The digital ad market has a massive elephant in the room.
It's been there for years and everyone knows it's there, but curiously few people are actually doing anything about it.
I'm talking about how most media agencies are incentivized to buy digital media in ways that work against successful campaigns for their clients.
We recently surveyed over 200 marketers about their programmatic measurement:
72% of them thought media agencies struggle to accurately measurement it. But it is the way they are incentivised that is causing this issue.
Many clients are still using key performance indicators (KPIs) that assume that the click or the last ad delivered, though not necessarily seen, before a conversion is what actually prompted it.
This practice effectively encourages agencies to buy vast amounts of low-quality inventory and cookie bombs. It's all about attribution gaming and putting ads in places that will tilt the KPIs, regardless of whether they affect consumer behavior. It also opens campaigns to fraud and brand safety issues.
The answer?
For some time, progressive voices have been pushing this:
Build incrementality into those essential performance indicators right from the initial contract. This looks at the actual effect of a campaign: how much incremental value it drove that wouldn’t have happened otherwise. The technology for this might be complex but it’s already available to advertisers.
"New incremental-based KPIs may show that much of the buying being done by the agency is ineffective"
So why hasn't this happened much already?
In my opinion, much of the resistance to change comes down to a lack of incentive for major agencies (as shown in our 2018 measurement survey). Proactively suggesting to their clients that they change their KPIs is a significant leap into the unknown for most of them.
They'd have to persuade clients that another set of indicators would be more effective. That would demand a great deal of analytics knowledge and resources, which would have to be invested before any sign of success.
Next would be the job of helping those marketers to sell the change to their CFOs and CEOs. The entire way that marketers’ budgets are constructed and reviewed would have to change.
This all amounts to a lot of time and effort, and big agencies are naturally going to wonder if it's worth it. Account managers might be keen, but how will the agency finance director respond to any uncertainty over whether the work is profitable?
If all this is overcome and the agency and client do construct a whole new way of working, new incremental-based KPIs may show that much of the buying being done by the agency is ineffective.
And what agency wants to risk that?
Widespread adoption of a measurement model based on incremental value would also put all agencies, both large and small, on the same level playing field. For global agency networks, this would represent a significant challenge. The winners would be agencies that can rapidly customize their tools and processes to deliver real value for their clients.
So, no surprises then that many media agencies aren't rushing to change the status quo.
Measurement innovation within agencies will be crucial
However, clients are becoming increasingly educated on the flaws in today’s media measurement and supply chain and are starting to take the initiative themselves, forcing their agencies to review buying practices.
It was fashionable a few years ago, when programmatic was still in its infancy, to predict the death of the big agency groups because their buying power advantage would become irrelevant.
While this certainly had a negative impact, the seismic shift that some were expecting didn’t happen. But, with growing demands for a more effective, incremental-based approach to ad measurement and delivery, we are now entering a period when agencies’ ability to innovate and customize technology will be challenged.
My prediction is that there will be far more media agency reviews over the next couple of years, driven by articulate clients who have done their research and know what they should be asking for.
The KPI elephant in the room will finally be sent packing.
Agencies must adapt quickly or risk being trampled on its way out.
If you want to find out more about how to change your approach to measurement, and start measuring incremental value, I recommend reading our new whitepaper, "Measuring What Matters".
This article originally appeared in AdExchanger, but has been edited and update since.