Advertising Incentive Conflict

Let's say you want to launch a big advertising campaign for your business. You go out and hire a highly respected ad agency to help you create the campaign and place the spots in various media outlets. Before you get too far, you should spend a bit of time thinking about the incentives of your ad agency. In particular, you might want to consider whether your ad agency is receiving "volume overrides," a practice Business Week discusses here.

The practice is known in the advertising industry as a rebate or "volume override." Here's how it typically works in Europe. A media-buying agency approaches a TV network or magazine publisher and offers to buy a large number of ads. In exchange, the network or publisher pays the media buyer a percentage of the total advertising tab. The media company may write a check, give away free ad spots, or agree to buy something from the agency—a research study, say. Sometimes media buyers share the proceeds with clients. Sometimes they don't.

The practice is banned in France and is currently being reviewed in Germany. In the US, "volume overrides" are not common, although the article notes "the most powerful man on Madison Avenue" is trying to change this.

One final aside: you just gotta love the euphemisms of business. This isn't a "rebate" or a "kickback" or "payola" or a "bribe"; it's a "volume override."