I just read a piece in The Economist about a movement to pay advertising agencies for value, not hours, and how this trend is catching on. Currently, the American Association of Advertising Agencies estimates that about 10 percent of compensation agreements are value-based, according to this article. (Not sure that figure supports the suggestion that this is a trend that is “taking off”…)
Anyway, my initial reaction in reading this was: “Well, why not? Why should agencies just be paid for being “creative,” and racking up what can be enormous fees? – (I know, I’ve worked with them.) They should have some “skin in the game,” right? And, in fact, while some agencies are obviously concerned about this movement, others apparently (or so they say) welcome the shift.
But, after that initial reaction, I had another thought and had to scold myself (debating with yourself can be lonely, but also instructive if you’re willing to keep an open mind!) for taking a narrow view of marketing that I typically coach my clients away from.
“It’s not just about the advertising, dummy!,” I told myself.
“What if the product is crummy – or nobody wants it – or nobody can afford it right now?”
“What if the product is unavailable in my community – or hard to find – or in scarce supply?”
“What if the product can’t stand up against the competition?”
What if..so many “what ifs,” many of them not related *at all* to the advertising campaign.
On the positive side, such an arrangement could elevate the role of the agency and its representatives to a more strategic one, providing the opportunity to coach and counsel the client on not just “creative” aspects of marketing, but on the other “3 P’s” (product, price and place) as well. That presupposes, of course, that the client is willing to listen. But, agencies are “free agents” and, if they don’t feel the product/service they’re being asked to sell is worth risking their time/budget on, they can seek other clients.
On the down side… Hmmm. Not sure there’s such a significant downside. But, I’m sure I’ll disagree with myself later.
Tags: Advertising, agency, Marketing
Linda,
This exact discussion has been coming up in PR a lot lately. Prospects have been asking me to “pay per placement” instead of a flat project fee. I think that’s a sticky subject because valuing placements is almost impossible.
What I’ve been suggesting in many cases in a split fee with an upfront element and a “success” element. We determine what we want to accomplish and agree on a success fee that will be paid at project’s conclusion.
Alan
Linda,
very good insight here, much appreciated. With our company, because social media marketing is so new, we must have skin in the game because clients are VERY skeptical on how they can monetize. So we do take some up-front risk but we are willing to so we can get further business from the client & their network 🙂 We have a few clients we work on a pay by performance relationship, which works for some and not other. Michael makes some good points as well. The strategic marketing companies will survive in the future- well put.
Cheers
Justin
@justinrfrench on twitter
Linda,
Good commentary. Two issues in my experience blocking this. Most agencies (not ours!) are not willing to risk guaranteed fees for performance. But, most clients are not willing to allow agencies the ability to collaborate on pricing, product and delivery strategies that impact performance. This format works best for clients that are willing to put correct “performance” measures on the line and expect to pay them. Where we’ve accurately aligned correct goals/measures and the client fully desired to see those achieved, it is a terrific partnership.