Media Negotiations - Double Dipping fails the Client

 

Media price negotiation is not exactly the Oslo peace accord or the EU accession talks. So, why do so many large media agencies find negotiation with media owners so difficult; and as a consequence loose the confidence of their clients?

The client position is clear, especially in these difficult times; they need continually better value from all their suppliers, as their sales, prices and margins are under constant attack in their marketplace. They need the best possible media price, and the media agency is employed to negotiate on their behalf and deliver it for them.

Even though they pay the agency to represent them, in many cases advertisers do not trust the agency to deliver the best price. Instead clients choose to either negotiate themselves with the media owners, or when they do allow agencies to front the negotiations, the agencies don’t lead; it is often the clients who are pushing the price downwards, and the agency is simply the messenger between the parties.

How can this be so? The agency is supposed to be the sector expert; they should know exactly what is the minimum price possible, and they should know exactly how to achieve it. They have all the resources; they have the data, they have the tools and they have the manpower.

The ultimate sanction of any price negotiation is to simply walk away and refuse to spend the money. But the agency is paid commission on the client media budget. So the agency is reluctant to use this final weapon. 

More importantly, the majority of the agency income comes from those same media supplies who they are supposed to be beating up in the negotiations, in the form of Agency Volume Rebates (known as ‘ristern’ in Turkey). So they must be careful not to bite the hand that feeds them. If they push too hard, maybe the media owner will cut their ristern percentage back to maintain their own profits.

And if they use the walk away/no spend weapon, then the agencies own volume commitment to the media owner will not be achieved, and their percentage ristern will be downgraded or not paid at all.

As a consequence the agency doesn’t always push too hard, and instead they have evolved into diplomats, running with messages between the real players (the client and the media owner), trying to keep both sides happy so they can continue to take their percentage from both sides. And like a diplomats they feel the pressure from both sides.

In the meantime another added value service of the agencies has been downgraded, and they are left with the back office function of number crunching and process; the real decision making has been removed, and they move further down the food chain.

Comments

[Paul Schick]

I agree and disagree :-)

Definitely yes, clients are in a very strong position and in the end often the decision maker when it comes to negotiations with media. And I have personally experienced such a situation in Turkey where the client has "taken over" the negotiations from the agency..

At the same time I have worked in agencies/buying groups that have had and still do have A LOT OF POWER AND INFLUENCE in the market place. A very good strategy can be to define the negotiation strategy together with the client and then to roll our negotations in a joint effort but under the guidance and control of the agency. but maybe this applies more to the large mature markets ..

and last but not least .. I would like to point to the digital media landscape where negotiations are more often driven by supply and demand, eg Google, there are no negotiations at all, it's just the CPC :-)