My co-founder Kevin Lee has written a new book called The Eyes Have It (How to Market in an Age of Divergent Consumers, Media Chaos and Advertising Anarchy) that discusses the seismic changes currently altering the media landscape. One of Kevin’s points that resonated with me is how the whole media buying process is completely messed up. Here’s my own take on the issue.
Why media buying is broken
What’s wrong with the media buying process? Well, lots. Clients aren’t getting the most out of the media their agencies buy for them, and there are some very good reasons why this is happening and is likely to continue to happen.
Let me lay out a scenario for you that is not atypical in the advertising industry. A client comes to an ad agency with an objective in mind and a budget in hand. He’s trying to reach a certain success metric by spending a fixed amount on advertising, for example, $3 million a month, and will continue to do so as long as his success metric (let’s say $4 million in monthly sales) is met.
The deal is signed and the agency then goes out to buy media appropriate for this client. Here’s where things get complicated and, in my view, just plain fishy.
Let’s assume that highly targeted inventory is available to the media buyer. This media is so good that the media buyer instantly knows that he can deliver the client’s $4 million monthly sales objective by only spending, say, $2 million of the client’s money. But would he actually do this? In the client’s eyes, he’d be a hero, but the problem is that the client doesn’t have the foggiest idea that the buyer has this choice available. After all, as long as the client keeps netting $1 million a month from his media spend, he’ll be happy.
To target or not to target?
Before you answer that you’d do the right thing and choose the most effective media, put yourself in the media buyer’s shoes. Your compensation package is likely based on some combination of salary, commission, or salary plus commission, but the fact is that your boss will reward you more richly if you spend all the client’s budgeted money (agencies typically charge a fixed percentage against media spend) than if you spend less. Given a customary 15% agency commission against media spend, the difference between spending $3 million of the client’s money and spending $2 million adds up to $150,000 a month. Over a year, that adds up to $1.8 million in lost agency commission.
Let me put it to you another way: are you absolutely sure that you want to be known as the guy who’s costing your employer almost $2 million a year?
The laziness factor
Let’s put aside this irreconcilable conflict of interest and ask another question: What if you do want to buy the targeted media but it isn’t available in one place? Again, put yourself in the media buyer’s shoes. You can try to buy the most targeted media available from a number of different sellers, but this is time consuming, because you might have to hunt far and wide to put a laser-targeted mix together. So, instead of leaving at 5pm and being greeted by a happy significant other, you’ll regularly have to go home at 11pm and, if you do this long enough, you’ll likely wind up with a divorce. Unless you happen to have another good reason to stay at the office this late, you’ll just buy the media where it’s most easily bought, even if it’s less targeted, and even if your decision costs the client money. Sorry, folks, but that’s just the way the advertising business works.
If there’s a way to discourage media buyers’ proclivity to buy less than optimally targeted media, we haven’t as an industry found it yet. Short of installing a client representative in every ad agency charged with micro-managing each media buy, or going to a performance-based model, there really isn’t one.
The good news, however, is that this entire industry is moving toward completely electronic systems that encourage more accountability and more transparency in the buying/selling process. As Kevin notes, once these systems, which will work more like public stock exchanges than the “black box” agency buying process, are in place, the market will reward those agencies that target most efficiently, and penalize those which don’t. In doing so, the interests of client and agency will at last become fully aligned.
We’re not there yet, but this is exactly where the industry is going, and those embracing this change will win, and those resisting it will lose.