentions that hurt our industry extremely seriously. Trust and transparency serve as the foundation of successful agency-client relationships, and are key to the highest standards of client service.
Nancy Hill is president-CEO of the American Association of Advertising Agencies