My personal experience with financial advisers has not been a happy one, but I have explored remuneration models that include commissions, retainer fees and performance fees and I have to say while none are perfect, some have definitely worked better than others.

Negotiation remuneration models for professional services can be like negotiating a maze

In the mid 1980s as a medical research scientist, before the introduction of compulsory superannuation, I engaged the services of a financial adviser who immediately sold me a superannuation policy. Over the coming years he sold me another and another and another. There was no financial transaction with him directly as he explained that the Insurance Company paid him a commission on the policies, much like the media commission system. The more I spent the more he was paid.

Then the Government introduced the Superannuation Guarantee in 1992, my employer at the time,  encouraged me to roll my super into the company fund which I did. It was at this time that the company appointed Financial Adviser informed me that the previous adviser had effectively robbed me as each time I wanted to increase my super contributions he opened a new policy to increase his commission rather than simply increasing the existing policy which would have yielded a smaller return to him. The impact on me was less superannuation contributions.

I continued to contribute to the company fund and transferred this to successive employers with the understanding that a fixed fee was paid to the adviser each year for their work, much like the labour based fee. The relationship was mechanical with no more input from the financial adviser than was paid for and certainly produced an unspectacular result.

In 2000 I established my own business and the Financial Adviser that had managed my superannuation over the past 8 years suggested that he could take on a larger role based on a combination of fee and performance success based on returns each year.

The relationship quickly deepened and become more encompassing with the Financial Adviser providing advice beyond superannuation to include property, family and testamentary trusts with all of the associated complexity. This was a boom time and the results were excellent and the Financial Adviser reaped the rewards of this growth on top of the fee.

This continued, but there were concerns that the investment strategy was high yield but high risk. At the time advice that the boom would continue were soon to be proven false and in 2008 the correction proved that the eight year growth strategy was flawed.

So what are the lessons?

The commission system provided an incentive to the adviser / agency to look for ways to maximise their return even at the expense of my long term performance and provided no incentive for them to be proactive beyond selling me more products.

The head hour fee based retainer model provided a level of service and attention from the adviser / agency but there was no incentive for managing performance or requirements. It became a very pedestrian relationship driven by the transactional nature of the remuneration.

The performance based remuneration model provided a high performance relationship, the the adviser / agency with proactive advice and subsequent growth. The important lesson was that the success metrics must be considered carefully as the focus on annual performance only was executed with an unacceptable high risk.

But certainly where you are investing significant amounts, it is important to achieve alignment where possible between the buyer and supplier and not just treat the relationship as a simple transaction of services.

In media and investments this is especially important where the ultimate sellers of the media / investment products are able to provide incentives much greater than the fee you are comfortable paying for those adviser /  agency services.

What remuneration models have worked for you in any sort of business / commercial relationship and why? Let me know here by leaving a comment.

When it comes to digital and “traditional” media, clients and agencies seem to have come to a chasm that can best be described as a “Digital Divide”.  It’s not good for clients. It’s not good for agencies.  And worst of all, it’s not good for consumers.

What’s the digital divide?

Some years ago, we had two types of communication described as “above” and “below” the line.  Then along came the thing called “digital” and we stuck our web designers in a corner and let them build websites and banners thinking they wouldn’t do any real damage.  After all, it was just a website, right?

But bit by bit, the bicycle and tattoo department (a quote from a former boss, by the way) started to create a dialogue with the consumer.  Consumers were able to buy stuff.  Send feedback.  Ask questions.  Express opinions.  Choose.  All kinds of typical marketing activities were now in near reach of digital resources.

And so the divide between “traditional” marketing and media, and digital came into view.

For now, let’s call it the D-M-Z or Digital Media Zone.

So in the D-M-Z we’ve got agencies scrambling to deliver online strategies, services, campaigns and solutions and clients screaming for strategies, solutions and campaign executions that address the full 360 perspective of their businesses.  At the same time, client based C suites are questioning their organization’s very DNA and trying to figure out whether or how to integrate marketing and digital initiatives, and whether the thing called Facebook belongs in PR or Marketing.

