Anheuser-Busch Whacks Retainers for Its Agencies

New Compensation Model Could Cost DDB Dearly

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CHICAGO ( -- Agency fees are the latest casualty in Anheuser-Busch InBev's quest to trim $1.5 billion in costs out of the world's largest brewer.

A-B has swapped its long-held retainer-based model of compensating its busiest agencies for a new approach based on an agreed-upon scope of work at the shops. That shift, which has become an increasingly common one for marketers looking to cut agency outlays, puts the agencies on the hook if projects require more hours or greater cost than expected. Other changes include stingier reimbursement rates for production costs and smaller, flat per-concept fees.

"I don't think the agencies are going to be happy," said agency-compensation consultant Bill Nicholson, who has worked with some of InBev's agencies in the past and said the new model was typical of its approach. "They could lose 25% or 30% (of their fees) in the blink of an eye."

A-B's agency roster is led by DDB, Chicago, which handles Budweiser and Bud Light and, in the past year, won duties on two newer brands that have gotten significant marketing support, Bud Light Lime and Budweiser American Ale. DDB's total fee -- estimated at $12 million to $15 million by industry sources -- is expected to decline under the new approach, but the newly won accounts ought to stem those losses somewhat.

Other A-B shops include Euro RSCG; LatinWorks; Cannonball, St. Louis; and Deutsch, New York. The brewer handles media buying and planning internally.

Project-based billing
"It's more about 'Bill me by the project' vs. 'Bill me by the hour,'" said A-B VP-Marketing Keith Levy, who confirmed the changes. "It's about redirecting budgets tied to retainers back to other parts of the business."

Mr. Levy said some of the savings would come from cutting ties with a number of seldom-used agencies in A-B's mix, as the brewer would be cutting its total number of shops by almost half. He declined to name which shops would be cut, but A-B's lesser-used shops include Hill Holliday, Goodby Silverstein & Partners, Momentum Worldwide, Waylon Advertising, Drive Agency, and a long list of other sales and promotions shops, many of which are based in its hometown of St. Louis.

Mr. Levy said more-rigid scope-of-work agreements would also cut the number of jump-ball assignments at the brewer, such as last fall's shootout for Bud Light's "Drinkability" campaign among three roster shops.

"Every time you have another agency work on a brand, the brand gets reinvented a little bit," Mr. Levy said. "We want partner agencies really tied to the strategy of a brand."

He also stressed that A-B has been emphasizing a "more disciplined" approach to ad production for several years, depending more on pre-shoot testing and not leaving nearly as much work on the cutting-room floor as a result.

A-B is by no means the only marketer cutting back on agency fees during these strapped times, as marketers everywhere are looking for savings wherever they can find them. But executives at some of A-B's agencies, speaking privately, said these cuts are generally more aggressive than they are seeing from other clients, even though A-B's core business is generally less affected by the recession than most.

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