FRACTURE ONE: SHORT-TERM ACCOUNTABILITYBeginning in the mid-1980s, major agencies merged into holding companies in a drive for growth and economies of scale. With unexpected suddenness, old relationships were strained by the quest for greater profit margins and the loss of familiar talent that was eliminated in the shuffle.
The new agency holding companies realized they could make even more money by forming media-buying companies. Buying services, while introduced in the late 1960s, never received the imprimatur of legitimacy that was to follow in the wake of the new goliaths. Today, the media agencies are as large as their creative counterparts. With all this money at stake, everyone became instantly accountable.
To ensure economies, client-purchasing departments were granted license to partner with marketing departments in the management of agency resources. Their cost-cutting measures create further financial tensions at agencies. Compensation consultants (and I am one sometimes) have occasionally been known to exacerbate the situation.
Finally, around the beginning of the new millennium, the search for the holy grail of IROI (immediate return on investment) began in earnest. Everything needed to be measured as we chanted "accountability" in unison.
FRACTURE TWO: NEW COMPENSATION PRACTICES NATURALLY FOLLOWAccording to the Association of National Advertisers, just short of half of clients are offering incentive plans to their agencies based on performance goals. For the most part, agency costs are covered, as well as 5% to 10% of profit. If pre-established goals are met, however, bonuses are paid that can increase the agency's profit above 20%.
The same ANA survey says 3% of client/agency relations are on a value-compensation program. More important, it is the talk of the industry at the moment. Value comp suggests that the agency fee is no longer predicated on labor-based indicators. Rather, all or at least a significant part of the fee is predicated on meeting pre-established goals. Because sales are a prime criterion for value- and incentive-compensation plans, and a brand's sales are not entirely within the province of an agency's work in the marketplace, this is an invitation to the agency to begin making contributions beyond advertising alone.
FRACTURE THREE: PROLIFERATION OF EVERYTHINGStrategic communication choices abound, but if one doesn't exist to solve a marketing problem, smart strategists are just as likely to invent a media or partnerships as they go along.
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The results of these fractures are discontent and re-orchestration.