To be honest, it’s a shambles.

Nobody’s really stepped up to the plate with a cohesive plan to deal with the full range of communication tools that’s now on offer.  Very few are providing holistic thought leadership.  And agencies are still dividing and conquering – “Press one for traditional.  Two for digital.”  It makes no sense.

As an industry we’ve got to come up with a far more holistic approach to our marketing, digital and communications needs without creating silos along the way.  And that applies to both agencies and clients.

Clients need to look at more holistic roles that encompass the required communications skill-set.

I would argue the idea of a Chief Digital Officer, by way of example, is already an anachronism.  It was perhaps fine when we were stumbling around trying to create websites, but digital tools, whether we realize it or not, are now firmly entrenched in the role of Marketing.  We need to stop creating leadership digital roles and then leadership marketing roles that create a split in leadership.  Or have one dominate the other. CMO’s should now be armed with a deep digital skill-set as well as a full grasp  of how those digital tools can drive the business, generate insights, generate loyalty and generate profit.

Agencies need to step up too.

We need stop dividing out traditional and digital agencies (or department silos within agencies) and step up with a structure that’s going to help drive clients’ businesses.  Sure, there are agencies that have taken steps to “integrate” but do those agencies have leadership that fundamentally have digital DNA ingrained  in them?

Structural and organizational challenges aside, one of the key business tools agencies have to address is stripping the planning and briefing process back to its wires and creating something that’s a truly intelligent encapsulation of how to drive a client’s business.   A good example is the summation of the target market outlined in a planning or briefing document.   We’ll see demographics and psychographics, perhaps a persona or two and maybe an encapsulation of how we want them to react vs. how they’re reacting now.  But it’s not enough.  Where’s the broader ecosystem of influencers and reference points that help drive those decisions?    How is all that mapped into a strategy that can drive creative solutions across all media?

When I very first started in this business in England, at what was then Lowe & Howard-Spink, the planning and briefing process was masterful.  It needed to be.  Hundreds of hours of development time had gone into creating key questions that enabled breathtaking creative solutions.   But the world’s changed.  And that process doesn’t work any more.

Companies and clients have glossed over the planning process in a reactive scramble to get a brand presence in online and in social media so they appear digitally savvy with their customers.

Serious mistakes made by not planning before launching a social media campaign are painfully evident, yet many clients still don’t want to invest time and money to get it right the first time. Do a quick search on Nestle and baby formula on Facebook to see just how badly wrong social can go if you don’t get it right.

Yes, there are some evolutionary versions of the planning process  – but nowhere are there revolutionary versions of it which address the fundamental DNA questions clients  must ask as a matter of urgency.

So here are my top ten suggestions for evolving our business to where it needs to be:  A partnership between client and agency specifically for the purpose of driving that client’s business in the digital age:

