It’s certainly true that creative and advertising agencies are in the business to make money. In fact, that’s why anyone opens a business. However, some companies are doing some pretty shady things in hopes of lining their pockets with even more money, and a recent study from the Association of National Advertisers, or ANA, proves it.
What’s Going On in the Advertising World?
The ANA in conjunction with K2 Intelligence, the company that conducted the study, recently released a 58-page report that sheds light on some unsavory business practices throughout the industry. As it turns out, there is quite the lack of transparency when it comes to agreements between advertisers and agencies. In fact, the agencies are making money off of these advertisers through rebates – and the advertisers never even know. Rather than passing these rebates down to their clients, agencies are charging advertisers a premium rate and then lining their own pockets with the rebates.
The Advertiser-Agency Relationship
Advertisers rely on their agencies, and in the K2 Intelligence survey, advertisers said they believed their agencies felt obligated to act in their best interests. Essentially, advertisers have no idea about the shady practices going on behind the scenes. On the other hand, the agency executives that K2 Intelligence interviewed said their relationships with advertisers weren’t based on best interest. Instead, they were defined only by the contract between the two parties. This means that agencies do not feel any remorse for accepting rebates without the advertisers’ knowledge.
How the Rebates Work
When advertisers and agencies form contracts, the agencies agree to provide a certain set of services for a set amount of money – including the money for media space, which is often the most expensive part of an advertiser’s contract – and the advertisers agree to pay those agencies. Then, without the advertisers’ knowledge, the agencies negotiate deals with the groups providing the media spaces in order to get “rebates”, which are essentially service agreements in which media suppliers pay agencies for non-media services. This often results in markups between 30% and 90%, and the advertisers have to pay that money to their agencies in order to fulfill their contracts.
What Can Advertisers Do?
There are several steps advertisers can take to make sure that their hired agencies are truly acting in their best interests.
- Re-examine existing contracts to review all of the terms and conditions. For the best results, find a third-party expert (such as a lawyer specializing in the advertising industry) to help.
- Confirm the relationship with the agency by ensuring that there are no existing conflicts of interest and that there are processes to help resolve any issues or conflicts that could emerge in the future.
- Rewrite your contract, if possible, to include a clause that allows advertisers to see a dollar-by-dollar breakdown of where their money goes. Basically, advertisers need to give themselves audit rights. Although non-transparency isn’t illegal, forging documents required by a contract certainly is.
Choosing an advertising agency is already quite the challenge, but with this study shedding light on some of the practices within the industry, it just got even more difficult. Fortunately, there are still advertising and creative agencies out there who focus solely on their clients and provide transparency throughout the process.