IPG’s Michael Roth On Transparency, Performance Pay And Agency–Client Relationships

Michael RothMarketers and CFOs are struggling to speak each other’s languages, and agencies are getting drowned out amidst the noise.

When a brand’s marketing and finance teams can’t align on a goal, the agency fails to meet client KPIs. Agency responsibilities are either passed off to new players in the space, like tech firms and management consultancies, or advertising spend shrinks in the marketer’s budget.

But Interpublic Group of Companies’ CEO Michael Roth is “worried, but not that worried,” he told attendees at the Association of National Advertisers' Advertising Financial Management Conference in Boca Raton, Florida, on Monday.

“The old model can’t possibly work in today’s environment,” he said. “As long as we stay ahead of the curve and are responsive to what our clients are looking for, then we serve a very important purpose. How we deliver that is really the question.”

For IPG, which outperformed the industry as a whole this past quarter with organic growth of 6.7% to $1.74 billion, that responsiveness requires an open architecture model. This chucks silos, to give clients any combination of the holding company’s offerings that provide the best solution.

In order for that to work, both parties must trust each other, and the agency must be compensated fairly. At IPG, that means getting paid based on performance and working on behalf of clients, not in conflict with them.

“Our value is in effectiveness,” said Roth. “I’m willing to put skin in the game if we don’t deliver to not get paid, but if we do deliver, we should get paid for what it’s worth.”

Focusing on effectiveness could be key to bridging the gap between marketing and procurement, he added. To ensure that agencies spend marketing dollars the right way, the process for rebates should be inked into agency–client contracts early on.

AdExchanger caught up with Roth at the conference. 

ADEXCHANGER: What are the key changes you've made across creative, media, digital and other buckets? 

MICHAEL ROTH: We embed digital in all of our agencies. We don’t have a separate silo. Plus, we have R/GA, Huge, Profero and MRM, which are specialist digital agencies that we can bring in on top. Without those capabilities, you don't have a seat at the table.

How are the margins in media agencies, and how is their structure changing?

It’s not by accident that our media agencies are among our higher-margin businesses. We can show savings on media if a number of our contracts have [a pay-per-performance provision] in them. Obviously, that helps margins, because we’re delivering and getting paid, which is the way it should work.

What are the difficulties of a pay-per-performance model? 

Media lends itself well because of analytics and third-party verification. If we commit to saving 10% on media spend versus last year, an outside party can audit that.

On the agency of record [AOR] side, it’s harder. Is it sales? How do you connect that to the work you're doing? Whether it’s attributable to the campaign or the product, we each have to make a leap of faith. But we have to agree on what the measurement is.

What’s the state of the transparency debate between agencies and clients? How is IPG providing transparency without getting squeezed on margins? What are you doing that other holding companies are not?

We represent our clients. When we buy media, we’re buying on behalf of our client. We’re not making money [off of owning] that inventory.

Some of our competitors have a separate pool of inventory that they buy ahead of their clients. On its face, that is a conflict. I’d rather not be in that position. Some clients have said they don't care, and that’s fine, but they should know it. We’re agnostic in terms of where clients should spend their money because we’re an advice model, and if you’re an advice model, you shouldn’t have an economic interest in the outcome.

I’m guessing you were talking about Xaxis?

Yes. Good guess.

WPP has invested in a lot of technology, with AppNexus, Xaxis, etc. Do you see that as a conflict? Does IPG invest in ad tech?  

Sure, we have to. Cadreon is the equivalent in terms of the programmatic exchange. We built that from scratch. We invested millions of dollars in that, and it’s an offering we need for our clients. The difference is what do we do with it and how we get paid.

In order to create solutions, vendors need money for R&D. But agencies often try save money by paying less for tech. How do you reconcile that and keep the vendor community healthy?

We’re not making money off of our partners. We’re representing our clients. We bring in their resources, and they should be paid for their work.

Cadreon is built into our pricing. It’s not a rebate. We get paid for the technology. We’re entitled to make money; we’re not a charitable organization.

What are the benefits of owning tech versus partnering?

I tend to partner rather than own. We have partner agreements with Samba TV, TubeMogul, and obviously Facebook and Google we're big partners with. It’s going to change 5 years from now, so why should I own it?

