Paritosh Joshi: Agency Commission – an anachronism that must be retired

27 Sep,2012

By Paritosh Joshi

 

There is an advantage in writing in column that only you, my dear solitary reader, read. I can say well nigh anything, no matter how controversial and get away with it!

 

The title is up there, you’ve read it and must now wonder what it is that I am really driving at. Fikar not, as an old uncle used to say, all will be clear.

 

But first, a little history.

 

The idea of a commission agent is old and well established in the annals of commerce and commercial law. A commission agent acts as an intermediary on behalf of a principal, buyer or seller of a good or service, and earns commission based on transactions concluded. Advertising agents emerged in 19th century USA to sell inventory on behalf of newspapers to businesses interested in placing advertising. This arrangement developed as newspapers had no other modality at hand to sell advertising space, their personnel being devoted principally to creating and publishing the product. Observe the nomenclature. Not brand or marketing agents but advertising agents. Advertising was a product on offer by the newspapers. While several advertisers crafted their own advertising communication, there were always those who did not have the creative flair to and sought the agent’s help. Creative execution that we identify as almost central to the advertising agency was, incredible as this sounds, a capability that arose to fill an extant gap. Considering that the agent would only earn commission on advertising actually published in the principal’s newspaper, there was a real incentive for the agent to do whatever it took to get a client in, including producing the creative material, at little or no cost to the advertiser, given that the main income was being derived from the newspaper.

 

As advertising grew and the creative task expanded in scale and complexity, there was a progressive realignment in the role played by the agent, shifting its primacy from the seller- the newspaper, to the buyer- the advertiser. Strangely enough, the commission system worked so well that it wasn’t considered necessary to change it. Newspapers would bill advertisers an amount grossed up for the commission due to the agent. The agent, having collected against the invoice, would retain 15 percent as advertising commission and pay 85 percent to the newspaper.

 

You might think that this “commission agent for advertising” arrangement belongs to some prehistoric period and that would be wrong. As late as the 1990s, many major newspaper groups, at least in India, did not have an in-house, advertising sales team.

 

When media choices were few and advertising targeted local audiences, this arrangement worked commendably well. As brands began to grow across broader swathes of the market, audiences could no longer be covered by a single publication and agencies had to assemble plans involving multiple outlets or platforms.

 

This is the world of marketing that we all know well. Multiple media options, brands and audiences that must be mutually matched to deliver optimal results for all the constituencies in an efficient, and effective, manner. Clients, who ultimately must pay the bills, took the agencies toward compensation systems driven more and more by actual in-market brand performance and less and less by standard commissions. The standard commission supposedly earned by agencies on media spends was seen as a large discount available as a right to advertisers who wasted no time in ignoring it completely and paying agencies just enough against media bills to actually settle up the media owners’ 85 percent, leaving little or nothing by way of commission. It was not exactly a state secret but – and this is surely not something that media owners should be proud of – they turned a nelson’s eye to a value destroying transaction happening beneath their very noses.

 

The process is now complete. Agencies, which splintered into creative and media specialist entities over a decade ago, earn the bulk of their income from fees and incentives and almost nothing from media commission. And yet, the commission doesn’t stop.

 

Time we gave it a decent burial.

 

Paritosh Joshi has been a marketer, a mediaperson and a key officebearer on industry bodies. He is developing an independent media advisory practice. He can reached via his Twitter handle @paritoshZero

 

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