WFA Survey: Advertisers Should Direct Where Media Rebates Go

Put a Clause in Agency Contracts And Hire Media Auditors, Ex-Unilever Exec Advises

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With rebates on media spending common throughout the world outside the U.S., marketers frequently use them to get free media space or cash, or to reduce their payments to media agencies, according to a survey by the World Federation of Advertisers.

The survey covered only 36 international advertisers but provided insights, including that many marketers in a number of countries believe that rebate amounts are higher than what media agencies are passing on to them.

In a regional breakdown, about 28% of rebates in Europe come in the form of free ad space. Separately, 15% of respondents said they used rebates to reduce their own payments for agency remuneration. The European countries with the highest level of media rebates are Greece and Turkey, followed by Russia, Ukraine and Spain, according to respondents.

In Asia, the country with the highest level of rebates is China, followed by Indonesia, the Philippines and India. Respondents also identified the region as having a major gap between the rebates they believed were returned to agencies and the payments advertisers received.

In an interview with Ad Age , marketer Mark Butterfield said that the most important thing is for marketers to understand how media rebates work and to include a clause in agency contracts specifying that rebates be returned to the advertiser.

Mr. Butterfield joined German-based pharmaceutical marketer Boehringer Ingelheim as head of global media in October 2011, after six years as media director and head of investment for Unilever in Europe. (Unilever is the world's No. 2 advertiser, spending $6.6 billion in 2010; Boehringer Ingelheim ranks No. 92, at $307.9 million, according to the Ad Age DataCenter's ranking of the top 100 global marketers).

"In 99% of countries there will be some form of bonus remuneration or free space ranging from huge numbers, like 10% or 20%, to 2%," Mr. Butterfield said. "There should be a clear understanding in the contract that whatever form of rebate is made on your business is returned [to the advertiser]" in some form, he added.

He estimated that fewer than half of advertisers include a properly drafted clause about media rebates in their agency contracts.

"That's where most people get confused," Mr. Butterfield said. "They know it's there but aren't quite sure what to do about it. You need some expert advice from an auditor or someone who's been there.

"What happens in Japan is completely different from what happens in the U.K.," he added. "What you do with the rebates is up to you." That's a problem In South America, where media auditing is almost nonexistent, he said.

Marketers should also be careful to spell out what a rebate is , because it varies by country. "You need 10 or 15 definitions of what rebates are," he said.

As holding companies establish media groups like WPP's Group M and Publicis Groupe 's Vivaki, the potential size of media rebates grows along with the firm's buying clout.

"Group M and the big agencies get an advantage for their clients by buying in bulk," Mr. Butterfield said. "All the benefits that come with it should be returned to you."

Are agencies forthright with clients? "Possibly not all," Mr. Butterfield answered. "It depends how good your auditor is and how honest your agency is ."

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