A recent ANA report revealed that agency holding companies profit from media sales to clients. However, this hasn't caused an uproar among CMOs, who seem accepting of agencies finding new ways to increase margins, provided the process is transparent.
Principal-based trading, where agencies use various methods to increase effectiveness and profit, is becoming more common. To prevent negative outcomes, marketers should ensure agencies operate within specific guidelines, such as investment caps, quality assurances, and strategic alignment.
The fact that agencies profit from the media they buy for advertisers isn’t new. The focus has shifted towards keeping these practices in check and ensuring everything’s above board. Agencies must ensure that principal media deals pass along advantages to the client in terms of better pricing, inventory access, or performance.
Principal-based trading will continue to be a big driver of growth for agency groups. Marketers often opt for trading models that bundle services and media, supporting the ongoing role of principal-based trading in the industry.
Bill Duggan, executive vp at the ANA, acknowledges that agencies need to find other ways to generate revenue, given client pressures. He also cautioned marketers to pay more attention to their arrangements with media agencies.
Nick Manning, owner of Encyclomedia, criticized principal-based trading, stating it enables agencies to low-ball fees and media costs to win an advertiser’s account. He warned that it's a gamble by the agencies on being able to word the client-agency contract in ways that prevent detection of the many extra sources of revenue.
