Ford, P&G And Others In Full-Scale Revolt Against Ad Price 'Arbitrage'

Half a dozen major advertisers — Procter & Gamble, Ford, Citibank, Unilever, Kimberly-Clark, and AT&T — have pulled their ad dollars from online ad agency trading desks because those agencies can’t explain how their money is actually being spent, according to a must-read, in-depth report from Adweek’s Mike Shields.
The agency trading desk issue is complicated and obscure, but it involves millions of dollars in web advertising placed by blue-chip brands.
We recently reported on the growing unrest on Madison Avenue over the way some web ad agencies decline to tell their clients the original price of the web ad inventory they’re buying. Agencies buy the media upfront with their own money. They then slice and dice it, according to data they’ve gathered themselves, making it more targetable and thus more valuable. the media is then sold at a premium to clients.
Clients don’t know what the original price was — and thus, nor do they know what the agency’s markup is.
Critics call this practice “arbitrage” or “frontrunning.”
In their defense, agencies say they ad value to the inventory by generating their own analstics and data. They take the risk of not selling the data when they pay for it with their own money. Clients aren’t forced to buy it — they can take it or leave it. And the practice should be judged on a performance basis, as most clients use trading desks as but one part of a larger strategy. The fact that the original pricing is undisclosed is written into contracts upfront, too. GroupM CEO Rob Norman told us many of his clients are on a “non-disclosed basis” when it comes to pricing.
But the problem is that where there is a lack of transparency, there’s a lack of trust. Adweek writes (emphasis added):
One tech vendor … described a recent conference call during which a client grew exasperated with its agency, which was unable to provide even basic details about where its ads were being run — since they were being purchased via an agency trading desk.
For example, according to sources, Kimberly-Clark has insisted that its digital agency of record, Mindshare, handle all of its audience buying, rather than Xaxis. AT&T has made the same request of its GroupM shop MEC. Bob Arnold, Kellogg’s global digital strategy director, recently questioned the model at a Digiday conference.
For its part, Procter & Gamble has shifted such buying to Audience Science over its agency partners’ own tech. And according to sources, Ford, Citibank and Unilever have also opted out of their agencies’ trading desks.
“We are starting to hear from more and more clients that their ad spending is totally opaque because its centralized via a trading desk,” said Audience Science’s Emily Riley. “That’s not kosher for most clients. Big CPG brands are just not going to stand for it.”
“It’s straight up arbitrage in their faces,” said one former trading desk exec.
Go read the rest of Shield’s story. It’s brutal.

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