Pay for performance? Good idea, or not…

The Economist
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I just read a piece in The Economist about a movement to pay advertising agencies for value, not hours, and how this trend is catching on. Currently, the American Association of Advertising Agencies estimates that about 10 percent of compensation agreements are value-based, according to this article. (Not sure that figure supports the suggestion that this is a trend that is “taking off”…)

Anyway, my initial reaction in reading this was: “Well, why not? Why should agencies just be paid for being “creative,” and racking up what can be enormous fees? – (I know, I’ve worked with them.) They should have some “skin in the game,” right? And, in fact, while some agencies are obviously concerned about this movement, others apparently (or so they say) welcome the shift.

But, after that initial reaction, I had another thought and had to scold myself (debating with yourself can be lonely, but also instructive if you’re willing to keep an open mind!) for taking a narrow view of marketing that I typically coach my clients away from.

“It’s not just about the advertising, dummy!,” I told myself.

“What if the product is crummy – or nobody wants it – or nobody can afford it right now?”

“What if the product is unavailable in my community – or hard to find – or in scarce supply?”

“What if the product can’t stand up against the competition?”

What many “what ifs,” many of them not related *at all* to the advertising campaign.

On the positive side, such an arrangement could elevate the role of the agency and its representatives to a more strategic one, providing the opportunity to coach and counsel the client on not just “creative” aspects of marketing, but on the other “3 P’s” (product, price and place) as well.

That presupposes, of course, that the client is willing to listen. But, agencies are “free agents” and, if they don’t feel the product/service they’re being asked to sell is worth risking their time/budget on, they can seek other clients.

On the down side… Hmmm. Not sure there’s such a significant downside. But, I’m sure I’ll disagree with myself later.

(Linda Pophal is CEO/owner of Strategic Communications, LLC, a firm that helps clients use strategy to address their communication challenges.)

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