1. Clients and agencies:  We need to stop thinking about “Digital” and “Traditional” as two separate entities.  They’re the same thing.  Stop creating silos and accept the D-M-Z is where your business is going to thrive if you set it up properly.
2. Everybody in your C suite, Marketing functions and chosen agency needs to get digital.  If they don’t, they need to be educated.  If they can’t get there or can’t operate effectively in the D-M-Z – you need to switch out for people who can.
3. Clients need to demand more sophisticated planning and briefing processes.  Agencies need to spend time putting real horsepower into developing those with a view to the end state being a truly 360 D-M-Z solution that encompasses the whole ecosystem.
4. Feeling Social? If you can’t stand the heat, don’t go in the kitchen – because you won’t get out!  Social strategies need to be planned out so they’re integrated into your company’s DNA, not bolted on as a marketing nice-to-have.
5. There’s no silver bullet, so avoid the “shiny object syndrome”.  The adoption of any new technology as the holy grail of solutions can’t exist alone.  If you decide you want to test QR codes in store for example, you’ve got make sure you’ve got the technical infrastructure and in-store training to back it up.
6. One of the keys to driving our business forward is “responsible experimentation”.  We’re in an industry that’s changing so rapidly, both clients and agencies need the elbow room to experiment with solutions and strategies in their own D-M-Zs.  And if the strategy needs adjustment along the way – so be it.
7. Hire smart Project Managers. Personally, Project Managers drive me nuts.  Always pushing timetables, GAANT charts and booking update meetings.  Regardless of how I might feel during the process, a great project manager is a golden asset in navigating through D-M-Zs and getting your project delivered.
8. No matter what digital solution you’re creating as part of your ongoing marketing initiatives, consider how it fits in to your broader marketing strategy and what its going to take to run, adjust and measure it.
9. No matter what technologies appear in future, The brand is still king.  Everything you do needs to be focused on the customer and reflect the core attributes of your brand.
10. Follow the money. I’m not suggesting that every initiative has to have a quantifiable R-O-I off the bat, but I am suggesting that agencies need to do more to focus on the client’s bottom line revenue and EBITDA targets.  And clients should expect no less of the agencies they partner with.

My legal friends tell me that most litigation is due to the variations of interpretation of the language within the contracts and disagreement over the meaning of those interpretations and the consequences and implications.

Therefore imagine my surprise and horror when asked to review a current agency contract worth several million dollars which defined the scope of work of the agency as:

“To provide the strategic, creative and production implementation to fulfil the advertising requirements of the <company> as directed by the Marketing Department”.

While it is short and simple and could be seen as an excellent description of the services the agency is to provide, it is no “scope of work”.

In fact it is a particularly bad scope of work.

Why?

1. The scope of services to be provided is too broad – how can the agency possibly know what type of resources are required in an increasingly complex market place where general terms like strategy, creative and production can mean anything from advertising to experiential to digital to sales promotions and direct marketing.
2. No defined quantity in the scope – how can the agency resource the right level and mix of resources without understanding quantity and timing of the requirements. Will the Marketing Manager require few senior resources or more junior resources. And how do you resource for the peaks and the troughs in the marketing plan.
3. No correlation between the fee and the outputs – as the marketing requirement increases, how do you draw a correlation between the level, type, mix and cost of resources to deliver the increased scope. This is the primary failure of lack of defined scope.

So how do you define scope of work? Read on here.

There are many ways to define scope of work. These are the most basic requirements, but what do you use? Let me know by leaving a comment here.

The ANA Marketing Financial Management Conference 2012 was held at the Boca Raton Beach Resort & Spa, Boca Raton, Florida

The challenges of the CFO and the CMO

Ron Kline @rfk5 from IBM shared the findings of their recent 2011 IBM Global CMO Study, which I had seen several times before. More interesting was the paralells he pulled from the 2010 IBM Global CFO study.

Both CMO and CFO are taking a broader role in enterprise. The CFO is increasingly advising on all aspects of the business strategy and yet increasing feels under equipped in this role. Likewise the CMO is dealing with the broader remit caused by technology and the increasing channels, the fragmentation of audiences and the pressure for marketing accountability and ROI.

Both also suffer from the fact that organisations appear to rarely invest in the technology to provide up to date, real time data and analytics, with both in most cases relying on manual processes to provide this information. Clearly a huge insight for a technology solutions provider like IBM.

But from the CMO perspective, they are looking to answer this challenge by looking externally for help and assistance in addressing this shortfall. They just need to convince the CFO that the cost is justified and here enters procurement.

The challenges of managing global marketing services

Alan Rutherford, Global President of the IAA and chairman of consultancy group Axiology used the first part of his presentation pitching how to select a consultant.

But he made the point that in the increasingly diverse and complex marketing environment, with multiple cultural and political agendas, multiplying media channels, increased levels of governance and  accountability it is important to ensure that the quality and professionalism of the consultant matches or exceeds the relationships and transactions they are assessing.

