Up to 70% of digital advertising budgets wasted in agency and tech fees

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Author: Robert Lloyd

In the beginning we were wasting half
Not everyone has heard of Jon Wanamaker, the successful early 20th century US retailer. However, many modern marketers know his quote, “half the money I spend on advertising is wasted; the trouble is I don’t know which half”.

Over the past 100 years, this quote has been accepted as a near truth for marketers around the world. As the golden era of advertising emerged from 1950’s Madison Avenue, New York, so did the desire to begin understanding the contribution made by advertising driven by the media agencies who were responsible for buying advertising on their client’s behalf. Advertising is a great way through to get your business out there and hopefully gain customers. If you are looking to boost your niche business, you could use a service as found at https://theseodentist.com/dental-advertising/ or the equivalent for other niches. A lot of people are now doing things like video marketing, so if this is something that interests you then you should check out this YouTube advertising agency here.

Enter digital
The rise of digital advertising meant rise to a whole new set of advertising metrics that were in no way compatible with the original (i.e. traditional) media metrics such as TARPs and OTS. Advertisers could now be told the number of “impressions” their ads, meaning the number of times the ad was loaded within a webpage. When compared to TARP which is a statistical metric showing the probability of someone seeing your ad, digital, for the first time was able to give you absolute figures on the number of advert impressions down to the very second.

As digital marketing gained popularity, the number and accuracy of these metrics continued to evolve. An online search today for “digital marketing acronyms” will return glossaries containing hundreds of digital metrics which are used on a daily basis around the world.

To many, it became apparent that for the first time in history that the advertiser could finally find out which half of her advertising was wasted.

According to the Australian IAB:
Australian online advertising experienced a significant surge in the final quarter of 2015, to reach $6 billion for the twelve months ending December 31st, a 25.3 percent increase over CY2014. […] another major milestone for the industry, which has now achieved double digital year on year growth of at least 21 percent since 2010.

Programmatic advertising – removing the human
Whilst the measurement of digital advertising continued to evolve, many around the world were discovering that the purchase methods of digital could evolve. Rather than agreeing in advance to buy advertising space from a publisher (like TV and print), it was now possible to buy it in a real-time auction against other advertisers using software. There are many names of this type of software but the method is called Real Time Bidding (RTB).

An increased reliance on software (referred to as “Ad Tech”) meant that agency staff were spending increasing time managing the RTB tools rather than managing relationships with the publisher. In addition, not only did the software increase complexity, but the scale of this software was truly immense because you plug into multiple networks (called Ad Exchanges and/or DSPs) across potentially thousands of websites. Then if it weren’t enough, Ad Tech had evolved to allow you to target specific demographics, audience interests and eventually target down to the individual level. This whole setup is collectively known as programmatic advertising.

Programmatic isn’t a specific advertising channel, rather, it is a method of buying digital media via interconnected software. As the reach of digital advertising breaks out into mobile, Outdoor (i.e. Billboards) and more recently Video and TV, it’s predicted that 65% of all non-search US digital advertising bought in 2020 will be done programmatically.

Source: Adapted from Business Insider Australia.
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Buying the result
As the world of mahogany, cigars and whiskey were being replaced by new methods, new metrics and new buying models, the complexity and resulting confusion continued to increase. Businesses were no longer able to understand how their money was being spent. To many, they paid money into an agency and were then presented with a performance report at the end of the month. The control and knowledge was ultimately with the media agency running the campaign.

Therefore, instead of buying media on a commission or an FTE model, clients started paying for their campaigns based on results. For example, a client would pay for 400,000 impressions and if they perceived the CPM rate to be a good deal then that was what mattered. This value based buying is what has ultimately created the black box situation of money-in and results-out where advertisers weren’t sure how results were being achieved.

Driving toward transparency
Today, the transparency and trust in media have been a hotbed of discussion, but resulting in little change to industry practices. The last year has seen some platforms and media groups admitting to being paid rebates from publishers[1], managing value banks[2], as well as trading desks and vendors being accused of making +60% margins on programmatic advertising [3].

A typical media agency will make between 20-30% overall margin, with their holding groups making between 10% and 15% margin, so if a product they sell has potential margin of twice the company average, then it’s reasonable to then question their motivation behind recommending programmatic advertising.

Regardless, it is forecasted that Australian advertisers will spend 23% more YoY on programmatic advertising in 2017 [4]. Unchallenged, this could mean that up to $350 million of the $500 million predicted programmatic spend in 2017 could be taken by intermediaries before the money hits the publisher.

Source: Louder
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Why is this happening?

The simple answer is down to the level of knowledge of the buyer, i.e. the advertisers themselves. There could not possibly be a better time for procurement teams to come to the rescue of their marketing team.

Tips on assessing programmatic
Assessing programmatic doesn’t necessarily require one to become a programmatic expert. The following tips should help avoid most issue or begin discussions that lead toward improved transparency with programmatic agencies.

  1. Ensure that your ownership is maximised throughout the programmatic process. This includes the ownership of data and platforms during and – most importantly – after the contract ends between advertiser and agency. Where possible, sign contracts directly with the tech/platform providers to maintain ownership.
  2. Ask for an FTE model of who is working on the account upfront. Note that the average experience of individuals on the account needs to be 2-6 years. Don’t pay attention to the position titles as these don’t guarantee individual capability.
  3. Request disclosed hours and access to timesheets. Ensure that this includes individual worklogs (highest granularity possible) and not an aggregated monthly total.
  4. Ask for a clear Service Level Agreement (SLA) including training of your staff over the contract period. Clarify the level of support you will receive from your agency in assisting with governance such as participating in internal meetings, meeting your compliance team, integration support with your existing platforms and how they’ll work with your IT and architecture teams.
  5. Request a full list of technologies applied to the account (at last count there are around 3,500 vendors offering various programmatic services and plug-ins). Ask your agency why they have selected that technology over alternatives.
  6. Avoid signing media agency contracts that contain compulsory spend with their trading desk. Maintain the freedom of programmatic spend, including the possibility of creating your own, in-house setup.
  7. Remember that programmatic advertising is not inherently bad, rather, it’s a very powerful application of technology to advertising. Procurement focus should be on the transparency of agreements between buyer and seller rather than a witch hunt on programmatic itself.

Which half is being wasted?
Are we in a better position than before digital advertising? If transported through time, Jon Whittaker, would be amazed at the level of granularity that digital can provide in terms of where, who and when of campaigns. However, considering the level of untoward activity facing some marketers, he may consider changing his quote; “half the money I spend on advertising is going into the agency; the trouble is I don’t know which half”. This shows the importance of finding an efficient and highly successful advertising agency to ensure your money has been used wisely. Advertising Agencies In Austin may be useful to you.

Get programmatic right from the start and ask the hard questions. The era of wasting money is over.

About Author

Procurement and Supply Australasia (PASA) is the leading provider of information and education to procurement and supply professionals throughout Australia and New Zealand. PASA supports the largest community of engaged procurement stakeholders in the region, through its renowned series of events, publications, awards, plus various community and network building activities. PASA is a trading name of BTTB Marketing, for many years recognised as the leading producer of conferences and events for the procurement profession in Australia and New Zealand. Whether producing under the BTTB, CIPSA Conferences or now PASA brands over the last ten years, our events have consistently led the market in terms of both educational and networking opportunities.

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