Transparency Is the Only Way to Avoid Abuse of Media Rebates and Incentives

There Is Nothing Wrong With the Practice, If It's Handled Openly

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The issue of media rebates and incentives is clearly now at the forefront. It's about time.

Recently, we released a white paper titled, "Media Rebates/Incentives Require Full Transparency," in which we surveyed nearly 200 client-side marketers about this practice. We discovered that nearly one-third of U.S. marketers are aware of rebates and incentives offered by media companies that may not be reimbursed to the advertiser. Most marketers also believe that such rebates and incentives are the property of the advertiser, and they are concerned that by accepting and not disclosing incentives and rebates, agencies may become irresponsible in their media-purchasing decisions.

Now more than ever, we are in a world driven by transparency. It's imperative that we are clear in our business dealings within the marketing industry.

There is nothing wrong with the concept of a rebate or an incentive. In many instances, they serve the best interests of both purchaser and seller. And this practice has long been acknowledged as commonplace outside the United States. However, if mishandled or hidden, rebates and incentives can constitute one more shady business practice in which at least one stakeholding party is left out in the cold.

Avoiding Confusion
The first concern marketers have is the potential for lack of transparency and confusion about ownership and the allocation of media rebates and incentives. Marketers, whose funds are the ultimate source of revenue for agencies and media companies, have every right to establish their ownership of rebate and incentive funds. As with any business transaction, the most-advisable answer to concerns about transparency and allocation is for all parties to come together in contractual agreement.

Leadership in this area belongs primarily to the marketer, whose resources are being channeled through agencies to media companies. It is essential that marketers and agencies contractually agree before the fact on how these valuable rebate and incentive funds will be handled, regardless of whether or not they are anticipated.

About one-third of U.S. marketers, the same amount that indicated an awareness of media incentives and rebates in the U.S., report that they already have contract language in place addressing incentives and rebates. This is a start, but there is still a long way to go.

The second concern marketers have is that the carrot of media incentives and rebates might affect their agencies' media-purchasing decisions, resulting in a marketing mix that is less than optimal for the marketer. Some have even suggested that procurement has tightened agency margins to the point that incentives will become a defining purchase driver for them.

I don't believe that shrinking margins have or will drive U.S. agencies to under-the-table rebates and incentives, and I am confident that agencies know that the best bet for their business' success and growth is to focus on campaign and marketing-mix quality, above all else.

It would be a shame to see an influx of unreported incentive activity tarnish the brilliant work and relationships of the agency-client partnerships in our industry or to see marketing mixes become abused and turned toward incentive dollars rather than marketers' and creatives' best interests.

The goal here is not to dwell on the question of whether media rebates and incentives are legitimate and legal or if marketers will only accept them if all rebate and incentive funds are summarily returned to them. The goal -- and the ANA's aim -- is to maintain transparency, accountability and equity across the U.S. marketing industry.

Margins have been squeezed on every side during the recession, resulting in streamlining and creativity that are healthy for our industry. In no way does this give license to the spread of undisclosed business practices. Clearly there is room for a candid discussion, contractual agreement and fair distribution of media rebates and incentives if they continue to play a role in the U.S. marketing ecosystem.

Bob Liodice is president-CEO of the Association of National Advertisers.

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