Ad agencies can demand to be paid for ideas and resources, but where is the value?

Why should advertisers and marketers pay for ideas when agencies have from the dawn of advertising been willing to give away the ideas and increasingly, the resources to conceive them?

For the agency the money has always been in the execution not the conception. In the mid nineteenth century in the US, Commodore J. Walter Thompson and his cronies conceived a business plan to give away the creative concept to secure the media commission and almost a century and a half later when media and content split, the best plan anyone could come up with is a cost recovery model based on resource head hours, overheads and profit margin.

The discounting behaviour Robert Morgan describes (AdNews Sept 15 & Oct 12 2011)  in his peers and colleagues is a traditional discount strategy offering a loss-leader on the most visible component of the negotiation being the retainer. There are a number of strategies to make up this shortfall once engaged, but the most common is the belief the agency will make it up in the production or ‘implementation” where the marketer is approving a more tangible spend.

The poor media agencies have not had this secondary revenue source, as previously most of their revenue was either commission or fees, both relatively transparent, which may explain the explosion in the diversification of services on offer from the media agencies, especially in the content creation category.

Of course, increasingly overseas, major marketers are uncoupling the production and some of the agency networks creating their own separate production solutions to facilitate this, making the agency purely the bait to get the advertisers in the door. Locally more advertisers are looking at bringing the production in-house to realise their own potential savings and increase speed to market.

But back to the concept proposed by the media agencies paying for ideas. Under the current most common agency model agencies are paid by the resource hour. The implication is that the longer it takes to come up with an idea the more expensive it is. So how do you charge for an idea? I ran a workshop last year at Spikes Asia and again in Kuala Lumpur for the 4As looking at how other creative industries value and get paid for ideas.

Almost all recognise the value of the creation in commercial terms being what someone is willing to pay for it or sharing in the revenue or profit it generates. No-one gets paid for an idea just because they have an idea.

There are hundreds and thousands of ideas developed every day and most of them are worthless because no-one is willing to invest in it and if they do then many do not generate the revenue or profit to make it viable.

So unless agencies are willing to either put some skin in the game and be paid in part or full for the value your ideas create, perhaps you should be grateful that someone is willing to pay you for having one and giving you the opportunity to implement it. What you get paid for that is up to you. But in a buyers market be prepared for disappointment.

This appeared as an opinion piece on October 19 2011 in Adnews Australia

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About Darren Woolley

Darren is called a Pitch Doctor, Negotiator, Problem Solver, Founder & Global CEO of TrinityP3 - Strategic Marketing Management Consultants and a founding member of the Marketing FIRST Forum. He is also an Ex-scientist, Ex-Creative Director and a father of three. And in his spare time he sleeps. Darren's Bio Here Email: darren@trinityp3.com
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2 Responses to Ad agencies can demand to be paid for ideas and resources, but where is the value?

  1. Paul Southgate says:

    Great piece, Darren. Unless agencies stop commoditizing the value they (occasionally) add, the trend towards the sweat-shop commoditization of marketing services will continue apace, to the detriment of clients and agencies alike. But, as you say, ideas themselves have no inherent value. The value is only achieved when great ideas get well executed, and for agencies to be rewarded when that happens requires them to be willing to back themselves with a balanced approach to risk:reward, rather than demanding to "have their cake and eat it too", as my old granny used to say!

    • TrinityP3 says:

      Hi Paul, the issue driving the agency wanting to have their cake is this focus on cost and not value. The cost of production is not the underlying driver of price. Price is set by a number of factors including the value of the service to the customer and the competitive market place. The problem is the market is incredibly cluttered and their is low differentiation in offering and a number of players willing to discount to buy share at the expense of margin. While agencies continue to cling to a cost recovery model in the face of huge competitive pressure to drive down price they will find themselves in a race to the bottom.

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