Apr
27
A number of people, including Bob Garfield, have predicted this was coming for some time. The Brand/Agency fight over remuneration has been a challenge going on for some time now and it’s continuing to accelerate.
According to Ad Age, Coke has decided to move to a value/performance based relationships with their media and ad partners. The theory is “if you don’t at least hit last year’s objectives/result, you don’t get to benefit from profitability”. Coke is trying to move everything to this area by 2011.
CHICAGO (AdAge.com) — Coca-Cola Co. is trying to start an industry-wide movement toward a “value-based” compensation model like one it’s adopted that promises agencies nothing more than recouped costs if they don’t perform — but profit margins as high as 30% if their work hits top targets.
Usually tight-lipped Coke disclosed its plans at the Association of National Advertisers Financial Management Conference in Phoenix on April 20, saying it wanted to nudge the industry into adopting value-based models as a standard practice. If it succeeds, agencies accustomed to being able to book profits long before they deliver work won’t have that sort of certainty anymore.
P&G started this years ago and a few other brands are starting to really push this model.
Nokia recently moved to this model and upon refusal to move this direction from one of their agencies, they pulled the entire account on the spot.
This marks a major crimp/problem for many agencies. The ad business has been fighting this form of shift for some time. There are so many factors that could impact their profitability on this model (e.g. let’s say coke launches a crappy product but the ad campaign is fantastic. If consumers don’t like the “taste” they won’t buy, affecting Coke and therefore the agency’s results.) Or alternatively, if a Brand manager makes bad decisions about a program or chooses creative that the agency doesn’t support….
This could be very bad for “new” media as the ad business is typically very risk averse. New technologies or opportunities may never see the light of day under the bigger agencies in this model if it means that the agency and account director may not get their bonus if they “try new things”. Alternatively, smaller agencies who take risk or innovative ADs in agencies could blow their numbers out one year and be fired the next. It’s a tough conundrum for newer media.
Regardless of the push-back, this matter isn’t going away and many agencies are having problems wrapping their heads around how to tackle this. It marks a wholesale change in their business models – one that could be crippling if not executed/affected well. Many of the old guard in media will have the hardest time adopting to this form of compensation (hence the push back)
Brands or cognizant that this could really mess up the agency world and so are taking a slow approach to migration but it definitely is coming
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[...] The last company I mentioned who did this to its agencies was Coke, which I reported on a little while ago. As I said in the other post, it’s a tricky system to i… [...]