He pointed out the low cost of entry for category consultants and the lack of rigour and structure in their methodology. Some consultants are known to use the agency’s own data as benchmarks back against the agency or to share the data of one client / agency relationship with many different clients.

The challenges of agency remuneration

David Beals presented the ANA Agency Compensation Survey which he has been associated with for many years, but last year it looked at Global arrangements for the first time and looked for differences and similarities with US practice.

The findings were that mostly the world was following a generally US centric approach with fee based payments, but that in some countries outside the US, like India, Japan etc there was a higher incidence of a combination of commission and fee.

One highlight was the fact that in 2 years the level of Value Based Compensation had risen from 0% to 4% showing the growing start of a trend in this area.

The discussion moved to to the general failure of performance based remuneration PBR and the fact that only 3% of Agency Holding Company revenue was composed on performance based payments.   The general consensus being that PBR is largely used as a stick to reduce agency fees, rather than a carrot and so was no incentive at all when used this way.

The ANA Marketing Financial Management Conference is a great annual opportunity to spend 3 days with 500 procurement, marketing, agency finance and consultants from the USA and increasingly overseas and to find out that everyone is facing the same challenges. But there is interesting progress and trends in many of the business challenges facing the industry.

This post also appears in AdNews

Media auditing moves from a stick to a carrot as advertisers get smarter

Wall Street

It appears that from a Wall Street perspective there is no agency income crisis with most of the holding companies recording record profits in excess of the market growth. And from an investors point of view this makes the holding companies generally good investments, because Wall Street believes that no matter what the price the agencies are able to maintain and grow margins.

After all Marketing should and is focused on cost or price reduction, not the current industry obsession with the profit margins of the suppliers.

While agencies continue to find ways of meeting marketer expectations on quality and price and at the same time maintain and improve margins the industry is performing well from an investment perspective.

There are different perceptions of the various listed holding companies:

• WPP: A great futurist machine
• Interpublic: A ticking time bomb
• Omnicom: Safest investment choice

Media Trading Desks

There is a lot of discussion about the lack of transparency in regards to media trading desks and this has lead to marketer and procurement suspicion about the margins being generated for the agency networks, especially as many of these trading desks operate at the holding company level.

The panel were explaining that if the focus moves from the business model to the benefits, marketers are in a better position using the Trading Desks because they deliver to marketers greater efficiency in buying, data analytics and insights on individual audiences, and overall better campaign performance.

They also highlighted that rather than benchmarking the business model and profit margins, they should compare the performance of the Trading Desk against the inventory price in the market.

And why do the Trading Desks exist at a holding company level? Because in most cases the investment in technology to create an efficient and effective analytics, management, buying and optimisation system can only be justified at this level of volume.

Media Audits

Media Audits Council is a not for profit organisation  funded by the major global media auditing companies with the charter to develop best practice in media auditing, an area of consulting often shrouded in mystery.

The panel they bought together included global companies like Pfizer, Kimberley-Clark, Bayer and Nissan.

The focus of the panel was the role of media auditing in driving performance. Rather than focusing on simply measuring past performance, all media audit users found the bigger benefit was in the lessons and process improvement to be applied going forward.

While many of the panel saw the benefits linking agency remuneration to the audit performance, they all recognised that the bigger opportunity is driving the media value obtained over the market, rather than limiting agency payment. Making the process a big carrot rather than the traditional stick auditing has previously been.

Focus on price rather than cost

So overall there was a positive change in focus today from how much does advertising cost, looking for ways to measure the value delivered.

Of course the next step is to start to recognise the value created and to reward for that. But maybe that will be next year’s or perhaps the year after.

The ANA Marketing Financial Management Conference is the only event of its kind. It brings together top marketing finance and procurement professionals from the client side with agency CFOs and other key industry stakeholders interested in efficiencies, cost savings, return on investment, and delivering greater value to organizations.

