NEGOTIATIONS WITH THE MEDIA. HOW TO RECOVER THE LOST BENEFIT?

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Contrary to the forecasts at the beginning of the year, the Mexican market expects a GDP increase of around 5%, however, it is insufficient to return to levels prior to the crisis caused by the pandemic, especially when considering 7,36% inflation at the end of 2021

Media Auditors estimates that by 2022 there will be an increase in advertising spending similar to the inflation recorded in the previous year. However, the forecast may present surprises with the expected possibility of a respite in the health crisis. Apart from that, a positive start to the year may result in extra spending in the fourth quarter of 2022 ahead of the World Cup in November and a great possibility of Carry Forward.

AVBs IN MÉXICO

Historically, the AVBs/Rebates were part of the media buying process in the market, which represented the return of a % of the investment of the Media to the Agency responsible for the purchase of advertising space on behalf of the Advertiser. In many cases, the Agency transferred this profit to the Advertiser at the end of the financial year. The return, which in recent years was around 4% of the Advertiser’s entire media spending, was made both in advertising space and in cash, increasing purchasing power or in some cases it was even used to pay the Fee to the Agency. However, to avoid unfair competition between the Media and illegal practices among the participants in the process, the Mexican Government implemented a New Transparency Law that came into force on September 1st, 2021

The main point affected by this new Transparency Law is undoubtedly all the dynamics related to AVB’s/Rebates.

With the application of the new Law, as it is stated in article 5 “…Neither the agency nor third parties used by the agency to provide services to the advertiser may receive remuneration, commission or benefit in kind from a Media”, it generates the question of:

How to recover the profit lost by the advertiser with the Media?

NEGOTIATION TABLES OPEN WITH THE MEDIA

Media Auditors recomMENDS

That all the negotiation with the media is clear and transparent and that solutions are applied so that the previous benefit is made directly between the Media and the Advertiser.

3 are the compensation solutions:

1. Rates Discounts – represents a direct rate discount that compensates for the loss of Rebates. It is recommended that the discounts from the compensation for the Rebates not only be applied to the rates but also be included in the agreements/contracts with the media outlet to prevent the benefit from being diluted in future negotiations.

Example in the Negotiation: Get the media to discount 3% in the rate for substitution of Rebates.

2. Bonuses – similar to discounts, a % bonus on the total amount invested will generate an increase in purchasing power, in this case it is naturally described in the contract with the media, so it becomes easier to maintain in negotiations futures despite possible price increases.

Example in the Negotiation: Purchase capacity equivalent to 3% on spending by substitution of Rebates.

3. Direct rebates – although the New Law makes it impossible to give financial compensation to agencies for their advertisers’ media spending, there is no impediment to rebates being made directly to advertisers, being a perfectly plausible solution. An advertiser can, for example, close a % of Rebates with a television station with a direct return between the two parties.

FOCO ON OPTIMIZATIONS

Many Advertisers are already bringing these measures on the negotiation table and some have even gotten a favorable response. Another important point is the possibility of negotiating with the Agencies optimizations in certain media where the compensation for the end of the Rebates becomes more complicated.

RELEVANCE OF THE AUDITS

More so than in previous years, in 2022 the accompaniment of a consultant in the process of negotiations with the media will be extremely important, as well as the Contract Audits that will serve for an in-depth review of the entire process, avoiding sanctions.

These Contract Audits will not only serve as verification of the process and agreements, but will also have another fundamental role in terms of reviewing the billing and the level of overhead stipulated in the contract. The New Transparency Law determines that billing must go directly through the Advertiser, which may affect the levels of FTEs (Full Time Equivalent) required by the Agency team. If this is the case, it must be ensured that the Advertiser is fairly compensated for such change in the process.

IS MY OVERHEAD LEVEL ACCORDING TO THE NEW SITUATION?
ARE YOU CHECKING YOUR BONUSES AND GOODIES CONSUMPTION?

Another verification process that regains importance in this new year is the control or audit of the bonuses or Goodies included in the contract, which, as has been seen in the past, there are a large number of them that are not being fully used, causing a loss for the client on the benefits that had already been negotiated with the television.

If 2021 was a year of recovery from the pandemic year, 2022 aims to also be a year of growth in advertising investment. The real change came in the form of a new law approved in September 2021 that has had several impacts on the market, among which the aforementioned “disappearance of AVBs” stands out. Advertisers have already begun to take matters into their own hands, on the one hand, using these “lost” amounts of AVBs as leverage in the 2022 negotiations and, on the other hand, to review their relationship with media agencies looking for how to obtain the best benefits out of it.

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