While Artificial Intelligence commands the limelight this year (and will do so for years to come), some other matters should be attracting the attention of the Marketing Procurement community. Perhaps the most immediate is ‘Principal-based’ media, also known as ‘Proprietary’, ‘Inventory’, ‘Opt In’ media or even ‘value-based’ solutions.
Following the publication of the latest ANA study, MMC recently ran three highly popular webinars for advertisers in the Americas, APAC, and Europe regions. If you missed them or would like a copy of each recording and Q&A, please get in touch.
Nick Manning, MMC Non-Executive Chairman and webinar host, was invited to provide guidance on calculating Principal Media's value in this special article for Marketing Procurement IQ. Below is an excerpt:
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Principal media ‘(PM’ for short) is re-sold by the Media Agency to its clients at a discount against conventional media inventory and at a profit margin that advertisers cannot audit.
It is mixed in with conventional non-PM inventory to the extent that it is very hard to spot the join and only the media agency really knows whether the medium and its quality are what the advertiser would normally use and its true cost.
Where advertisers have allowed the use of PM, 80% of a schedule is typically non-PM at a normal price and fee and 20% is PM at a discounted media cost at an undisclosed profit margin for the agency.
The advertiser opts in to an agreement that prevents them from being able to audit the price the agency paid to the media owner versus the price the advertiser pays.
PM is only one of a multitude of non-transparent, undisclosed practices that Media Agencies have developed to increase their revenue, usually in ways that exploit gaps in their contract.
These have existed for several years but such practices that were identified and neutralised in industry contract templates have been replaced by new ones that often fall outside of the client/agency Master Services Agreement.
However, PM is actively positioned as being ‘transparently non-transparent’ in that the advertiser gets the advantage of the agency’s collective negotiation strength. The only apparent disadvantage is the inability of clients to know how much money their business is worth in total to their agency.
The theory goes that the Media Agencies acquire media on their own behalf, thereby become the ‘principal’ to the media vendor/agency transaction and are therefore liable for payment of the media. The client receives exactly the media inventory they would have acquired anyway but at a lower price on the PM portion of their schedule, usually around 20%.
This is called ‘proprietary’ in markets outside of the USA where the Media Agency has generally always been the principal. There is an obvious question: why can’t the Media Agency secure the better prices anyway without having to supposedly buy it for themselves, re-sell it to clients and be on the hook for payment?
In the US the way that this is answered is that the Media Agency is taking a ‘principal’ position and assuming the risk. Outside of the US (where agencies are principals anyway) a different answer applies. The media is ‘proprietary’ to the agency and essentially pre-bought, so the Media Agency effectively owns the media.
This is the way that PM is presented to the market and some advertisers have accepted it. The recent ANA ‘Acceleration of Principal’ Media’ study showed that half of the advertisers questioned had recently used PM.
The ANA study naturally doesn’t take a position on whether the advantages outweigh the disadvantages, but the reality of how the PM system works on a day-to-day basis is somewhat different to how it is often portrayed and more nuanced that the ANA report could cover.
There are four main aspects to consider when weighing up the pros and cons:
The ways that media planning may be affected
How PM is negotiated by agencies and the extra contractual requirements for clients
Potential audit and contract compliance anomalies
The total value compared to the process.
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To read Nick Manning's article in full, please head over to Marketing Procurement IQ.
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