Deutsche Telekom and GSK agree: to resolve trust, paying media agencies as a percentage of spend has to stop
Deutsche Telekom no longer pays its media suppliers as a percentage of its ad spend, instead adopting a rate card model to know exactly who, from its agencies, is acting on its behalf. It claimed the approach is repairing the trust that’s been eroded in the past few years and is one being applauded by fellow ad behemoths GlaxoSmithKline (GSK) and O2.
Deutsche Telekom introduced the new payment model earlier this year as part of a massive overhaul of its estimated £600m pan-European media business.
It’s currently using a hybrid model (see the chart below).
Media strategy and “steering” is managed in-house. WPP’s dedicated ‘Team Magenta’ unit manages campaign planning and buying (a much smaller chunk of the business that it previously held) while Emetriq, a Deutsche Telekom subsidiary, manages its programmatic operations including buying on Facebook and Google. Finally, media analytics is split between Neustar and Objective Partners.
As part of this radical shake-up, Deutsche Telekom decided to stop paying these agencies on the commonly used 'percentage of media budget' basis, instead adopting an FTE model where it pays based on the rate cards of specific full-time employees.
“The fundamental question is ‘what is the role of the agency?’ It is my agent and I would expect them to act on my behalf and create transparency for me,” explained Gerhard Louw, head of international media management and digital transformation, of the decision.
“It should not be up to the client to educate themselves, though it’s great if they do, but they are spending time and energy on achieving transparency. It needs to be the agency talking to the buy side about DSP fees, looking at what SSPs are charging … that’s the agency’s job and why they’re getting paid. But with the ‘percentage of media spend’ model, they are not incentivised to do that for their clients.”
Louw was quick to admit that many of the problems at the heart of the distrust between advertiser and agency lay at the feet of clients. Calling pitch after pitch (“which are always focused not just media, but agency costs too”) and consequently “driving agencies down to ridiculous margins” are just some of the processes that shouldn’t have left any advertiser surprised by the media rebates expose from the Association of National Advertisers in 2016.
“We need to pay agencies fairly and differently,” he said, and get to a point where the client is “making sure the agency isn’t scared of spending less of our money”.
And for Deutsche Telekom, that means forging partnerships with individuals within agency walls to ensure that the company's ad dollars are spent well. He claims that since bringing in this model, the company is in a “much better place” when it comes to trusting its agencies than a couple of years ago.
GSK appears to be among those looking to follow in Deutshe Telekom’s footsteps.
GSK last week put its $1.7bn media business under review, just three years after awarding the business to Omnicom’s PHD and WPP’s Mediacom. But long before that review commenced it had been interrogating the effectiveness of its digital spend.
Speaking to her experience prior to joining GSK, its global digital media strategy director Sandra McDill said: “When you start to interrogate the data, as we did with our own DMP, then the cost of our media went down. It’s an obvious call out but there clearly were hidden costs and an inflation in pricing and decisions being made that I didn’t understand.
“I asked why we were spending money with an agency when viewability is low and ad fraud high … and when I interrogated the reason is because of [an agreement made over] lunch. That was the reason the supplier kept ending up on a plan. And that’s why there’s no trust.”
Though GSK hasn’t commented publicly on what it’s focusing on with the colossal review, McDill was in agreement with Deutshe’s Loew that the company “can’t work on a performance model in this era with our agencies, it needs to be about people”,
“I want agencies to spend money like it’s theirs and that will bring the trust back – when we know that decisions being made are for us and our best interests,” she said.
“You have to have a relationship where you trust each other to tell the truth about what’s happening.”
For mobile company O2, it currently works with Havas for buying and does pays the media agency on a retainer basis, including for programmatic. But, the brand's head of programmatic audience, Sohel Modi , said he has been driving an initiative across the business to re-establish the one-to-one relationships in the industry which were destroyed by the arrival of automated buying.
However, it’s not the agency at the centre of its rekindling efforts, but publishers: “Right now, the agency is talking to the client and the publishers. We need to do away with that model and, as brand owners, get closer to the publisher,” he said.
“If we’re spending £100 we have to expect the majority of that to go to that publisher because of the quality of their inventory. To do that we have the right people, we need verification for everything and to know what is out there.”
Agencies, however, are not convinced. Though not dismissive of the marketers' desire to have full knowledge of the margins to be made across the so-called Lumascape, putting a singular focus on understanding where every penny is spent can bring even more challenges.
In the case of O2 trying to give more to publishers, and less to the "third parties getting a cut that aren’t really doing the job," Mindshare’s head of programmatic suggested that, though still the goal of an agency, the client's need for oversight can detract from the objectives of a campaign.
"From what I've seen across [Mindshare's] portfolio of clients, it is typically the undisclosed model that drives better performance, because those vendors are able to put more investment into tech”, Seun Odeneye said.
In an ‘undisclosed model’ agencies negotiate programmatic deals without giving brands oversight of bid prices, possible hidden fees or margins, and brands only see the final cost of their media buy.
“When you’ve got the transparency, sometimes you can’t do that," he said, explaining in his view the concept of transparency is the client asking: "‘where is my media being delivered down to a URL level, what is driving my performance, how much spend is going on fraud, is it viewable, am I delivering on brand safe inventory?)" versus transparency on costs.
“There’s a benefit to the disclosed and undisclosed models but it depends on the clients. So, trust varies,” he said.
The comments from Gerhard Louw, Seun Odeneye, Sandra McDill and Sohel Modi were taking from a panel discussing the lack of trust in the programmatic ecosystem from brands towards agencies at the Programmatic Pioneers Summit in London today (16 May).