R3: Transparency is triggering a disconnect between agency and CMO

It’s well over 100 years since American merchant, John Wanamaker, once opined his ignorance regarding which half of his marketing budget was wasted.

The passage of time appears to have done little to bring succour to his latter-day peers when it comes to accountability in their marketing spending.

This age-old problem was recast in a whole new light in October last year when the US FBI contacted the Association of National Advertisers to offer its assistance in an investigation into US media buying practices. This came off the back of years of concern regarding non-transparent business practices such as undisclosed rebates.

According to co-founder and principal consultant at global marketing effectiveness consultancy R3, Greg Paull, the involvement of the FBI has fuelled advertisers’ desire for greater transparency into how their money is being spent.

“If you look at something like a programmatic media spend, and the money that is lost along the way from the $100 you invest to the $30 or $40 that ends up running, that has really been the impetus for a lot of marketers to take a closer look at this whole process,” Paull tells CMO.

R3 works with brands and brand-houses including Procter & Gamble, Unilever and Samsung to reduce the risks of marketing through use of benchmarks, transparency and best practice. Speaking ahead of his appearance at the Institute of Internal Auditor’s SOPAC conference in Sydney in March, Paull says the current trend towards short-term thinking and the rapid turnover of CMOs may actually be exacerbating the problem.

“One of the biggest issues is the constant change of agency relationships, through CMO turnover and agency turnover. It has been very difficult for a lot of brands to build longevity,” he says. “If you look at people like Unilever and others, they have had 100-year relationships with some of their agencies. It means you have very consistent custodianship of brand leadership. A lot of other companies don’t have that structure and opportunity.”

Paull says the rise of short-termism has been driven both by marketing teams that want to place the blame for poor performance outside their own organisation, and agencies that are now slaved to quarterly returns.

“Agencies that are now public companies are more and more focused on their business, than necessarily as an agency to the client,” Paull says. “Both those factors are causing a disconnect.”

This set of circumstances has been further impacted by the greater prominence of procurement departments in selecting and managing agency relationships, which is leading to more reviews.

“Some of them are becoming cyclical now, happening every two or three years just as a matter of course, which is a big challenge,” Paull says.

While agencies might be restricted in their ability to influence the policies of their clients, Paull says there is much they can achieve by focusing back on their clients as true business partners and not just as a source of revenue.

“That means looking at what proactively can be done to help them innovate and grow as opposed to just answering a brief,” he continues. “Too often agencies will get lumped with a comms brief, whereas a CMO is being judged on a business brief. So trying to take it up to a higher order can only help.”

Paull says agencies would also help their cause if they insisted on third-party accountability, and some agencies in the US are outsourcing 100 per cent of post analysis.

“It doesn’t make sense for agencies to be marking their own homework,” he says. “Where you have a grown-up agency that can make those kinds of calls is only going to reflect favourably on them.”

Paull says another area that bears closer examination is the KPIs being applied in agency relationships.

“They are not focused on growth and innovation,” Paull says. “They are more focused on year-on-year improvement, or more static numbers. They are certainly not looking at encouraging failure and rewarding failure.”

Ultimately, he says the current frustration with transparency is being driven by clients who are trying to break free of constrained growth, and are looking for better accountability for their spend.

“You can’t move what you can’t measure and there is still a lot of short-termism in a lot of marketing strategies and a lot of reflective work coming from competitors,” Paull adds. “Everyone is searching for that Holy Grail, and it is not easy to find that solution to marketing accountability. But it is a constant journey rather than a single solution.”

Follow CMO on Twitter: @CMOAustralia, take part in the CMO conversation on LinkedIn: CMO ANZ, join us on Facebook: https://www.facebook.com/CMOAustralia, or check us out on Google+:google.com/+CmoAu