New media, as well as audience fragmentation, have upset the old agency model of creating ads and taking a percentage of the mass media spending as compensation. Today, there is pressure on agencies by marketers for new measures of the effectiveness of the $600 billion a year they spend worldwide on advertising, and agencies are trying to come up with models for being paid for that analytical work.
"Since every dollar has to work harder, clients are asking agencies to provide better predictors of success," says Anne Benvenuto, executive vice president, strategic services for digital agency R/GA.
But such predictors and pay models are all over the map. Particularly with fragmented new media, audience size often isn't high enough for statistically valid measures, and few standards for how to pay are in place.
"Digital and some of the emerging technologies don't have the reach and scale that TV has had," says Neil Canter, who heads Marketing Accountability Partnership, a division created at ad holding company Interpublic Group two years ago as a third-party ad measurement group. "So there are not very good inputs to the model. If you're going to figure this into compensation, you have to have an agreed-upon yardstick."
That yardstick is still up for grabs. Nielsen has only recently begun measuring commercial viewing, and the Internet Advertising Bureau is trying to establish standardized measures of Internet traffic.
"The name of the game for advertisers is using technology to document the effectiveness of ads," says David Evans, managing director of global competition policy at Massachusetts Institute of Technology and author of Catalyst Code: The Strategies Behind the World's Most Dynamic Companies. Evans says successful agencies will use analytical tools to measure the impact of ad ideas on sales and attitudes.
New measures and pay plans:
•Flat fees. Simplest is a negotiated fee for service based on costs and profit margins to measure an ad's effectiveness across media. Depending on the scale and scope of a project, marketers can pay anywhere from $35,000 to $1 million to apply analytical tools to optimize how and where ad dollars are placed.
Agency MindShare uses flat fees and sometimes the additional cost of a specialized manager to interpret data. "We're open to more fee-based agreements that reflect the exact scope of services for the advertisers," says Scott Neslund, CEO, MindShare North America. "To do a commission basis like … 20 years ago doesn't make sense."
•Dollars for consumer behavior. Direct-marketing agency Wunderman recently redefined some key measures to assign a dollar ratio to consumer actions, such as what percentage of visitors to a website performed a specified activity, such as requesting more information. "This is very, very meaningful for a client because it shows the value of a series of actions," says Mark Taylor, Wunderman's chief operating officer.
•Performance commission. DraftFCB, created last year by merging direct ad agency Draft and traditional agency FCB, created a variable-pay model based on a marketer's objectives. The agency still reaps a percentage of ad spending but will charge lower commissions in combination with a bonus if the program beats expectations.
"We want to compete the way clients do, which is based on performance measures," says Laurence Boschetto, president and chief operating officer. Real-time results for marketing programs are posted in the office on computer screens known as the "smart wall."
•Premium services. IPG's Marketing Accountability Partnership bills clients an average daily rate akin to consulting fees. Operating the unit independently of the agencies that create ads helps create the perception of objectivity and reduces the inclination for agencies to place ads in more costly media. "One of the key issues with accountability into compensation plans is the client perception of the objectivity of the accountability measures," MAP's Canter says.
Still, the industry hasn't moved as quickly as media has changed, and agencies are reluctant to give up commissions as a business model. And they don't want to be penalized if sales fall short for reasons other than the marketing.
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