This post also appears in AdNews

Today was about obtaining a view of the world from four very different perspectives:

1. The economic perspective – John Swadener, PwC & Larry Cristini, Eurasia Group
2. The CPO perspective – Hans Melotte, Johnson & Johnson
3. The CMO perspective - Paul Matsen, Cleveland Clinic
4. The Agency CEO perspective – Martin Sorrell, WPP

A deficit of economists talk on the patchy global economic performance saying it is here to stay for at least the next 5 years

The economists laid the base of awareness that while there is growth in the global markets, this growth is patchy and unpredictable, with surprising figures showing that markets like the Middle East and Turkey are positioned for growth along with the traditional BRIC markets. This was based on population size and profile, government policy and regulations and media, technology and entertainment spend.

So against this background the next three speakers had more in common than differences:

1. All talked about the importance of optimising growth and yield over shorter term cost cutting
2. All reiterated the importance of metrics in not just measuring success, but to optimise performance
3. All spoke about the importance of integration, not just across marketing strategy, but within teams with finance, procurement and marketing needing to be aligned and then aligning their agencies and suppliers.

Interestingly all mentioned that to achieve this they recommended moving back to consolidating the number of agencies as a way of achieving this alignment and the associated collaboration.

Recent reports from the US have suggested that this is a trend as marketers find it increasingly difficult managing multiple agencies with recent appointments by Bank of America, Pepsi, MillerCoors, General Motors and Sprint.

The real difference between the various perspectives was in the focus on this change and approach.

The CPO focus, understandably was about achieving increased performance by building stronger business partnerships and strategic relationships, defining success, ensuring contract adherence, evaluating performance and aligning incentives.

The CMO was more focused on achieving alignment and maximising performance across the multiple media channels including bought, owned and earned and monitoring this activity and informing the strategy through marketing metrics and financial performance.

While the Agency CEO, talking largely to the finance and procurement audience, was focusing an positioning agencies as the junior partners, not the domestic servants to marketing and the business with a focus on leveraging the talent at their disposal to maximise the value of their client.

But through the whole day, the most surprising disclosure was from Martin Sorrell who in the Q&A session following his presentation candidly shared that within WPP the deeper you go into the company the more excited people are to be working collaboratively across the various companies within the network, but at the higher levels of management there are more silos and turf wars due to the structure of the organisation and that this is a challenge that he is addressing.

This post also appeared in AdNews.

Paul Duxbury SPIRE Worldwide & Steve Lightfoot WFA on measuring and managing marketing procurement

Through research and case studies developed between the WFA and SPIRE they have identified four stages of Procurement developing in the marketing category.

1. Balanced Traditional
2. Success Through External Partnerships
3. Seamless Integration
4. Balanced Emerging

The stage a direct procurement team sits within an organisation depends on the two main critial success factors:

1. Sourcing capabilities
2. Organisational readiness

With four main performance drivers and more than 40 sub-drivers, they are able to identify the developmental maturation of the marketing procurement function within an organisation and compare this with the ideal and industry best practice.

The bottom line of the presentation is that in the marketing category, direct procurement is becoming more sophisticated and more developed, especially amongst the larger global advertisers. But in the process they are moving from the traditional balance of cost reduction to a more balanced approach across the four performance pillars being:

1. Integrated streamlined marketing process
2. Money / budget management
3. Supplier and roster selection and management
4. Continuous learning and improvement

Interesting findings from the research were:

The more mature, therefore the more the organisation had moved from Balanced Traditional to Balanced Emerging:

1. the more time procurement had been engaged (5 years +)
2. the larger the marketing budget ($3 bill +)
3. the more of the marketing budget was under procurement management (75%) and
4. the more centralised the management of the marketing budget.

Interestingly on the percentage of marketing budget under procurement management, this also varied by region with EMEA 70% – 80%, while the merging markets in APAC and LaTam were only 40% – 60%.

Having said that, the WFA found that 45% of their members with business in China and APAC had direct procurement managing marketing expenditure in the region.

