Value-based agency compensation and incentives
Transcript of Value-based agency compensation and incentives
IMPROVING THE EFFECTIVENESS & EFFICIENCY OF MARKETERS & THEIR AGENCIES
ANA FINANCIAL MANAGEMENT NYC
VALUE BASED COMPENSATION & INCENTIVES
March 2015
IMPROVING THE EFFECTIVENESS & EFFICIENCY OF MARKETERS & THEIR AGENCIES
Today
Setting Incentives1 2 3
Case Studies
Four Things
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IMPROVING THE EFFECTIVENESS & EFFICIENCY OF MARKETERS & THEIR AGENCIES
who arewe?
GLOBAL CONSULTING COMPANY SINCE 2002
70 PEOPLE, 11 OFFICES, 70+ MARKETS
EFFECTIVENESS – with efficiency
LONG TERM RELATIONSHIPS
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About R3
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Who do we work with?
55 Countries 7 years
40 Countries 5 years
15 Countries
75 Countries
8 years
12 Countries10 years
6 Countries
12 Countries
7 years
4 years
22 Countries5 years
IMPROVING THE EFFECTIVENESS & EFFICIENCY OF MARKETERS & THEIR AGENCIES
What do we do?
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IMPROVING MARKETING EFFICIENCY &EFFECTIVENES
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RETURN ON INVESTMENT
RETURN ON AGENCIESRETURN ON MEDIA
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SETTING INCENTIVES
IMPROVING THE EFFECTIVENESS & EFFICIENCY OF MARKETERS & THEIR AGENCIES
Trends in Fee Compensation
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IMPROVING THE EFFECTIVENESS & EFFICIENCY OF MARKETERS & THEIR AGENCIES
Incentives
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Evaluating Agencies
ADVERTISER ADVERTISING AGENCY
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Impact of Incentives on Agency Performance
Source: ANA 2012, Global Agency Compensation Survey
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Creative Agencies
ADVERTISER ADVERTISING AGENCYSales (Sales Index)Market Share GrowthGrowth by Brand
Brand HealthEquity MeasuresAd AwarenessAd Recall
Pre Tests Link Results
Annual Evaluation Half Year Evaluations
IMPROVING THE EFFECTIVENESS & EFFICIENCY OF MARKETERS & THEIR AGENCIES
Pop Quiz
What is the typical premium of Ratecard over Retainer?
A. We have to pay agencies? B. 0% C. 30%D. 80%
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IMPROVING THE EFFECTIVENESS & EFFICIENCY OF MARKETERS & THEIR AGENCIES
Project vs. Retainer Rates
Recent examples from R3 Client-agency contract reviews
Proposed project staff rate as % of retainer rateClient A - Agency A 109-111%
Client B – Agency B 127-131%
Client C – Agency C 133-135%
Source: R313
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Media Agencies
ADVERTISER ADVERTISING AGENCYSales (Sales Index)Market Share GrowthGrowth by Brand
Advertising AwarenessAdvertising Recall
Annual Evaluation Half Year Evaluations
Media Efficiency AuditsMedia Effectiveness AuditsMedia Financial AuditsMedia Process Audits
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Cost Based Metrics
METRIC WHAT DOES IT MEASURE VALUE Year-on-year cost increases/decreases
• Year-on-year change in real prices • Actual $ costs paid vs last year
• Most accurate benchmark • Critical to establish ‘cost unit’, e.g.
CPRP or % discount • Can only measure like for like
media
Costs vs external benchmark Compares costs paid to third party data pool
• Valuable indicative cost base• Pool relatively small but growing
fast Costs vs market rate Actual costs paid vs agency estimate
of average costs paid by other advertisers
• Agency favourite but almost impossi- ble to verify
• Can give a useful general perspective
Costs vs inflation • Similar approach to market rate. • Compares year-on-year actual
costs vs theoretical inflation rate
• Baseline inflation usually taken from media vendor rate card changes or CCTV annual action results
• Useful but impossible to quantify
Costs vs internal agency benchmark
Compares actual costs to average rates paid by agency
• Valuable benchmark but agencies are very reluctant to share internal data
• Agency rates need to be verified by a third party
Savings vs rate card Rates paid vs rate card cost • Limited value - nobody pays rate card
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Quality Based Metrics
METRIC WHAT DOES IT MEASURE VALUE
Campaign effectiveness
Agreed upfront consumer responses metrics in stipulated timeframe (e.g. 1 million video views on demand in 3 weeks, 10,000 participants, 1000 sign ups, etc.)
• Consumer responses provide valuable indications if a brand promotion or message is well-received
• Potential linkage to key business outcomes (e.g. sales, loyalty, etc.)