When we do buy, it’s usually small, unique and brings talent to us that were looking for, not just a proprietary product.

The trading desk model is in flux: Publicis disaggregated VivaKi, and WPP created GroupM Connect. But IPG seems pretty comfortable with Cadreon’s model. Are you making any changes there? 

Why reinvent the wheel twice, and why spend dollars twice? As long as UM and Initiative have access to Cadreon, there's no need to segregate that. I don’t see it as a conflict because we’re acting as an agent. If we had inventory that we had economic interest in, then we would have to service that.

It’s kind of interesting to see how Publicis and Omnicom are now starting to use the open architecture model. We’ve been doing it for 10 years. I guess that’s the best form of flattery.

How did Cadreon play into your big account wins last year?

Obviously, you have to have it to compete, so in that sense, it was very important. But it was much more than just programmatic – it was our talent, insights, creative and digital capabilities. Clients are looking for a full menu of capabilities, not just one.

Do clients ever hire you at the holding company level? 

Yes. A number of RFPs are now coming into the holding company, and they’re saying, ‘You tell us what model you want to use.’ It could be an AOR with fill-ins, or it could be McCann using Weber Shandwick, or we put together the integrated offering at [our] level.

Is the AOR model is becoming outdated?  

 No. I don’t think it’s outdated as long as you use open architecture.

Advertisers have been shrinking their marketing budgets, but P&G just said they will spend more on advertising. Is there a domino effect when something like that happens?

I think they cut back too much. They acknowledge that. Marketing dollars work. They have to be put to work correctly, but they work. I think clients realize that, if they’re smart in terms of how they spend marketing dollars, it will have an impact.

How does this relate to the divide between finance and marketing at big brands?

They should be on the same page. Finance is interested in enhancing profitability. Marketing is interested in developing relationships for the brand, which gives rise to profitability. Therefore, the two have the same objective. We have to be able to prove that the marketing dollars are working.

Cadreon is doing some interesting stuff with advanced TV. What are you hoping to achieve in TV this year?

Premium TV isn’t part of Cadreon the way the other [digital channels] are. Eventually, I would suspect it will be, but it’s going to be hard because the TV networks will view that as giving up control of their pricing, and they want to get premium dollars for it. That one’s a little bit further down the road. But it’s coming.

Do you ever purchase TV alongside a digital buy? What kind of digital inventory would that involve, and how would you measure it?

Cross-platform is ultimately where all of this has to go. The issue is getting the right content in the right place. We work with our clients to use appropriate content across platforms and make sure we are efficient [when buying]. Cross-platform measurement is not where it’s supposed to be yet. Everyone is spending a lot of money to figure it out.

How do creative agencies move away from the 30-second spot to make ads that are more segmented and personalized? How can they break into powerful, data-driven creative? 

What works in a 30-second spot may not work in digital. That’s the beauty of creative – they have to think in terms of what works where. There are some great creative people in our digital agencies, and their capabilities, like storytelling, work in a digital environment.

Creative isn’t in a vacuum. It has to be more driven and effective. You want to make sure your story is being read by the right consumer. And by a consumer as opposed to a robot, which is another issue.

You had a really strong Q1, outperforming the market on organic growth. What are you doing differently than other holding companies, especially in balancing traditional with digital? 

I think the integrated model is showing. Our existing client relationships are a significant part of our growth in Q1. We’re bringing them all of the resources we have within the company. Without talent and resources, we can’t put these kind of results up.

What do you expect of 2016 media reviews? 

We already have a number of reviews out there. I don’t think it will be as dramatic as it was in 2015, but it’s still active. My media folks are not taking the rest of the year off.

Edited for clarity and length.

This story was changed to properly refer to the agencies called Profero and MRM.

2 Comments

  1. IPG has been at the forefront of transparency change which is a discussion that is heating up to a boil. Bravo, Michael.

    Reply
  2. Mediabrands_Insider

    Having worked at IPG Mediabrands, I question the comments. Cadreon had hidden arbitrage as much as other ATDs did. Sadly, I ha e also seen many managers not acting in the interest of their clients - sad things happen when one does reach the ambitious goals set by the US HQ. IPG may have had a run but they suffer from the holding company and industry issues as much as the other big groups. Transparency is just used as PR: be open about your cost structure and margins and we continue this conversation.

    Reply

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