Abolish NEGO rates

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It’s the start of a new year. And it is already too late for this topic. By this time, all nego rate discussions among the major advertisers and media sellers/suppliers would have already been concluded. Volume commitments have been made, and a whole new set of numbers are being committed to memory by every single media buyer in the advertising industry. All these discussions should have been completed before the year ended.

But I could be wrong. With the current frenzy over the tampered TV surveys in Bacolod, it is possible the bigger networks are too preoccupied to conclude the negotiations. Perhaps it is not yet too late. GMA-7 has just called for a meeting with all major advertising agency heads on Tuesday January 8 to address the issue.

For the benefit of the layman, "Negotiated Rates", or nego rates, as they are popularly known among advertising industry people, are the result of negotiations between major media vendors – usually the large networks like ABS-CBN and GMA7 – and the biggest advertisers, assisted by their respective media agencies. And every year the list would invariably include:

1. Procter & Gamble (P&G)
2. Unilever
3. Colgate-Palmolive
4. San Miguel Corporation
5. United Laboratories (Unilab)
6. Nestle
7. PLDT/Smart (MVP Group)
8. Globe Telecom/BPI (Ayala Group)
9. JG Summit/URC (Gokongwei Group)
10. Asia Brewery/Tanduay/Fortune Tobacco (Lucio Tan Group)

These are advertisers whose annual media budgets go into 10 digits. The big networks assign discounted rates to each and every one of them by virtue of the size of their budgets. It’s the old fashioned principle of “cheaper by the dozen” – where he who buys more pays less. Makes sense, at least in theory, right? Most of the time.

In practice, a complicated and varying array of negotiated rates for different customers makes forecasting and sales planning a nightmare. To illustrate: if you were a network that only had so many slots to sell for TV commercial spots, do you give priority to your biggest customers, and end up with less sales per slot because they pay you less money for the same number of spots – or do you prioritize the smaller customers who pay you higher rates for every spot they buy (and risk the ire of your biggest customers)? At the end of the proverbial day, where do you actually make more money? The Pareto Law comes to mind: 80 percent of your sales will come from 20 percent of your customers, and 20 percent of your sales will come from the other 80 percent of your customers.

Reality check: At crunch time, when a network account executive needs only a little bit more sales to meet his quota, what’s to stop him from offering more discounts to a small account just so he makes the cut and earns his handsome commission. So while the big guys have got everything set, and they have the best rates in town, there will always be the possibility that someone, somewhere will actually get a better deal. Of course these are the exceptions, and not the rule. But they can and do happen nonetheless.

There’s more to this: these rates are supposed to be sacred. Only the few people actually handling these accounts have access to this information. Again, this is only in theory. In practice, these people, to whom such delicate information is entrusted, have a nasty habit of moving from one company to another, usually getting themselves pirated by the directly competing media agency precisely because they carry with them such valuable knowledge. When the media buyer handling Coca-Cola moves over to the agency handling Pepsi, can anyone delete from his brain all the sensitive knowledge about his former client that he carries with him when he moves?

Unfortunately, people’s brains are not like erasable flash drives. His former employer can always have him sign a waiver when he resigns but the media buyer will always carry in his head all the information he picked up while handling the account. Multiply that scene by the number of directly competing brands in the market and you have an inkling of how complicated the world of media buying can become. There’s Globe vs Smart in telecoms, and in every major product category you would have their equivalents: detergents, shampoos, toothpaste, coffee, beer, juice, fastfood chains, packaged food products (such as canned tuna and noodles), pharmaceutical products, banks, credit cards, sports shoes, apparel, cars, gas and oil products, electronics, etc.

It also makes the everyday working lives of media people much more complicated than necessary – when you have to memorize two or three different sets of rates for the same TV programs that you buy because you have three different clients with their own respective nego rates, you have a much higher probability of error. It is bound to happen: you will end up using one client’s rates for another.

The worst part comes when they prepare competitive reports – you know the intelligence or surveillance reports that tell one advertiser how much he spent versus how much his competitor spent. This drives them up the wall because it is always a guessing game of “How much do you think they really paid for their spots?” The usual solution is to apply published rates, or what everyone calls “Rate Card” (aside: this should really be read as Card Rates because these are the rates published on the Rate Card, and are not, technically, the piece of paper called the Rate Card itself) – which means disregarding the nego rates altogether. This then creates new problems inside the client’s organization, especially if it is a multinational organization because the reported adspend figures will now no longer jive with their actual reported spending to their principals abroad.

What’s the solution? We should abolish nego rates altogether. Let media planners and buyers work with uniform published rates (“Rate Card”) so that they can concentrate on their planning skills and not be bothered by computing the difference in cost-efficiencies because of the varying discounts from one nego rate to another. Nego rates can easily displace a higher rating program if the discount more than compensates for the lower rating. It should not be the case. Programs should be selected on the basis of their delivery of the target audience first and foremost, and only secondarily on their cost efficiency. Now, if ABS-CBN succeeds in stopping AGB Nielsen from continuing with the TV Peoplemeter Surveys, then all bets are off. And ABS can achieve this even unintentionally if they insist on peeling off the veil of secrecy that protects participants in the TV surveys.

Again, we digress… going back to the nego rates – with uniform rates, media planners and buyers, as well as their clients will have a much easier time analyzing their many options from the various networks, and also have standardized figures as far as their monitoring reports are concerned. Life becomes better. And we achieve the elusive “level playing field.”

But wait… what level playing field? What happens to the guaranteed discounts given to the bigger advertisers? We cannot take that away from them. So how do they continue to enjoy those discounts? The solution is to take that function – that of negotiating and tracking these discounts – away from the media planners and buyers. This function should only be reserved for the chief finance officers of the media agencies concerned, and their counterparts on the side of the networks. And these discounts should be availed of only at the end of the year, when all the commitments have been met. This also avoids one of the most common problems with nego rates – they are based on committed volumes to the networks but everyone knows these commitments are not always delivered. Client advertisers run into all sorts of problems throughout the year and any one of these could affect their ability to deliver on their committed volumes to the networks.

If the discounts get converted to rebates based on actual purchases made during the past year, then negotiations become much simpler, easier and faster. And nobody else need ever know what actually went on in these negotiations, and what the effective discounts will eventually be. No worries about info leaks. No worries when media buyers get pirated by rival agencies, no problems with reportorial requirements. This is something the networks could learn from the other media vendors. In case they don’t know it yet, some publications are already doing it.

This was one issue I had hoped the Advertising Congress would address last year. Chalk that up as one of many disappointments we had at the AdCongress in Subic last November.

Disclaimer: The views and opinions advanced in this article is the author’s own, and may not necessarily represent the views and opinions of THE LOBBYiST, its editors, or its publishers.

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