Three reasons to review your agency contracts in 2022

izabela_kvamAs brands head towards the new year and plan what, in many markets, could be yet another unpredictable 12 months, it’s critical marketers use this opportunity to assess and reset relationships with their agency partners.

In the wake of the most turbulent period in living memory, one area of particular focus should be the contract, the foundation stone of fair and equitable commercial relationships with agency partners.

One thing that very definitely hasn’t slowed down during the pandemic has been the relentless pace of change in marketing communications. The ecosystem has become increasingly digital and complex, with ever more adtech and martech players lining up between brands and consumers and taking their slice of marketing budgets, often in non-transparent ways.

There are three important dynamics advertisers need to consider, dynamics that have been driven by changes in consumer behaviour and media technology over the past 18 months.

The rise of ecommerce
The first dynamic is shopping behaviour. Under the three months of the first global lockdown in 2020, the rate of adoption of ecommerce accelerated an estimated five-to-seven years in many markets, with billions more transactions made on smartphones. This happened sustainably and across the generations. Initially driven by concerns of personal safety and restrictions on movement imposed by governments, it has stuck for reasons of convenience, likely never to switch back.

According to eMarketer, digital commerce will account for three-quarters of topline growth in the five years to 2026, with ecommerce revenues doubling to $220bn in the same period. And recent data from Outbrain found that 48% of consumers plan to do all their Christmas 2021 shopping online, compared with just 6% who will shop exclusively in-store.

The rise of ecommerce is mirrored by the exponential growth in shoppable media budgets. Yet with so much ecommerce driven by and mediated through Amazon and Google, more and more brand dollars are being invested with these walled gardens, raising understandable concerns about transparency and the ability to build meaningful models of marketing effectiveness. And, for many brands, the dash to ecommerce and lurch to shoppable media are not adequately reflected in agency contracts.

New media consumption trends
The second dynamic is the accelerating rate of change in consumer media habits. While TV still often delivers the best ROI for mass consumer brands at scale, linear live TV is in long-term decline; meaningful audiences – particularly among younger demographics – are increasingly elusive. Ad-free, subscription video-on-demand platforms – Netflix, Disney+, Amazon Prime – are taking an increasing share of audience, with the Netflix series Squid Game dominating share of eyeballs in more than 90 countries worldwide at time of writing.

With audiences fragmented and often unreachable, brands need to reflect how they will reach the right consumers with the right messages in the right media at the right time. They need to pressure-test whether their existing agency partnerships and media planning practices have caught up with the new realities of consumer behaviour and, of course, whether their contracts have kept pace and are still fit-for-purpose.

New media opportunities
The third dynamic is this: changing trends in consumer behaviour and media consumption are both mirrored and driven by the new opportunities digital media platforms and agencies are offering brands in the race to secure meaningful, marketable audience segments. These include advanced or addressable TV, advertising-based video on demand (AVOD), and shoppable media.

What’s more, the very nature of online advertising is in the process of fundamental change, with Google’s (albeit delayed) decision to kill off the cookie on its dominant Chrome browser, following similar moves by both Apple (for Safari) and Firefox. For the first time in more than 25 years, brands will not be able to use third-party data to target, retarget, and often bombard potential consumers based on the trace they leave online.

The difficulty for advertisers is that there are so many new options available – from platforms, tech companies, and agencies – that it’s challenging to know what’s right for them.

In many cases – particularly in AVOD, which is seeing gold-rush levels of investment in some markets, most notably the US – these new media opportunities are unproven, with questionable measurement standards, and very little transparency. There’s a very real risk that AVOD could become “the new programmatic”. As often, one of the last areas to be considered is how these new opportunities will be governed contractually.

As well as providing an object lesson in how to navigate chaos and demonstrate resourcefulness through agility, the pandemic has also provided advertisers with the opportunity for a hard reset of commercial partnerships. It’s given them the chance to review, revise, and reset contracts.

Fair and comprehensive contacts truly are the bedrock of equitable commercial relationships between advertisers and their agency partners. The right contract ensures the partnership runs smoothly, provides fair remuneration for good service, and sees all parties fulfil their obligations.

Good contracts are all about good risk management, removing ambiguity and driving certainty into the biggest single commercial relationship many marketers have. By enshrining the right to audit in firm but fair contractual terms, by working with independent expert auditors to undertake regular – often annual – audits, undoubtedly these relationships run better.

Izabela Kvam is client services director at FirmDecisions UK

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