Innovation at premium: Marketers boost role of product-idea shops

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New-product invention and consulting, long a low-overhead business plied mainly by small and midsize independents, is getting growing props and profits from major marketers desperate for innovation.

And, as marketers give innovation consultants increased status, scope and pay, bigger shops are taking notice. Publicis Groupe's Saatchi & Saatchi last year formed new-product developer Fahrenheit 212-complete with a staff of 30 scientists and a few Ghanaian storytellers-after Procter & Gamble Co. Global Marketing Officer Jim Stengel called on roster shops to get more involved in new-product work for brands they handle. Saatchi wouldn't comment on Fahrenheit 212, which earns a generous royalty on new products that can end up exceeding the profit on an advertising account.

Brandstorm, a Cincinnati shop that once handled considerable new-product work for P&G, has branched out to other clients, including Kellogg Co., Humana health care, PepsiCo's Gatorade and Ashland Oil's Valvoline. Some of those clients are putting the agency on retainer as "innovation agency of record," said Jeff Dufresne, president of the unit of Northlich. Brandstorm makes up about 60% of business for the integrated communications agency, he said, with the consulting work offering generally higher margins than advertising or PR.

The Seiden Group, a New York independent, scored a minor coup in a recent assignment from Georgia-Pacific Corp., getting to handle some of the new products it launches in new categories for the marketer all the way through launch, rather than making the traditional handoff to an ad agency.

novel pay plan

Though unusual, it's an arrangement the shop already has with the Weight Watchers brand, said Matt Seiden, president of the agency. It's also an arrangement Northlich has made in the past with such clients as H.J. Heinz Co. and Humana.

One reason P&G shops historically were reluctant to take on more new-product work, according to agency executives, was the compensation issue. Fahrenheit's plan solves that in a novel way. In a recent interview for management guru Tom Peters' Web site, Saatchi CEO Kevin Roberts said Fahrenheit 212 eschews the fees innovation consultants normally charge in favor of a 3% royalty on any products or service concepts its work creates.

It's a no-risk deal if concepts flop or never hit market, but also very generous for products that do, amounting to double or more what an ad agency normally would make from handling a package-goods brand.

eccentric history

The model puts the smaller firms that can't afford to do the work without a guaranteed revenue stream at a disadvantage, said an executive for one consulting firm. As an added bonus, the brand manager who commissioned Fahrenheit often has moved onto a new assignment by the time the client gets the bill.

The business of inspiring creativity has an eccentric history that goes beyond Ghanaian storytellers. Marco Marsan, principal of Cincinnati new-product agency Marco Polo Explorers, has at times promoted his services by wearing diapers and sanitary pads in brainstorming sessions. These days, he relies more on consumer research.

But he still has drummed up business with rather offbeat pitches. Earlier this year, he tried a concept called "idea hostage," in which he sent a handful of product ideas free to two rivals and promised to sell the rest to the highest bidder. It worked. Before he could even come up with all the ideas, he signed one of the marketers, which he won't name, to a long-term deal.

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