Dear Tig,

As the advertising manager for my division, I get a lot of feedback from my “internal customers” that we pay our media and creative agencies too much money. Based on my experience, I feel that we are paying an appropriate amount according to the scope of work. Our media agency can document that they pay for themselves several times over in rate negotiations and added value attained. The creative agency is on the edge of losing money on our account.

Unfortunately, the critics have no background in this sort of thing and, frankly, little marketing experience (although they are in marketing roles). Do you have any ideas on how to explain the cost structures to non-marketing types in a manner they can relate to or is it a battle that will never be won?

Thanks,

Marketing Professional

Dear Marketing Prof,

Having done much technology marketing, I think your industry suffers even more than others from a left-side-of-the-brain disorder that encourages engineers (or, worse, former engineers stuck in marketing rotations) to believe that anything that is done by liberal arts graduates can't be worth a lot of money.

You are smart to have looked at the economics behind your agency costs. The agencies are obviously not defrauding you or even padding profits. The question becomes, is this honest effort worth the price. Experience shows that it usually is. Companies like yours spend tens of millions of dollars placing messages in media. Giving short shrift to the ads themselves is wasting that larger amount of money. Unfortunately, engineer-types sometimes lack the experience, market savvy or communications subtlety to recognize that better concepts and higher production values can make a large difference.

Of course, I'll be the first to point out that some advertising campaigns are complete wastes of effort and money. I think it's a lot easier to argue that the objectives of an advertising campaign are invalid and wasteful, rather than arguing that a cheaper creative source could have done as good a job. You can dislike the objectives, and you can dislike the work that an agency does, but you can't often argue that investing less money into the process would make the results better.

One way to position the agency costs to sensitive "internal customers" is to point out that a great deal of process surrounds the creation of advertising and the buying of media. Just like there is about a five-to-one ratio of time a computer programmer spends designing and managing a system relative to time spent actually coding, there is a great deal of sunk overhead costs in the marketing process. You do not get a better product by laying off the good programmer--or a good creative or media buyer--for that last, most important 20 percent of the effort.

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Dear Tig:

Can you give me a reasonable way of computing a dollar value for the positive news coverage we received on a television station? For example, if our news story is 30 seconds long in the 6 p.m. news, and they sell a 30 second spot for $600, would the value be just $600, or an inflated sum considering it was part of their news content?

Any help appreciated,

Valuator

Dear Valuator,

I've seen many different algorithms used to try to calculate the value of coverage. Very roughly, the general rule of thumb has been to calculate the costs that would otherwise have been incurred by running in the most similar paid media.

Perhaps a better method is to use the GRP (gross rating points) approach to estimate the value by averaging what the cost per GRP is and how much exposure the coverage gave. This variation succeeds in eliminating the skew that can otherwise result from vastly different rates charged by different media vendors.

The duration of the coverage is probably not as important as the frequency in which it appears. A TV audience seeing one 60-second segment that focuses on a product, for instance, should not have near the value as two different 30 second segments appearing at different times. The latter will result in more people being exposed, which is usually a greater value than the incremental information imparted over the additional time.

Despite the contention of some PR people, the quality of coverage matters a great deal. Stories that talk only positively about the product are probably worth a little bit more than the normal media rate--this because the 3rd party authorship lends greater credence to the claims than would the bragging of a commercial message. Stories that are slightly positive, ambivalent, or neutral probably have about the value of paid media. Of course, negative stories have a negative value, except in pretty rare circumstances (e.g., if the Iraqi Information Minister decided to tell people your product was harmful).

In your instance, it appears the coverage was positive, so I'd be comfortable inflating that $600, perhaps by as much as 50 percent. You also succeeded in avoiding advertising production costs, and all sorts of other overhead that would otherwise have been incurred for the same exposure, but including that in the value of the PR is probably stretching things.