HOLLYWOOD, FLORIDA: Rebates remain a “fundamental part” of the advertising ecosystem despite the controversy surrounding this practice, a study by McKinsey, the management consultancy, has found.
Sarah Armstrong, a partner at McKinsey & Company, discussed this subject at the Association of National Advertisers’ (ANA) 2018 Advertising Financial Management Conference.
“Rebates are reality,” she said. “They are a fundamental part of this industry.” (For more, read WARC’s in-depth report: McKinsey: Rebates continue to cripple transparency.)
Armstrong suggested that rebates constitute a long-term bone of contention in the industry, but little conclusive action has ultimately taken shape in response.
“For years, our publishers have been paying [more] in return for volume buys,” she told more than 700 attendees at the ANA confab.
“Typically, [those additional dollars] have not made it all the way to the clients ... This has provided advertisers with a lot of unease in really trying to understand the ecosystem that we work in.”
Outlining the findings from McKinsey’s “Truth in Advertising: Achieving Transparency with Media Rebates to Fuel Growth” study, Armstrong argued that clients and agencies must build formal processes to address this issue.
Agencies, she reported, have developed creative ways to generate revenue from rebates. Equally, however, clients have encouraged this activity by squeezing fees.
One vital step forwards, Armstrong asserted, is to “at least let the conversation happen if those rebates still exist. The client may want to offset their fees with rebates.
“They might want to pay for research rebates. There’s lots of ways to use those dollars. But it should be the client’s decision.”
In quantifying the problem, McKinsey has pegged the percentage size of rebates at between 5% and potentially as much as 30%, depending on the medium in question.
And the company’s “Truth in Advertising” analysis stated that 500 major advertisers – including “a ton of the big brands, like Unilever,” Armstrong said – have initiated request for proposals (RFPs) for their agencies.
Indeed, she continued, this statistic was indicative of the desire for a shift away from entrenched norms. “That’s where clients are saying, ‘We have got to change’,” said Armstrong.
Sourced from WARC