The rapid acceleration of some key trends in the marketing industry during the COVID pandemic has posed a particular challenge to the way clients remunerate their media agencies.
In most markets, agency contracts include remuneration terms that have a degree of risk and reward. In other words, the high performance of a campaign, above the basic conditions, unlocks financial rewards; poor performance results in a financial penalty. For media agencies, this risk/reward system has long been tied to media price commitments, particularly at the base price achieved by linear television advertising.
However, we are experiencing a true revolution in the way consumers interact with brands, spend time with content and media, and buy products and services. Consumers have quickly moved away from traditional communication channels – such as linear television – to a complex system of experiences through (mostly) digital platforms in almost all countries. For advertisers, this makes it difficult to access large-scale audiences, and they are more expensive to capture and almost impossible to predict.
In turn, this circumstance has altered the budget allocation. Linear TV used to account for the majority of customer media investment. Both independent auditors and clients followed up well, and potential price fluctuations were easily understood and accounted for.
Due to the impact of COVID and the increasing financial weight of global streaming services, linear television audiences are falling, yet media prices are rapidly inflating. Not even the most skilled agency traders can counter the force of supply and demand.
As a result, customer investment in linear TV has fallen rapidly, favouring other online video platforms (and digital in general). Savvy clients are adjusting their investment in paid media as part of the advertising and communication pie to invest in owned and earned media production and content creation. It’s a smart move: Global Web Index data shows that owned and earned touchpoints have grown exponentially as a source of brand discovery in the last two years, while paid touchpoints have declined.
This creates an uncomfortable truth that media agencies and client procurement teams must urgently address together: television price is no longer a good indicator of agency performance. It is a complex problem, and the solution is not simple.
Beyond linear television, media pricing as proof of success (or not) may still have some relevance. Still, with many digital media bought in a tender model, digital pricing dynamics requires a more focused approach. Flexible if used to evaluate performance.
So it is not just the way we measure success that needs to change, but the way we define it. As media agencies, we increasingly partner with our clients to create and manage complex omnichannel consumer experiences. Our risk/reward system must change to reflect this; it must reflect the new results we intend to obtain from consumers. We must define success based on KPIs related to short- and long-term consumer behaviour, not just KPIs related to media performance.