I was somewhat alarmed by an article I read in BusinessWeek this past week titled “An Ad Man Tests the Limits.”

The article is about CEO of GroupM, part of WPP (WPPGY) – a powerhouse of a media buying house, purchasing some $60 billion in media per year.

You can read the full article yourself, but I’d summarize the article this way.

- GroupM CEO Irwin Gotlieb is trying to arrange “volume overrides” (aka rebates) bonus payments back to his agency for media volume in the US – this might be through extra spots, media research for the agency, or cold hard cash.

Of course the article points out that these rebates might go to GroupM vs. clients in an effort to boost bottom line profits for WPP. It also points out the possible alienation which might occur with clients if the rebates are applied to WPP’s bottom line and not to the benefit of their clients.

So here’s my take on this “sticky wicket” as they say in the UK.

1. One of the big benefits which media agencies claim is they can get lower prices for all clients by aggregating the spend between them. In other words, paying wholesale vs. retail prices based on volume.
2. So if number 1 is true (and let’s suppose it is), shouldn’t those extra spots, cash and benefits be divided up between clients? I think so. Client companies are the ones actually paying for the spots, and also paying fixed fees to hire the agency staff to drive the media. I like to use the analogy of a bank… It’s a bit like the old banking 3-6-3 proverb. Banks pay you 3% in interest on your savings, they lend the money at 6% and they make 3% (or we use to say “be on the golf course by 3:00). And that’s a banks job – that’s how they’re business is setup. But it isn’t the premise on how a media agency is setup. If it is and a media agency wants the bonuses, perhaps clients shouldn’t pay fixed fees?
3. Clients should demand transparency in the financial dealings with any and all media agencies. It’s good business.
4. Clients rely on media agencies to make decisions in the best interest of the client… if they have a decision to make an extra buck by picking one media partner over another, how can a client be sure they’ll make the right decision?

My mentor Terry Puster uses a great quote “I don’t want the stomach acid”… that pretty much sums up my thoughts on this…, re-constituting bonuses that don’t go back to the client or are not transparent is only going to increase the stomach acid in the belly’s of clients.

Scott

GroupM Irwin Gotlieb media volume overrides rebates WPP transparency Terry Puster Scott Berg marketing advertising HP Hewlett Packard