The ANA Marketing Financial Management Conference is the only event of its kind. It brings together top marketing finance and procurement professionals from the client side with agency CFOs and other key industry stakeholders interested in efficiencies, cost savings, return on investment, and delivering greater value to organizations.

This post also appeared in AdNews

Many advertisers and their procurement executives take a buyer/supplier view of these relationships, while the agencies often approach the relationship talking about a partnership.

But what is the difference? Which of these is correct? And what impact does this have on remuneration?

supplier / n. one who furnishes with what is lacking or required, to satisfy a need or demand

This broad description captures the relationship between advertisers and their agencies, where the client requires the provision of creative communication ideas developed for their specific needs and then executed to an agreed plan. Just because this service is customised to the needs of the client does not make the agency a partner.

partner / n. : Law. one associated with another or others as principal or contributor in a business, usu. sharing its risks and profits.

The key point here is they share the risks and the profits. Lets look at some typical remuneration models in the market and determine if they reflect a supplier relationship or partnership.

Media Commissions & Service Fees

A number of clients still use this buyer/seller mode of remuneration, with the client buying media/services and the agency supplying these with the remuneration based on the volume bought, not on the quality of work or outcome.

Retainer and / or Project Fee

These are a derivation of the head hour model, where the resource required is calculated or estimated and the total fee is paid for each service, project or outcome.

Rather than based on expenditure the focus has moved to the client buying human resources and paying the associated costs.

Advantage:
1.    The buyer knows the cost up front and is able to budget
2.    Guarantees the cash flow for the supplier against a set human resource.
3.    Buyers can make informed decisions on whether these services are cost effective and essential.

Weakness:
1.    No recognition of the value created in the form of intellectual property or revenue or profit generated by the supplier
2.    Difficulties defining the service levels and quality of the personnel required to provide those service levels.
3.    Irrespective of doing an outstanding job or a hopeless job, profitability remains the same.

Value Based Remuneration

Value based moves from the resource model to the pricing and ROI model setting a price on the delivery of outputs and a ROI bonus on the outcomes of those outputs.

Rather than based on the level and cost of resources, the focus has moved to the value of the agency outputs to the client and ROI of those outputs.

Advantage:
1.    The price is set up front for both the buyer and supplier
2.    The expenditure with the agency moves from a cost to an investment
3.    The agency can share in increased returns where the outputs they produce contribute to increased revenue or profitability

Weakness:
1.    Setting the required output and placing a price or value on that output can be challenging
2.    Agencies can be unwilling to have their remuneration linked to measures they believe they have little or no influence over
3.    Marketers are unable to budget the bonus or variable component of the agency fee based on results

Performance Based Remuneration (PBR)

PBR is a relatively common way of providing an incentive for the agency and usually takes the form of sacrificing profit margin.

The most successful models use a mix of soft, medium and hard measures.
1.    Soft measures: relationship objectives measured by systems such as Evalu8ing.com
2.    Medium measures: marketing measures eg. brand awareness, desirability or propensity to purchase.
3.    Hard measures: business measures eg. sales increases, market share, market penetration or even share price.

Difficulties:
1.    Achieving agreement on the measures, especially the hard measures such as sales.
2.    Difficulty managing the PBR as a floating component within their budget, with a “use it or lose it” accounting practice.
3.    PBR measures that are complex, difficult, time consuming and costly to administer and implement.

Partnership Behaviour

So what does constitute a partnership? Where the agency share in the risks and rewards.
1.    100% of the agency profit at risk based on PBR.
2.    Linking all agency profit to the sales success or profitability of the client.
3.    Investing time and resources with a major profit or revenue share.
4.    Joint venture with agency as the outsourced marketing / advertising department.

Conclusion

Not every client wants a partner. Not every client wants a supplier.

The basis of any remuneration should compensate a supplier for their costs with a reasonable profit or reward the partner for the value they create in the business.

