I read, with interest, a recent article regarding various pricing strategies taken in the OOH industry – past and present. It sparked for me an opportunity to weigh in on the service: value quotient at all ends of the compensation spectrum – notably in instances when commissions are taken down into the low, low, low single digits. While we are all driven to bring the greatest possible efficiencies to our clients, this raises for me a few important questions that are behind everything we strive to deliver for our clients at Buntin Out-of-Home Media.
Not just how low can price go but how irreplaceable can our value be?
Not just how can we meet expectations but how can we embrace agreements that reward us for over-delivering?
Not just how can we ensure great vendor pricing but how can we make all facets of negotiation, posting and vendor engagement fully transparent to our clients?
Not just how can we sell in out-of-home but how do we integrate data with out-of-home to truly deliver the very phrase we place under our Buntin Out-of-Home Media logo…”Precision Placement that Moves People and Business.”
In a broader media marketplace that needs transparency as much as ever (note the recent ANA reports on digital and the resulting and very visible exchanges between the AAAA and ANA), how do we as a collective industry build confidence in our medium, so that we gain greater consideration for out-of-home with brands and advertisers, looking forward?
In the investigation done by K2 last year, OOH, as well as digital, was specifically called out as guilty of questionable business practices. While I do believe the days of vendor incentives have been long gone, there is another scheme at work outside the view of clients, agencies and OOH vendors. It’s something I call the “arbitrage cheat”. Here’s an example.
Let’s say the OOH agency negotiates a 3% commission with an agency to place the OOH business for the agency’s clients. The OOH agency presents a proposal for a package of bulletins with a negotiated price of $100,000 net. The agency reviews and approves the proposal. The agency expects to receive an invoice for $103,000 (net cost plus OOH agency commission). All good, right? Here comes the “arbitrage cheat”…the OOH agency goes back to the vendors (the vendors are unaware the client has approved the proposal) and secures additional rate consideration…WHICH THEY DON’T DISCLOSE TO THE AGENCY. In this case, the OOH agency secures further discounts and sends a contract for $90,000 net to the vendor. The OOH agency bills the agency the agreed upon $103,000, which the agency pays. The vendor bills the OOH agency the agreed upon $90,000, which the OOH agency pays. And what’s left? A commission of $3,000 and an “arbitrage cheat” of $10,000 totaling a commission of 14.4%.
The agency and client are unaware. The vendor is unaware.
It’s time agencies and advertisers take some action. My recommendation is to do what we do for our clients.
Include language in the engagement agreement with the OOH agency that…
• The net cost is the lowest rate obtainable from the outdoor vendor for the board(s), after all applicable discounts have been applied and the board rate has been negotiated.
• The agency/client has the right to audit all vendor contracts and vendor invoices.
• The OOH agency will send, periodically, vendor contracts and vendor invoices in the absence of an audit.
• The agency/client has the right to obtain copies of vendor contracts and vendor invoices directly from vendors.
One thing that agencies and clients can pay attention to is if their OOH agency communicates, with some frequency, that a vendor or vendors are not honoring the rates the OOH agency originally received. This is not a common occurrence in the OOH industry with vendors and could be a sign of unusual activity.
Transparency is key to earning trust. It’s one reason our current portfolio of clients have been with us, on average, for ten years. And why, in instances when they may have considered going elsewhere, they have returned not only for aggressive rates – but also for superior service, complete trust and absolute business transparency.
These are some easy steps to take. It’s time to clean things up.