How marketers are responding to the bombshell report that claims US ad agencies take secret rebates

Marketers are reacting to a long-awaited report published Tuesday that alleges US media agencies use non-transparent practices, such as taking secret rebates from media owners and not disclosing them to clients.

The Association of National Advertisers (ANA) report suggests such non-transparent practices are “pervasive” in the media buying industry.

So far, the reaction from agencies has been one of fury. Interpublic Group described the report as “inflammatory,” while Publicis Groupe said the ANA has “failed its members, advertisers, agencies, and the entire industry.”

Marketers, on the other hand, have, largely, welcomed the report. Some marketers have also been quick to point out that they have all the right processes in place, thank you very much.

“I’m sure media companies will … sell out the media agency faster than you can say ‘agency conscious uncoupling'”

One US-based retail marketer, who asked not to be named, said what’s “scary” about the report’s findings is that there is big money at stake.

He said: “If we estimate 5% of all ad revenue in the US is being kept by media agencies in what the ANA calls ‘fees’ and the total US ad spend estimate is $180 billion, we are now talking real money here of around $9 billion. Are agencies really wanting to risk their business over this amount? Can you imagine what would happen to my retail sales if all of our advertising budget was being applied on our behalf?”

He believes brands may start attempting to strike more direct deals with media companies, versus via their agencies, which may reveal the true cost of media.

“I am sure media companies will take our money gladly and sell out the media agency faster than you can say ‘agency conscious uncoupling’,” he added.

Agencies would probably argue that the very reason you want to use them is that they get better ad rates due to the volume of spend they are passing on to media companies so it’s unlikely clients would get a good deal if they go direct. However, that’s also the exact subject up for debate: Are those volume deals in the best interest of the advertiser, or are they made to ensure the agency gets the best return?

Our source thinks the first casualty of the report will be upfront TV buys — where agencies make commitments with TV networks to spend huge amounts of their clients’ aggregate ad spend during the most attractive programming in the Fall.

“No way should we allow our agencies to buy in advance huge buys for the fall TV season,” our source said

Unilever and P&G respond

CPG giant Procter & Gamble — which owns brands including Pampers, Charman, and Ariel — is the company that spends the most money on advertising in the US — $4.6 billion in 2014, according to AdAge.

A P&G spokesperson sent this statement:

We appreciate the ANA’s diligence to study media transparency practices, particularly as technology is bringing a significant transformation in the industry. As a result of the study, it’s important that advertisers and agencies work together appropriately to deal with the changing media ecosystem.

At P&G, we want and expect strong agency partnerships based on mutual trust, transparency and teamwork. We have a “trust but verify” approach that includes having clear and thorough stipulations in our contracts, regular audits on performance, and third party verification that ensures transparency. If we find irregularities, we will take remedial action.

Unilever, a huge global advertiser that owns brands such as Dove and Axe, has also responded to the report.

Luis Di-Como, SVP of global media at Unilever said in a statement that the company takes the findings “very seriously”.

Trust and transparency are critical to any relationship, so we take the ANA’s findings very seriously. We support its work to ensure that as the media industry evolves these values remain a top priority.

At Unilever, we are actively engaged with our agencies and the industry at large to exert greater control and responsibility around media transparency. We go to great lengths to make certain that our proprietary procedures and policies maximise our investments and fulfil our contracts, in both the letter and spirit. We’re confident the right steps will be taken to strengthen our industry.

The need for cross-industry collaboration

Ultimately, the ANA’s aim in producing this report wasn’t to tarnish an entire industry but, as its CEO Bob Liodice said in a conference call earlier Tuesday, to provide an “objective, uncolored assessment” of media-buying practices removed from any “opinion, speculation, innuendo, [and] nuances.”

He added that while it may be a “troubling” report for many in the industry, he hopes it represents a “transparent” approach to rebuilding client-agency trust.

That appears to be the World Federation of Advertisers’ reaction too. (WFA is a global advertiser trade body that represents many of the same brands as the ANA, but the ANA focuses purely on the US market.)

In a statement, WFA CEO Stephan Loerke said:

Transparency has long been considered a critical issue by WFA and remains a priority for its members. We welcome the findings from the ANA and will continue to address the challenge globally, not least in emerging markets where transparency problems can be more acute.

Advertisers should take the lead in addressing the challenge but WFA also believes in, and calls for, global cross-industry collaboration to find answers. That’s why we have been conducting systematic dialogues between media agencies and clients around the world to better understand the issues and ultimately try and engender greater trust in the marketplace.

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