Media Supply Chain: ‘Murky At Best And Fraudulent At Worst’

Advertisers pour money into digital, but the system has become so complex they often don’t understand where their budget is going and how their ROI is generated.

When P&G’s Marc Pritchard, owner of the world’s largest advertising budget, describes the digital media supply chain as “murky at best and fraudulent at worst,” it reflects a public recognition by the biggest brands that the Rubicon has been crossed by their partners and change is surely afoot.

How have we got to this point? A rapid increase in time spent online, combined with better attribution and unprecedented technological development, means that marketers can engage in far more persuasive digital conversations with consumers than just five years ago; they’re also able to communicate the revenue impact of these back to their businesses more accurately, unlocking bigger budgets by removing the notion that marketing is purely a cost centre.

This has generated a fantastic opportunity for advertisers, but the rapid innovation has also led to an exponential increase in the complexity of digital marketing. A world where brands talked to agencies who talked to media owners is now a distant dream.

Today, algorithms trade with algorithms, while multiple intermediaries jostle for a slice of the spend as it works its way through the convoluted plumbing of the ad tech ecosystem. Increased complexity has radically reduced advertiser understanding of where their budget is going and how their ROI is generated at exactly the same time as their digital investment has exploded.

This has created a dangerous situation. Billions of dollars have flooded into systems that the investors themselves do not understand. In advertising, as in finance, this is a recipe for disaster. Increased complexity has enabled some agencies and technology platforms to create opaque financial structures and then inflate their fees at will, while many advertisers are stuck behind contracts unfit for modern media buying that provide little scope for partner accountability. The consequences of this have become a very public issue, with several high-profile denunciations of the biggest media agencies for overcharging their clients and profiting from nefarious billing practices.

This places advertisers in a difficult position. They are faced with an ecosystem of great complexity, but trust in their traditional guides for this world has been dented —as Pritchard says “you don’t let the fox guard the chickens.”

That said, the impetus to act is huge. Although it may be counterintuitive, increased complexity has magnified both cost and ROI simultaneously, generating a powerful incentive to create and then reinvest savings. If a company investing €100 million in digital advertising cuts cost by just 10%—a relatively conservative target given the fat available to be trimmed—and then reinvests this in buying media at a modest ROI of 5X, they will realise €50 million in top-line revenue growth.

So how can brands achieve this?

1. Increase Transparency And Accountability

Advertisers have a duty to understand how much they are paying each partner in their buying chain and the value that each of these partners adds. The recent erosion of trust between advertisers and agencies shows that this understanding must be rooted in genuine transparency, accompanied by thorough and ongoing assessment by brands, rather than blind trust in the supposedly disinterested advice of their partners. Once advertisers have a clear view of their buying chain, they are in a position to revise it to reduce cost and increase value, building a bespoke model that works best for them, rather than accepting the “out-of-the-box” solution offered by most agencies and trade desks.

2. Adjust The Media Buying Operating Model To Take Back Control

Although increasing transparency may be easier said than done, revising your operating model is one way to guarantee it. While a fully in-sourced solution is right for some brands, it is easy to underestimate the complexity of building and maintaining this model. Instead of jumping straight to this position, several large advertisers have achieved transparency by bringing technology contracts in-house, while retaining specialist partners to operate the platforms. This hybrid model guarantees full transparency over cost, separating technology and service fees and eliminating the possibility of opaque mark-ups. Unsurprisingly, more than one major brand have seen the cost of digital advertising reduced by over 30% once all fees have been brought into the open in this way, more than compensating for the capital investment required to make the change.

3. Demand Greater Leadership From Brand Managers

The final step is to demand more from internal teams as well as external partners. Two brands I’ve worked with in the last 18 months saw their ROI increase in multiples by setting up small internal centres of excellence, launching training programmes for brand managers to empower them to take responsibility for investment decisions, and facilitating knowledge sharing across brands and markets. This not only ensures that the business owners can work in a true partnership with external vendors, but also enables successes to be rapidly replicated across the business through centralised reporting and dissemination of best practice. This prevents crucial knowledge accumulating solely across a fragmented network of external agencies and, by eliminating this asymmetry of expertise, further claws back control over decision-making to the brands themselves.

All of this may seem like a daunting task, but those advertisers that are beginning to enact these steps are reaping great financial rewards. The huge upside is driving market leaders to radically re-evaluate their partners, operating models, and investment in internal capabilities. This may be bad news for those with an interest in maintaining a conveniently profitable status quo, but it’s great news for those brands willing to take accountability for their investments.