Coke's pay model easier said than doneRE: "Coke Pushes Pay-for-Performance Model" (AA, April 27). I agree with this (well-established) idea and think sharing in the rewards is a great idea. It's good business. I've been pushing performance-related pay (PRP) for years and have done very well on every occasion we've done it. But it requires clients to share in the way things are done as well. They have to share the power, not just go away and do their own thing, cut the corners off campaigns and tone ideas down. The agency becomes the investor, so it has a bigger voice. That's the main reason I've found clients won't do PRP. They want it cheap up front but then aren't prepared to do what needs to be done to make it work, so we don't get the returns on ideas we know we could. Or they aren't honest about results. Or worse, leave before payday. Politics, red tape and fear gets in the way. Only really brave clients will do it.
As for covering costs, how do you define that? Many old-school agencies are poorly run, inefficient and very costly -- unlike new-model agencies like Droga 5, Creative Orchestra, Mother and Anomaly, which are very efficient and better value. How do you compare the two?
This "New Coke" model assumes that only advertising drives sales. Apparently, they don't teach marketing at B-schools anymore. The client comes up with a product that isn't competitive in the marketplace? Ding the agency. The client is unwilling to provide sufficient distribution and slotting allowances? Ding the agency. The client introduces some inane new packaging concepts? Ding the agency. The client eviscerates the product positioning and brand message of the advertising? Ding the agency. Since when did a client's poor business decisions suddenly become the responsibility of its advertising agency?
Another thing they apparently don't teach at B-schools anymore is the concept of "profit." Profit isn't simply the vigorish a business charges on top of its costs. Operating profit serves a critical function. It covers the indirect costs associated with operating a business. It provides the money to buy new equipment, service debt, pay taxes, put away for a rainy day like today, and to give something back to the shareholders who took a risk to provide companies with operating capital to begin with. How long can Coca-Cola stay in business without making a profit?
Oh, wait! Coca-Cola, P&G, and other marketers are increasing their profits -- by wresting it from their advertising agencies! Apparently, that's easier to quantify on a spreadsheet than having to actually innovate in the marketplace and take responsibility for one's own marketing decisions.
In that case, here's a suggestion designed to increase short-term profitability without having to worry about all those icky, pesky things like consumption patterns, consumer spending and the uncooperative economy: Simply fire the executives who conjured up this ludicrous idea and replace them with people who understand a few basic business fundamentals -- like what "marketing" actually means.
But, then, where's the profit in that?
I admire the effort to improve upon the hours-worked model, which only rewards slow work. However, I agree with the commenters here that are accustomed to delivering the client's campaign rather than their own. If the agency doesn't have control over the end product, how can it be held responsible for the result it generates?
The answer is in setting the goals appropriately. It can't be "increase sales 10%," because there are too many elements out of the agency's control. It could be "develop six 30-second spots that improve brand association with [desired attribute] as measured using [agreed- upon methodology]."
This would put the creative at the center of the model, and reduce the risk to both the agency (they get a good spot done, they get paid) and the client (testing can provide reassurance).
Red Bird Marketing