ANA Forum Shows Advertisers, Agencies Far Apart on U.S. Rebates

L'Oreal Convinced They Exist And Mars Wants To 'Peel The Onion,' But Former SMG Exec Denies Practice

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Advertisers and agencies may be talking more about media rebates in the U.S. thanks to the recent controversy, but they're sometimes far apart on the basic issues of whether they exist at all or how to monitor them. That much was clear from a "Transparency Town Hall" on Sunday at an Association of National Advertisers conference in Phoenix.

"There's a lot of denial going on," said Ana Jernestaal, assistant VP-finance for L'Oreal USA, which is reviewing its $2.3 billion U.S. media buying account. "We know [rebates] exist, but we're sitting across the table from advertising agencies that are flatly denying it."

The rebate issue raises fundamental questions about agencies, she said, including "are they negotiating on our behalf or not? Two, are they being honest with us?"

Ms. Jernestaal asked other marketer executives at the Advertising Financial Management Conference if any had yet successfully negotiated a contract that got U.S. media agencies to pass rebates along to clients, as is often the case in other countries. No client executive volunteered that they've successfully gotten rebates passed through from media agencies in the U.S.

Former Starcom Mediavest Group executive and current 4A's Exec VP-Media Relations Bill Tucker said he'd never seen U.S. media rebates during his 20 years in the agency business, which included serving as president of Mediavest in the U.S. up to 2012 and ended in 2013 as president of global account management of the Publicis Groupe agency.

"In the United States, there were no rebates in the world that I worked in," he said. "It was no secret that there were rebates in many markets."

Sandy Frank, managing director of the consultancy FirmDecisions, said he often encounters that "no rebates in the U.S." claim, but an agency can get rebates from a global media deal that covers the U.S. "Sometimes the CFO at the local agency doesn't even know that the group agency is getting that rebate," he said. "So there's not transparency, even at the local agency from their parent company."

"It's one thing to have this [audit] language in your contract, and another to enforce it," said Larry Smith, commercial director-global creative and production at Mars. He said the industry needs a call to action both on fair media-agency compensation and how to "peel the onion" to detect rebates. Mars has tried but so far been unsuccessful at getting audit rights at the agency holding-company level, he said.

Agency holding companies have been adamant they do not participate in media rebates in the U.S.

Steve Lightfoot, senior manager-global marketing procurement of the World Federation of Advertisers, said several global advertisers have successfully negotiated audit rights in recent years.

Lisa Leake, VP-agency relationship management and administration at PNC Bank, said, "We have this language in our contract about auditing, but we've never done it," and asked a Ford Motor Co. executive who has done such audits whether it was worth the cost.

Vikki Rohrer, global advertising finance manager of Ford Motor Co., said her company has been conducting audits around media rebates for more than five years, and returns have been "exponential." She said it took one staffer six months full time to set up the system, which now requires a team of about five working part-time year round, The work includes training marketers, finance and procurement people, she said, and focuses 90% overseas and only 10% in the U.S., she said, covering both media and production.

In a statement issued in March, 4A's CEO Nancy Hill said: "We have not been shown any data or information that warrants such allegations [of U.S. media rebates]. Our position is that the financial arrangements between agency and client are just that, between those parties and confidential."

But the 4A's has been addressing advertiser concerns: Last week, the ANA and 4A's created a task force on media transparency to be co-chaired by ANA CEO Bob Liodice and Ms. Hill The task force includes marketing and media executives from Procter & Gamble Co., Unilever and L'Oreal, along with and media chiefs of the three largest agency holding companies -- WPP, Publicis Groupe and Omnicom.

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