TV spot verification
• Spot matching scheduled vs actual on air spots•
Captures spots appearing as planned vs missing or out of zone spots. Also captures bonus spots
• Sets basic spot accuracy level vs benchmark
• Ensures missed spots are accurately compensated
GRP, Reach and Frequency verification
Benchmarks planned vs actual GRPs, Reach and Frequency (see definitions in Glossary)
• Sets accuracy level vs benchmark
Campaign strike rates
Measures number of campaigns achieving planned weight of GRPs, Reach and Frequency
Measures consistency of tactical planning and scheduling across brand portfolio
TV peak % Benchmarks % of actual GRPs appearing in pre-determined prime time segment
• Subjective measure of audience attention• Measured against benchmark• This concept can also be applied to print
positioning Position in break Rates paid vs rate card cost • Limited value - nobody pays rate card
Program selection % of GRPs delivered in top rating programUsually Top 10 highest rating shows used as benchmark
• Broad quality metric measuring use of ‘hot programming’
• Ensures reach goals achievedç• Can be applied to non-TV media
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Media Transparency
“Why are media agency fees reducing while agency
profits are increasing?”
IMPROVING THE EFFECTIVENESS & EFFICIENCY OF MARKETERS & THEIR AGENCIES
What % of US marketers pay for digital on fee basis?
A. What’s a fee basis? B. 28% C. 82%D. 102%
Pop Quiz #1
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IMPROVING THE EFFECTIVENESS & EFFICIENCY OF MARKETERS & THEIR AGENCIES
ANA Compensation Study
Source: ANA 2012, Global Agency Compensation Survey
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IMPROVING THE EFFECTIVENESS & EFFICIENCY OF MARKETERS & THEIR AGENCIES
Why is my Digital Agency so expensive?• Premiums paying by rate card?• Premiums paying project by project?• Fees for digital production: apples to oranges
vs. traditional agencies• Paying multiple agencies for similar services?• Lack of agency revenue transparency? Fees on
top of other agency revenue sources?
Digital Agencies
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ADVERTISER ADVERTISING AGENCYSales (Sales Index)Market Share GrowthGrowth by Brand
Advertising AwarenessAdvertising Recall
Annual Evaluation Half Year Evaluations
Digital KPI’s
Digital Agencies
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Core Metrics (Display)
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The 3 digital black boxes
FEES PRODUCTION
MEDIA
Ratecards hours
Profit margins
vs traditional
Make or buy
Mark ups
Rebates
RTB
Publisher roles
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Digital Rebates
• There is so much competition for digital revenue Adtech running at loss to IPO Clients budget slow to move Agencies have strong control
• Media Rebates – in EVERY country – are inevitable
Source - WFA
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ADVERTISER ADVERTISING AGENCYSales (Sales Index)Market Share GrowthGrowth by Brand
Advertising AwarenessAdvertising Recall
Annual Evaluation Half Year Evaluations
Event Metrics Event Performance
Event Agencies
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ADVERTISER ADVERTISING AGENCYSales (Sales Index)Market Share GrowthGrowth by Brand
Advertising AwarenessAdvertising Recall
Annual Evaluation Half Year Evaluations
Social Metrics
Social Agencies
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Social Media Metrics
IMPROVING THE EFFECTIVENESS & EFFICIENCY OF MARKETERS & THEIR AGENCIES
Various digital services lend themselves to in-house solution• Those that involve regular, day-in,
day-out activities • Simple and high-volume production
tasks that don’t have high-level “creative” demands
Make vs Buy
Where are the shifts from agency to in-house taking place?• Website maintenance and basic
content management• Social media monitoring and content
management• Digital asset production/adaptation
(especially for basic OLA – banner ads, simple videos)
• Digital strategy
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Putting it together
IMPROVING THE EFFECTIVENESS & EFFICIENCY OF MARKETERS & THEIR AGENCIES
MODEL EXAMPLES PROS CONSMultiple, Best in Class AgenciesClient hires multiple agency specialists across different disciplines (creative, media, digital, PR, multicultural, etc.)
Mondelez, J&J, Levi’s, Walmart,Samsung, many others
Considerable resource flexibility
Helps ensure “best in class” agencies
Increased client mgt time
Potential cost inefficiencies
Potential barrier to integration
Lead AgencyClient hires “lead agency” to provide overall brand direction; help client manage and coordinate other agency resources
P&G (BAL model), Huawai, some others
New approach
Tighter client-agency coordination; fewer points of contact to manage
Potentially greater integration
Lead agency can dominate to point where other agency voices drowned out
Lead agency “jack of all trades, master of none”?
