Behind the Mask of Meredith's Guaranteed Sales is a Discount - Charlie Warner

On July 25 a headline in Media Post read quotMeredith Teams With Nielsen To Guarantee Sales To Magazine Advertisersquot Joe Mandese wrote in the accompanying articleIn a surprise development that signals how pressed print media is to compete with the ROI of digital media one of the biggest publishers of consumer magazines Meredith Corp this morning announced an unprecedented plan to begin guaranteeing that their magazine buys will yield an increase in sales of their products or servicesOn July 26 a headline in Advertising Age read quotWhy More Media Companies and Agencies Should Guarantee Ad Results It39s About Creativity Not Just Pleasing BudgetMinded Procurement Officersquot The accompanying article by advertising executive Jacki Kelly global CEO of Universal McCann praised Meredith for its promise of resultsLadies39 Home Journal publisher Meredith this week said it will promise some of its biggest advertisers that major ad campaigns in its magazines will achieve certain sales results It39s time to see more of this and not only to please the procurement officers squeezing major marketers39 budgetsIt39s true of course that clients want to see the real results of their ad spending And emphasizing analytics can seem like just another way for agencies to push media partners39 prices loweramp8230amp8230If we want to experience a creative renaissance and give our client partners the confidence to experiment agencies and media owners must be willing to measure more and be willing to be compensated based on performanceKelly goes on to recommend four ways marketers and agencies can partner for more creativity They were good ideasBut media guaranteeing results to advertisers is not a good idea it39s a maskIf you read the above article excerpts closely you39ll see the principles playing musical chairs about results from advertising The last one standing without someone to blame losesThe CEO of an advertiser can blame the Chief Marketing Officer the CMO can blame the strategy consultant the strategy consultant can blame the advertising agency creative team and the agency can blame the media especially if a medium guarantees results Because success sales has many parents and failure is an orphan blame like manure gets passed down from the top of the pileAt least 50 years ago when agencies still got paid based on a 15 percent commission on placed media some agencies that were losing clients offered to get remunerated based on the performance of their advertising amp8211 essentially based on increased sales A couple of clients took a few agencies up on performancebased deals but the concept was not widely adopted Also the 15 percent commission system was scraped in the 3970s and 3980s and a more rational system of timebased fees were widely adopted because timebased fees were perceived to be more equitable to both advertisers and agenciesWhy weren39t payforperformance systems adapted over the years Because they didn39t work for either advertisers or agencies Payforperformance or payonlyforresults systems didn39t work because advertisers and weak CMOs didn39t take responsibility for results they pushed the accountability and blame to agencies thus abdicating their own responsibilityThink of the logic of placing the responsibility for results on an advertising agency What a marketer in essence is admitting in this case is that the two most important elements in the sale of a product or service are the placement and creation of advertising They are not giving any weight to the quality of the product the packaging pricing the distribution channel consumer or trade promotions publicity social networking strategy the weather the economy or the cumulative effect of advertising messages to name just a few factors that impact salesAlso think of the logic of an agency taking responsibility for results What an agency in essence is agreeing to is the same concept as stated above But since agencies cannot control the multitude of variables that affect the final sales of a product they are hoping and guessing that their media placement strategy and their creative are good enough to overcome the possible screw up of advertisers in all or even a few of the hundreds of variables that impact product salesFurthermore clients always have the final say on media plans and creative execution so they can turn down an agency39s wellthoughtout media plan or an engaging creative campaign Often agencies execute clientdictated second or thirdrate campaigns because of unimaginative cautious pennywiseandpoundfoolish CFOdominated clients Therefore agencies are foolish to guarantee results for work they don39t totally controlSo if an agency offers a payforperformance deal when it knows it can39t control the majority of the variables that lead to increased sales it seems like a HailMary pass quotWe39ve lowered our fees as low as we can so let39s try thisquotSame for the media which has less control over the variables than agencies do An advertising medium such as a magazine doesn39t control any of the variables mentioned above as agencies don39t and it also doesn39t control the creative so the only element a medium can control is ad placement back cover first editorial position eg and frequency of insertions it can give bonus insertions to increase frequencyIn the Meredith offer the magazines set a high level of frequency over a year so they demand a large schedule that they know from experience will work all the other variables remaining constant What Meredith is doing in essence by guaranteeing sales results as monitored by Nielsen Homescan is getting a very large schedule of ads and discounting their rates by the amount that the Nielsen research costsWhat we don39t know about the Meredith offer is what the downside is The upside for Meredith is a very large ad schedule at a time when magazine advertising spending is in serious decline But if we assume that the downside for Meredith is that if sales decline say 5 percent after a schedule runs then Meredith has to rebate 5 percent of the cost of the schedule to the advertiserThus the value of the deal is based on how Meredith prices and discounts its ads according to its published rate card If Meredith charges rate card rates doesn39t discount for the salesguarantee ad schedules it can well afford to pay for the research and any rebates for underperformanceIn today39s depressed market for print advertising newspapers and magazines are under pressure to discount off their rate cards by 25 to 50 percent Therefore the Meredith sales guarantee offer is a mask for an opening offer in a price negotiation for very large advertising schedulesMeredith is smart enough to know that sales of national advertisers39 products in the beauty household goods overthecounter drugs and food categories even in a slowgrowing economy are going to increase by some amount and probably aren39t going to drop So Meredith is taking virtually no risk by guaranteeing a sales increaseIf I39m an agency executive I like Meredith39s offer because it gets my creative off the hookIf I39m an advertiser how much I like the offer depends entirely on the comparative and competitive CPMs of the ad schedule If I can get the highquality highly targeted Meredith content at competitive CPMs the Nielsen research doesn39t mean a thing to meBut it does mean something to Meredith because it can run ads that claim that its magazines have proof that advertising in those magazines increases sales which is nice for Meredith And as advertisers we like Meredith because they gave us a nice very competitive CPM on the magazine schedule we boughtAlso if I39m an advertiser I don39t want to turn over responsibility and accountability for increasing sales of my product or service to an advertising agency or to the media it39s my responsibility to increase sales I want to take responsibility because I control most of the variables that affect sales I39d like advice from my agency and from the media to help with scheduling and solutions but I39m not going to pay them for getting results because there are too many variables involved and media and creative are just two of a horde of these variablesIf I39m a medium then instead of calling a discount off rate card a discount it makes sense to put on a mask of guaranteed sales increases But the mask isn39t fooling smart advertisers because behind it is a just an oldfashioned discountUntil he retired in 2002 Charlie Warner was Vice President of AOL39s Interactive Marketing division Before joining AOL he was the Goldenson Endowed Professor at the Missouri Journalism School where he taught media management and sales and he created and ran the annual Management Seminar for News Executives Charlie can be contacted at charleshwarnergmailcomRead all Charlieamp8217s MediaBizBloggers commentaries at The Media CurmudgeonCheck us out on Facebook at MediaBizBloggerscomFollow our Twitter updates MediaBizBloggerThe opinions and points of view expressed in this commentary are exclusively the views of the author and do not necessarily represent the views of MediaBizBloggerscom management or associated bloggers MediaBizBloggers is an open thought leadership platform and readers may share their comments and opinions in response to all commentaries

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