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

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On July 25, a headline in Media Post read, "Meredith Teams With Nielsen To Guarantee Sales To Magazine Advertisers." Joe Mandese wrote in the accompanying article:

In 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 services.

On July 26, a headline in Advertising Age read "Why More Media Companies and Agencies Should Guarantee Ad Results: It's About Creativity, Not Just Pleasing Budget-Minded Procurement Officers." The accompanying article by advertising executive, Jacki Kelly, global CEO of Universal McCann, praised Meredith for its promise of results:

Ladies' 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. It's time to see more of this -- and not only to please the procurement officers squeezing major marketers' budgets.

It's 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 partners' prices lower…

…If 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 performance.

Kelly goes on to recommend four ways marketers and agencies can partner for more creativity. They were good ideas.

But media guaranteeing results to advertisers is not a good idea; it's a mask.

If you read the above article excerpts closely, you'll see the principles playing musical chairs about results from advertising. The last one standing without someone to blame loses.

The 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 pile.

At 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 – essentially based on increased sales. A couple of clients took a few agencies up on performance-based deals, but the concept was not widely adopted. Also, the 15 percent commission system was scraped in the '70s and '80s, and a more rational system of time-based fees were widely adopted because time-based fees were perceived to be more equitable to both advertisers and agencies.

Why weren't pay-for-performance systems adapted over the years? Because they didn't work for either advertisers or agencies. Pay-for-performance or pay-only-for-results systems didn't work because advertisers and weak CMOs didn't take responsibility for results; they pushed the accountability and blame to agencies, thus abdicating their own responsibility.

Think 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 sales.

Also, 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 sales.

Furthermore, clients always have the final say on media plans and creative execution, so they can turn down an agency's well-thought-out media plan or an engaging creative campaign. Often agencies execute client-dictated second- or third-rate campaigns because of unimaginative, cautious, penny-wise-and-pound-foolish, CFO-dominated clients. Therefore, agencies are foolish to guarantee results for work they don't totally control.

So, if an agency offers a pay-for-performance deal when it knows it can't control the majority of the variables that lead to increased sales, it seems like a Hail-Mary pass: "We've lowered our fees as low as we can, so let's try this."

Same for the media, which has less control over the variables than agencies do. An advertising medium, such as a magazine, doesn't control any of the variables mentioned above (as agencies don't), and it also doesn't control the creative, so the only element a medium can control is ad placement (back cover, first editorial position, e.g.) and frequency of insertions (it can give bonus insertions to increase frequency).

In 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 costs.

What we don't 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 advertiser.

Thus, 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 (doesn't discount) for the sales-guarantee ad schedules, it can well afford to pay for the research and any rebates for underperformance.

In today's 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 schedules.

Meredith is smart enough to know that sales of national advertisers' products in the beauty, household goods, over-the-counter drugs, and food categories, even in a slow-growing economy, are going to increase by some amount, and probably aren't going to drop. So, Meredith is taking virtually no risk by guaranteeing a sales increase.

If I'm an agency executive, I like Meredith's offer because it gets my creative off the hook.

If I'm 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 high-quality, highly targeted Meredith content at competitive CPMs, the Nielsen research doesn't mean a thing to me.

But 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 bought.

Also, if I'm an advertiser, I don't want to turn over responsibility and accountability for increasing sales of my product or service to an advertising agency or to the media; it's my responsibility to increase sales. I want to take responsibility because I control most of the variables that affect sales. I'd like advice from my agency and from the media to help with scheduling and solutions, but I'm 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 variables.

If I'm 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 isn't fooling smart advertisers, because behind it is a just an old-fashioned discount.

Until he retired in 2002, Charlie Warner was Vice President of AOL's 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 charleshwarner@gmail.com.

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