The Marketing Book 5th Edition

(singke) #1

446 The Marketing Book


fact, plus the twin forces of historical precedent
and professional etiquette, have so far main-
tained this feature of the system intact.
It is also essential for the efficient operation
of the system that only bona fide agencies
receive commission by right. For a long period
in the history of the system, the media trade
bodies awarded ‘recognition’ to agencies that
met certain criteria. For complex reasons,
clearly explained by Brierley (1995, pp. 65–68),
this universal and exclusive recognition agree-
ment was eventually abandoned. Nevertheless,
media owners’ sales contracts still require
agencies to meet their own criteria of eligibility
for commission.
Crosier (1998b) provides a series of worked
examples to illustrate the arithmetic of the
commission system in practice. The first of
these shows how, in the most straightforward
case, an agency or media independent makes a
profit by buying space or time from a media
owner at list price minus 15 per cent and
subsequently charging its client the full
amount. It is important to note that, if the
media owner’s discounted bill is not settled by
the due date, which can be as little as two
weeks after the first advertisement appears, the
terms of the contract provide for the commis-
sion rate to reduce progressively. It is therefore
in the best interests of the agency or media
independent to pay media owners promptly
and bill clients immediately. However, normal
business practice does not require a client to
pay up in turn before 30 days after the invoice
is rendered, and most will take anything up to
three months to do so. Agencies, reluctant to
press for payment too strongly for fear of losing
an account, must therefore keep a very close
eye on cash flowat all times.
So much for the basic commission. The
first of many complications now arises. When
the system evolved, high production costs were
not an issue. Today, advertising campaigns
involve large numbers of massive posters
printed on vinyl-coated paper, four-colour dou-
ble-page advertisements in glossy magazines,
60-second mini-epics on television and cinema


screens, and much more besides. As the sophis-
tication of advertising technology increased,
agencies struggled to meet escalating produc-
tion costs out of commission that increased
only in line with media price inflation. The
media owners could not subsidize the agencies
by raising prices further, or they would kill
demand for their commodity. The agencies dare
not propose unrealistically heavy media sched-
ules, to gain the economies of scale, for fear of
losing the business altogether. It soon became
clear that agencies with ambitious clients could
no longer be expected to survive on media
commission alone.
A new convention duly emerged that some
consequential costs could be charged direct to
the client as top-up fees. It is typical of this
outwardly dynamic but inwardly conservative
business that there is no official, definitive list
of what can be included and what not. The
IPA’s guidelines for agency–client agreements
are both vague and ambiguous, while a report
on remuneration practices throughout Europe
says: ‘The range of services provided at no
charge will depend on each individual relation-
ship. Where non-commissionable agency ser-
vices are charged (work done within the
agency), this is normally done on the basis of a
prior estimate’ (European Association of
Advertising Agencies, 1994, p. 21).
The increasing sophistication of media
production processes also resulted in agencies
subcontracting increasing amounts of work.
Furthermore, self-proclaimed ‘full-service’
advertising agencies were routinely carrying
out non-advertising assignments for their cli-
ents, and commissioning those too from third
parties. In all such situations, a second conven-
tion arose that a mark-upcould be added to the
agency’s buying price to arrive at a selling price
which would adequately cover the agency’s
costs in setting up and managing the extra
service. The IPA’s guidelines recommend a
clause in an agency’s contract that the client
will pay ‘the net cost of all these materials and
services bought for you, plus X per cent of such
net cost’. The key point about this percentage is
Free download pdf