According to Advertising Age, Omnicom Group is considering the designation of a "lead negotiator" to handle nearly $3 billion in national TV spending for the holding company's individual units. And Interpublic Group of Cos. is shifting all of Ammirati Puris Lintas' broadcast buying to Interpublic's Western Initiative Media.
Welcome to the latest round of Agency Salesmanship 101, wherein media buyers try to convince clients the more dollars ("clout") agencies wield at negotiating tables the better rates clients will get.
Not that I am against clout or deny size has its advantages. However, an examination of the databases at our company, Morgan Anderson Consulting, which represent 10 years of analyzing billions of dollars in media spending by major marketers, suggests media-buying clout is a concern of less and less relevance today, particularly among larger shops.
When these data are dovetailed with our conversations with global and regional advertisers as to their real concerns, Omniclout, it turns out, masks issues of fundamental importance.
For example, one would think media-buying prowess has increased in the marketplace because of the increasing dominance of large unbundled media-buying "brands." You would be wrong.
Although media-buying efficiency overall is improving, the range between "best" buyer and "worst" buyer has not narrowed. In fact, the difference may have widened between "best" and "worst" buying agency among comparable buying organizations using identical specifications. Large variations still remain in every medium-from network TV to spot TV to cable to radio to print.
In other words, large buying units with equivalent billings-or clout-vary tremendously in cost-effectiveness in buying media. Clearly, some do better than others; but the reasons are not readily apparent and vary tremendously from client to client-and size of client media-buying volume does not necessarily mean efficient buying.
A critical mass of buying volume is not irrelevant; a certain minimum annual investment in a daypart or market is now the price of entry for a media-buying resource wanting to play in the big leagues. But it is over-simplifying to get hung up on clout.
If we weighted all the criteria necessary to consider in selecting a "best" media-buying agency, we would rate clout at no more than 30%. Other criteria include media effectiveness, staffing/marketplace experience, strategic thinking, media creativity, financial stewardship, agency culture/philosophy and computer systems.
Our experience indicates that, over a certain billings base level, even another 50% or 100% in buying volume is irrelevant under most circumstances. The real edge is still an agency's talent, client history and media relationships.
Let's not kid each other: networks know better than anyone what deals are being done, what categories (such as automotive and movies) need what inventory and, most importantly, when they need it. Rarely would the "superclout" of incremental buying volume be relevant unless multiple-client demo targets and buying objectives are identical. With the trend away from mass marketing, this is less and less the case.
One of our assignments was with a group of buying units of comparable size, type and reputation for a national TV buying plan against identical buying specifications. The quality and quantity of the buys, through stewardship programs initiated by the client, were guaranteed by the buying units for a specified period. The buys themselves ranged from a base of 100 to a high of 153-a whopping 53% difference.
This means one client could invest $100 million with one buying agency to achieve the same plan and specification that another client would spend $153 million on with another buyer. If clout is at play here, who is benefiting?
In a spot TV assignment with a group of buying agencies of similar type, size and reputation, the index ranged from 100 to 145. A variation of 45% on spot TV buys for brands that need lots of local broadcast weight is highly material-and costly. How would "superclout" eliminate such enormous discrepancies?
Variations in spot radio ranged from 100 to 142. National print came in with lower variations; our database indicates the most expensive buyer was 24% over base.
Let's look at compensation for media agencies. Compensation requests tend to be all over the lot. The trend continues to evolve towards compensating media agencies with an activity-based (scope of work) annual fixed fee driven by quantity and quality of people working on the account rather than by a more traditional, agency-of-record commission rate driven by spending volume.
It's clear media-buying agency economics is not, by and large, driven by the volume of media investment from year to year. Brand agencies have learned this; their profit margins have increased substantially over the past five years as the use of fee arrangements has increased and use of commission arrangements has decreased.
There have always been big differences in what like agencies charge for like services. We find no correlation between higher compensation levels and better (or, in the case of media, more efficient and effective) services. The reverse is often true. For identical scopes of work, compensation-whether annual fee or media commissions-can vary by upwards of 100%. That's right: double.
So, while a lead negotiator at Omniclout might be a useful vehicle to prune a few TV negotiators from a holding company's payroll, the ultimate question for advertisers is this: Can an advertiser obtain, for the commission it pays its media agency, more than its "fair share" of the agency's "best" media talent. If yes, clout will take care of itself. If no, clout will not solve the problem.M
Mr. Anderson is a managing principal of Morgan Anderson Consulting, New York, a management consultant that specialize in analyzing the effectiveness of