Advertisers and their agencies need to understand the type of relationship they want and develop remuneration models that reflect and sustain that relationship, not just pay lip service to it.

We have had years of experience in developing customized remuneration models based on industry benchmarks and best practice. But in most cases the primary driver for the marketer and procurement is trying to deliver transparency and accountability to ultimately reduce costs, not necessarily build sustainable relationships.

In other words they see their agencies as suppliers.

What relationship do you have with your agencies?

One of the guys stops and starts to put on his running shoes.

His incredulous friend asks “What are you doing”.

He replies “I want to put on my Nikes”.

His friend shouts to him “There is no way you can outrun a lion”.

He replies with a grin, “I don’t have to outrun the lion, I just have to outrun you”.

The same philosophy is required to win in the current media trading situation marketers now find themselves in with a soft media market. It is well reported that marketers are concerned about the lack of transparency in media trading with media agencies setting up trading desks to trade media inventory.

Much of this inventory appears to be “bonus” inventory provided by media owners at no cost to the agency networks as part of the sales incentive used by media owners to secure share of market and share of advertiser budget.

While most discussion is about how to stop this practice, this approach is flawed as the situation has been created by a short term view taken by most advertisers to reduce the agency-cost of their media, with the media agencies compliant in this endeavour.

And the only people that seem to be profiting from this strategy are the industry auditors who get paid to go looking for “value bank” of “bonus” inventory and end up only finding refunds due to poor agency accounting practices.

Instead of begrudging the media agencies finding a way of profiting from the soft media market, the focus should be on how to benefit from this “value bank” of media inventory to a greater extent than your competitors and at the same time effectively reduce your media costs.

Most media owners have budgeted into their cost of business up to 20% and in some cases 30% or more of revenue as sales incentives. Compare this to the average fees paid by advertisers to their media agencies, which average at 3% – 5% of media spend globally according to the WFA.

So now the media agency has reportedly hundred of millions of dollars in inventory as a “value bank”. The question is not how to stop this, but how to benefit from this situation and get a greater share of the “value bank” and that is to run faster then your competitors.

The media agencies need to convert this inventory into income. They currently do this by:

1. Using it to provide a more competitive buying position to win business in pitches
2. Using it to to earn buying performance bonuses by exceeding buying benchmarks
3. Using it to achieve total payments based not on cost of media but related to sales or lower cost per acquisition

Smart advertisers are not seeing the inventory as their property and complaining that it should be given back to the advertisers, but work out how to cost effectively get your hands on more of this “bonus” or “value bank” than your competitors.

Here are two ways you can maximise your share of this “value bank” of media inventory:

1. Create significant financial incentives for the media agency to use more of their “value bank” to lower your media cost either against rates card or CPM or some appropriate measure. Spending $50, $100 or even $200 to get $1,000 in additional media above and beyond what everyone else is getting for a similar media spend is a good deal with a 5 times ROI even at the highest spend.

2. If you are in a more direct response category, such as financial services or telcos etc, put the direct response media cost and associated agency fee on a payment per sale. Work out what your typical media and media agency fee contribution to cost per acquisition, year on year, and then provide the agency with the opportunity to earn the media and fee as a payment per sale. This creates an opportunity for the agency to legitimately turn the “value bank” of inventory into cash. Price the level of payment correctly and you will be enjoying lower media costs against guaranteed sales.

There are possibly more ways, but the point is this situation has arisen because of the downward pressure on agency fees and the soft media market. It will not last like this forever, as the economy recovers media owners will be less likely to provide the level of incentives they are now.

Rather than complaining about the situation, the quick and the nimble have an opportunity to yield the benefits of the situation. But of course it is not for everyone. You need to have a very clear understanding of what is your current cost per media and where your buying position stands against the particular market to make sure you get the benefit, rather than just end up overpaying for the agency’s bonus.

So how can you benefit from the “value bank” of media being held by your agency? Leave a comment here or maybe get in touch with me directly to discuss.