Common AOR Models
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IMPROVING THE EFFECTIVENESS & EFFICIENCY OF MARKETERS & THEIR AGENCIES
Common AOR Models
MODEL EXAMPLES PROS CONSHolding Company: Sibling Agency SolutionClient serviced through agency holding company; team of discipline specialists, usually with one agency in lead
Reckitt Benkeiser, Clorox, HSBC, Chrysler, BoA (the latter two abandoned after trying it)
• Single agency contract and point of accountability, but allows for multiple specialists
• Some degree of resource flex
• Potential greater integration
Some limitations for “best in class” options
Efficient on paper, not always in practice
Less flexibility with agency conflict management
Holding CompanyCustom AgencyHolding company creates custom agency for the client
ll (short-lived), Apple FordNestle (some markets)
• Potential for greatest degree of integration
• Built to client “specs”
• Client time, cost efficiency (fewer agency contacts)
• “Ivory tower” risk; agency a reflection of client vs. independent voice
• Agency talent recruit & retention issues: esp. for creative talent
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IMPROVING THE EFFECTIVENESS & EFFICIENCY OF MARKETERS & THEIR AGENCIES
Common AOR Models
MODEL EXAMPLES PROS CONSFree AgentClient draws from multiple and varying agency resources as needed (few, if any, formal AOR or retainer assignments)
Intel, Sony
• Ultimate in flexibility; ensures constant breadth, variety of ideas
• For brands with cachet, agencies come calling to client
• Requires very centralized, well- staffed client team
• Can work against integration
• “Free agency” can turn into “free for all”
One Stop Shop (Single Agency)One agency hired to do everything; unlike the “custom agency”, this is an established agency that can handle multiple marketing/advertising functions
Common for smaller clients; particularly for local/regional or B2B marketers
Common in Japan , Korea , Brazil
• Potential for greatest degree of integration
• Client time, cost efficiency (fewer agency contacts, relationships to manage)
• Rare that one agency can do everything equally well
• “All or nothing”
• Potential for “ivory tower”
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2CASE STUDIES
IMPROVING THE EFFECTIVENESS & EFFICIENCY OF MARKETERS & THEIR AGENCIES
Changing fees and processes to become truly output focused
Unilever
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100% Sales Outcome
80% bonus
100% Agency performance
20% bonus
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BONUS as % of FEE
BONUS KPIs
Lower focus on outcomeHigher agency acceptance
Higher focus on outcomeLower agency acceptance
‘TRADITIONAL’ ‘RADICAL”
Outcome Based Fees
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A radical new working model to streamline and drive focus P&G
IMPROVING THE EFFECTIVENESS & EFFICIENCY OF MARKETERS & THEIR AGENCIES
P&G Before BALWorking Process
EBD ADAGENCY
INTERACTIVEAGENCY
BBAGENCY
BTLAGENCY
BRAND AGENCY
BD LEADER
DIGITAL MGR
BB LEADER
BTL MANAGER
GLOBAL STRATEGIC COMM PLANNING
MEDIA
ADD
DESIGN MGR
Multiple competing messages
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IMPROVING THE EFFECTIVENESS & EFFICIENCY OF MARKETERS & THEIR AGENCIES
The benefit of one
BRAND AGENCY LEADER
P&G DECISION MAKER
ONE BRIEF
ONE CHECK
One cohesive message
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A new global roster with digital and creativity at the center
Samsung
IMPROVING THE EFFECTIVENESS & EFFICIENCY OF MARKETERS & THEIR AGENCIES
Samsung 2014Global Review
Network creative (2)
Boutique creative (4)
Digital (3)
Media (1)
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OBJECTIVE OUTCOME
Powered for CreativityFour of the world’s best creative boutiquesSupport from Cheil, LB
Powered for Digital Social-centric Customer-centricResults-centric
Samsung 2014Global Review
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SamsungEvaluations
• Global system • 2,000 Samsung
marketers • 250 agency relationships
• “Client on Agency”• “Agency on Client” • “Agency on Other
Agency”
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3FOUR THINGS TO DO
DIFFERENTLY
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Change mindset on “Value Based” from theoretical to practical
1.
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Let your agencies get rich…..2. or poor Based on Results
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Measure and prove the value and cost improvement of integration
3.
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Digital and Social needs to be at the center, not as an add on
4.
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Best practice ideas
1. Change value mindset
2. Based on Results 3. Proving Integration 4. With Digital at the
Center
IMPROVING THE EFFECTIVENESS & EFFICIENCY OF MARKETERS & THEIR AGENCIES
Thank You!CONTACT
GREG PAULL [email protected]
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