A few weeks ago I wrote about promiscuity in advertising and how, advertising companies always tend to keep two or more vendors in competition at any given level of the supply chain.

Michael Griffiths replied that this is actually a common supply chain management practice and that it’s particularly prominent in commoditized industries.

That got me thinking.  Media planning and buying really shouldn’t be a commodity, but agencies often behave like their services are commoditized.  Why is that?

Since the late 1980’s media agencies have competed against each other on price – occasionally even offering media planning services for free as long as they got to take a small margin on the media buying business.  Think about that for a sec; it makes no sense.  Media planning should be the value added service.  Choosing where ads appear and to whom is hugely valuable to advertisers.  Reaching the right consumers at the right time could mean the difference between a very high ROI and completely wasting your advertising budget.  However, some agencies give away planning for free just to take a transaction fee on media buying, which is really much closer to being a commoditized service.

What’s going on here?

Why has the art of media planning become nearly worthless in the market?

I have two working theories here:

#1) In Digital Media Media Planners no longer truly plan media

Back when the only media options were Television, Radio, Magazines, Newspaper and Out of Home, the Media Planner played a little bit of a different role.  They were the people who researched audiences, calculated reach and frequency and created GRP schedules.  They were hands-on selecting the exact ad placements that their audiences would see.  They literally architected the consumer branding experience.

In digital media, things work a little bit differently.  Rather than serving the role of an experience architect, digital media planners outsource the function of exact ad placement and audience targeting to ATDs, Networks and Publishers.  Media planners don’t yet have the correct tools to manage digital media at the level of granularity that they used to manage traditional media, so they are relegated to more administrative type jobs like tracking budgets, creating flowcharts, managing RFPs and tracking billing.

#2) Poor digital media attribution obfuscates the value of media planning

Another reason why media planning could be seen as a commoditized service is due to the lack of accurate advertising success metrics.  The digital ad industry still lacks precise attribution and a true understanding, on a granular level, of the effectiveness of digital ads.  If clients could measure precisely how valuable each ad buy was, then media planning would surely be a much more differentiated service and there would be much more focus on getting every bit of value out of each media dollar.

What do you think?  Do you think media planning a commodity?

Is Media Planning a Commodity?
  • People might treat media planning as a commodity. But I think it has to do with your point #2 – media planning (like a lot of things) can be a black box (people don’t really understand how it’s done, or what distinguishes better from worse). Which means people can’t use quality to distinguish between options (just price).

    But it might also be because media planning is a necessary prerequisite for running an advertising campaign. So the plan will be created if the company has the business (meaning: it’s part of the overhead). Pricing is just a sales decision.

    The way some (a lot of) large companies are run, budgets are approved on a per line-item basis on the invoice. You (might now) believe the trouble that a $200 surcharge can cause on a $75,000 invoice. So there’s a tendency to “hide” the charge by folding into the total cost, and dividing by the number of units. It’s somewhat disingenuous, and actually really damages decision making, but people seem to like it.


    P.S. I think agencies behave as if they’re commodified because, well, they are. They’re run like large outsourcing companies. Take IPG as a completely random example: Employee salaries and compensation accounted for 63.8% of revenue in 2013; office expenses (and some other, e.g. depreciation) accounted for another 26.9%. Cumulatively, compensation + office expenses accounted for 90.7% of revenue.

    I mean, that’s pretty darn close to cost with a reasonable profit margin (9%) to cover the cost of capital / opportunity cost. Net profit stands at 4% (decline from previous two years).

    There’s no competitive advantage there, no proprietary technology or product or IP. Just people.

    That ends up driving a lot – the entire damn business and sales model – which is surprising. Companies will actually hire agenices in terms of # and % of FTEs (instead of outcomes).

    Source: http://investors.interpublic.com/phoenix.zhtml?c=87867&p=irol-reportsannual; see the 2013 10-K.

  • Great points here re: profit margin and the difficulty in actually seeing the differentiation in media planning. 4% is crazy. I like how you state that Ad Agencies (e.g. IPG) are simply marking up people at a narrow margin. What in your mind is the difference between IPG that charges a 4% margin on their people and Accenture that charge a 10% margin on their people (http://finance.yahoo.com/q/ks?s=ACN+Key+Statistics)

  • That’s a good question: I don’t know why IPG’s net profit margin is lower. It might be that the industry is more competitive; it could be that compensation at upper levels in advertising is significantly higher (i.e. employees take profit, as opposed to shareholders). Or, perhaps, Accenture has done more outsourcing (of e.g. development for US-based contracts done in India or lower-cost parts of USA) while a lot of IPG employees are in higher-cost areas (New York, etc).

    It’s also interesting that Accenture breaks out reimbursable expenses in their 10K, which are not trivial (pushing 10% of their total Cost of Services).