“We are operating in one of the most competitive sectors of all,” says Maurice Lévy, CEO of Publicis Holding group, to worldwide agency relationship consultants on third day of the Paris Ad Forum summit. “Competitive, because agencies are fighting one against the other to win new business, and secondly because once they have won a budget, their task is to make their client win against its competitors, and lastly, because this talent industry is all about egos…and thus competition”

In uncertain economic times, marketers are trying to find communication solutions within the limit of their organizations to implement more reactive and interactive strategies to meet consumer’s needs. With a strong time and cost pressure some of them are questioning the added value of communication agencies…

Make or buy?

It is often said that agencies “sell ideas, orchestrated by talents, and executed on different communication channels” …

“If an agency can be replaced by a senior art Director, it’s not an agency anymore” declares Marco Tinelli, CEO of fast growing international digital agency Fullsix. Because some agencies are not perceived as bringing enough added value, some advertisers (retail, financial services…) tend to internalize some communication functions such as production of creative assets or community management. For those who go along that route without giving it a second thought, there is a high risk to consider communication a commodity, thus loosing the brand heart and spirit. Owner of a strong emotional territory, the luxury sector is known to nurture some defiance of the communication agencies…

With some noticeable exceptions, when both part make the most of client and agency creative side: Ogilvy has put the Louis Vuitton legacy “in motion” with the “journey” worldwide campaign featuring Keith Richard, Sean Connery or Angelina Jolie, JWT has built a whole product and communication territory for Maison Cailler, Nestlé’s chocolate premium brand. “The only thing, which makes an agency relevant in the food chain, is the emotional creative aspect” underlines Maurice Lévy. “Big ideas last long” says Rémy Babinet, Head of creation and co founder of BETC. “Our added value lies in our capacity to attract, hire and build teams of talents” insists Mercedes Erra, co founder of the same BETC, HAVAS’ group “jewel of the crown”.

Scale or skills?

In order to establish a closer relationship with their clients some agencies prove to be very successful in trying new models. Some focus only on their core expertise: “we keep the managing inside, and the doing outside”, explains Luc Wise, one of the founder of HEREZIE, a 18 months years old agency, operating for 16 clients, among which Essilor or Chevrolet.

Some others have suppressed the account management function (“no bullshit”) and try to limit “the number of dots on the map”. Creative people liaise directly with the advertiser. This has proven very successful for: Fred & Farid, operating from France with 200 people of 20 nationalities, on budgets such as Martini, Weight Watchers, Orangina, Société Générale…

Praised for its Youtube campaign for Tipp-ex, Buzzman, a six-year-old agency of 45 people focused on digital content has the same credo and commits to the advertiser results:  “the agency remuneration is linked with the achievement of KPI’s awareness/engagement/virality”

Preparing the future together?

To support their clients in tackling the marketing challenges of the future, some agencies are building new practices, and some develop R&D programs. From Fullsix perspective, new practices are: experimentation, acceptance of failure, speed of action, and measurement as ground for continuous improvement. With a different scale of action, Publicis has 300 people working in R&D within the Vivaki structure, regrouping media, digital, a nerve center, as well as a “watch system”. The holding company has also built a partnership with Google, conscious that the “Googles of the world” have business models built on scale whereas communication agencies are built on skills.

Strangely enough, the pride of the Publicis group is not its largest company, but DENUO, an original initiative founded in 2006 by Richard Tobaccowala, aiming at detecting and supporting start ups in their development, thus giving birth to the marketers of the future. In France, BETC also subscribes to this kind of initiative with the “start up lab”, supporting e-loue, vestiaire de copines, MyLittleParis et Supermarmite helping them to become brands.

Enabling consultants to meet with the “best in class’ or ‘best in class to be’ agencies on one market, this Summit has been a new opportunity to tackle the issues of the marketing industry. In today’s world, cost is far from being the only criteria; it’s also very much the technology and know how which will make the brands expand.

People and ideas will remain at the very heart of the industry….