Procurement-Based Media Pricing will Gain Importance Very Quickly

Part 4: Seven Founding Principles of the Future Media Industry. For more insights on this topic and to read Founding Principles 1-3 visitwww.mediavillage/channel/tomorrowtoday

JOHN WANAMAKER GOT IT WRONG

The actual quote, I've always believed, is "I know only half my advertising works, and the reality is I don't care which half." Advertising works, and it's cheap. The goal of brand advertising is to build awareness, message retention, and consumer interest by reaching the largest possible percentage of a target audience with an average 3x frequency within designated periods of time. This reality dates back to the reach/frequency curves and advertising models defined by GE's Herb Krugman in the early 1960s, and they have remained the same ever since. Media is truly a commodity. The recent furious press debates over rebates and transparency raised issues of agency profits, but why were there NO commensurate questions and debates about the value of the enhanced services provided by agencies and the comparative value of the media purchased by agencies for their clients. Could it be that clients fundamentally care more about lowering media costs than media performance and more about agency compensation than about buying and planning effectiveness?

It's this same reality that drives marketers' lack of focus on digital click fraud. The unspoken reality is that "I know half my clicks are fraudulent, but I don't care. We're achieving our reach and frequency objectives even with only 50% of the clicks and it keeps getting cheaper."

Only an average 30% of the average marketer's total communications budget is invested in traditional media advertising, and this is where procurement officers are taking control. These budgets will be subjected to intense downward pricing pressure by procurement officers who are capitalizing on growing media fragmentation and by agency media buyers who are confronted by clients who measure performance primarily based on media cost reduction.

As corporate procurement officers gain increasing control over and involvement in the media buying process, the demands on both agencies and media suppliers fly in the face of traditional relationships and business models. Real time bidding and programmatic buying are expanding beyond digital media into all media, and will soon include even the most premium media categories, including primetime network TV and sports. Enhanced data resources assure that procurement teams will have access to a wealth of metrics. Chief marketing offers and chief financial officers, who traditionally kept their distance from each other except for quarterly budget reviews, are now joined at the hip – that hip being the procurement officers who are charged with the responsibility for delivering overall consolidated corporate purchasing efficiencies. Media and advertising are perceived in the same context as other commodities in which companies must invest. Marketing and procurement teams must now engage regularly and collaborate to achieve their mutual goals. The danger is when the only common ground they can find focuses on achieving cost reductions – resulting in a flow of ad budgets toward cheaper media impressions.

The good news for agencies and media suppliers is that the relationships between procurement officers and marketing/brand executives related to advertising is still evolving, and a new culture of mutual respect is being born. Procurement officers are more engaged and interested in the multi-faceted dynamics of advertising beyond the drivers that enable greater cost efficiencies. The modern procurement officers are eager to demonstrate their value to marketing teams, and to accomplish that they need a better understanding of the realities of the advertising and business. The difficulty for media agencies is that new business pitches are typically decided on cost-based decisions that force media agencies, rather than focusing on creativity and innovation, to depend on the dramatic increases in media supply, reduced agency compensation, programmatic investments, enhanced analytics, emerging media categories and companies that drive down media costs, and the ease with which media cost efficiencies can be achieved.

These realities lead to one certain outcome: media costs will be pushed down. At the core of the analytical processes and systems that are being built will be the client procurement teams who will increasingly be the arbiters of how media is valued.