Marketing Math Blog

Value-Based Agency Compensation Models; Viable or Not?

By Agency Compensation No Comments

moneyIt wasn’t until the mid-to-late ’80’s that the advertising industry’s century old reliance on commission based agency compensation systems began to evolve. The reasons for this evolution are not as important to the discussion surrounding agency remuneration as is the fact that multiple compensation approaches were spawned to replace the traditional commission-based approach.

One coveted, yet highly elusive approach, value-based compensation, provides a base fee sufficient to cover the agency’s costs of servicing a client and links their ability to generate a profit to the advertiser’s in-market performance.

The notion of an agency “having skin in the game” has long been discussed. Generally speaking, both advertisers and agencies have agreed that this type of approach could drive positive results for the advertisers business and for the agencies bottom lines.

Unfortunately, the industry has failed to settle on a workable methodology for constructing a value-based agency remuneration system that is considered fair and balanced to both parties. Why? There are several trends that impact advertiser/ agency relationships that have made this a difficult proposition:

  • The length of client/ agency relationships has continued to decline, as perhaps have both parties commitment to those relationships.
  • A typical Chief Marketing Officer’s average tenure with an organization is less than two years, creating a number of “continuity” impediments to forming and maintaining a productive relationship with their agency partners (CEO tenure is not much better).
  • The move away from full-service agencies, driven largely by the advertising agency move to unbundle their services has resulted in most advertisers having a fragmented, diverse agency network making it difficult to clearly attribute responsibility for in-market results.
  • The Marketing function is not as highly regarded by many organizations today as it once was, which has negatively impacted the view of marketing services providers in general and advertising agencies in particular.

Perhaps, advertisers and agencies can take a positive step in the right direction by first linking compensation to agency performance. Linking an agency’s remuneration to their ability to effectively satisfy the deliverables identified within a contractual statement of work and to deliver a level of service commensurate with the staffing plan has many benefits.  Primarily, this approach aligns agency compensation with advertiser expectations and allows for a clear, fair assessment of performance, eliminating the ambiguity that is often associated with attributing credit for success or failure within a value-based compensation system.

Structured properly, agency delivery against the client’s expectations will drive in-market results while satisfying client-side Financial and Procurement Teams desirous of performance based vendor remuneration. It can also serve to strengthen the relationship between the client and the agency.

Collaboration Enhances Marketing Procurement Process

By Marketing Procurement No Comments

marketing collaborationMuch has been made regarding the expanding role of the Strategic Sourcing Group in the selection and or negotiations with Marketing Service vendors and the strain it places on both the process and the relationships between the Marketing Team and their resources. This scenario can easily be avoided if Marketing and Strategic Sourcing work collaboratively.

The following tips will enhance the level of cooperation and increase the chances for a successful process:

Overall

  • Both the Marketing Team and their vendors must recognize and respect the Strategic Sourcing Group and their assigned role in helping the enterprise manage their sourcing initiative.
  • All parties (including the vendors) must move beyond the notion regarding the “uniqueness” of Marketing Services and the fact that because these relationships often create intangibles that cannot easily be valued, they should somehow be exempt from the procurement process.
  • Clearly define roles, responsibilities, timelines and desired outcomes and communicate these to everyone involved in the process.

Procurement

  • If you do not have Marketing Services subject matter expertise on your Team, consider the use of an outside procurement consultant or independent contractor with experience in this area to assist your group.
  • Provide a clear process overview to the Marketing Team and their resources prior to the onset of the review and or negotiation activities:
    • Timeline
    • Desired Outcomes
    • Scoring/ Valuation Criteria
    • Roles & Responsibilities
  • Establish compensation methodology guidelines upfront (i.e. value based, project based, fee based, etc…) and the benchmarks that will be used to assist in setting compensation levels.
  • Lead the contract and compensation negotiation process, relying on the Marketing Team for feedback and insight into the impact of the negotiation outcomes on their deliverables.
  • Work diligently to ensure that there is a level playing field for all participants.

Marketing

  • Remember, you have been charged with managing your organization’s Marketing Service vendor network. As such you should work diligently to support the efforts of your partners in Strategic Sourcing throughout the entire process… whether you lobbied for their involvement in the process or not.
  • Clearly communicate your expectations of the process:
    • Desired Outcomes
    • Capabilities/ resources required of the vendor or prospective vendor
    • Clear and concise scope of services
    • Method and criteria that you will employ for evaluating the performance of the vendor
  • Quantify the potential risks/ costs to the organization in the event that a change in vendors occurs and the impact on the roles and responsibilities of the other firms in your Marketing Services network.

Optimizing Client & Marketing Agency Relationships

By Client Agency Relationship Management No Comments

relationship managementThe pressure to drive revenue, reduce costs and increase transparency has never been higher for marketers and their suppliers. How can success be achieved on each of these fronts?

Below are ten suggestions that will help you to in your quest, while optimizing your Marketing supplier relationships:

1. Drive alignment between the organization’s business objectives and the resource  allocation decisions of each of your suppliers.

2. Clearly define the roles and responsibilities of each one or your marketing suppliers to eliminate redundancies and focus efforts.

3. Communicate expected deliverables and establish the criteria to be used to evaluate performance against each deliverable.

4. Maintain honest, two way communications across every facet of your supplier relationships, encouraging feedback at every turn.

5. Build consensus among your internal stakeholders to help gain momentum for your key marketing initiatives.

6. Invite peer review of Marketing’s performance and socialize the feedback across your supplier network.

7. Assess the breadth of your supplier network, focus on fewer, higher quality supplier relationships.

8. Structure supplier compensation to incent and reward extraordinary performance.

9. Drive complexity out of your supplier network… step # 1 in driving costs down.

10. Ask good questions of your suppliers (and yourself), while repeatedly pushing for better results.