Wednesday, June 10, 2009

A New Definition Of Value

Tim Williams of Ignition, wrote an interesting piece regarding procurement in Advertising Age this week.

Tim’s a big proponent of value-based compensation. He believes that the more value the agency delivers, the more the agency should be compensated.

Difficult to argue with that.

The key to procurement, at least according to Tim, is the “alignment of incentives.” By this he means aligning desired outcomes by tying compensation to value created rather than costs incurred, and the sharing of risk and reward between advertiser and agency.

Noble goals, all.

Attainable or not, is another story.

The biggest difficulty, at least in my opinion, comes in defining value. The term has proven to be rather subjective. The advertiser has one definition. The agency has another.

Both definitions tend to be completely self-serving, to say the least.

Which is why it's probably best to let someone else define value. I don’t know, but since advertisers are talking to consumers with the commercials they run, perhaps consumers should be the ones to say whether a commercial has value or not.

What makes it even easier is that consumers don’t actually have to say anything at all. Digital data says it all for them.

If a consumer clicks-in to watch a commercial—in other words, expressing an initial interest—but then clicks-out within five seconds, well, it’s obvious that the commercial didn’t hold enough value for them to hang around.

What's interesting about time spent with a commercial is that it’s directly measurable. Which makes time spent the one measure of value that is not subjective.

And which is why view duration data could start to serve as an interesting alternative to procurement.

The role of most procurement agents is to reduce the amount the agency spends, especially in regards to production. In other words, their job is to stop money from going out the door. Whether it hurts the quality of the final product, i.e., commercial, is really not the procurement agent’s focus.

But it should be the focus of the marketing director. Those dollars he or she is subtracting have a direct bearing on how well the commercial will, or will not, strike the emotional chords necessary for success.

By using digital data that reveals how long viewers did, or did not, engage with the commercial, marketers can pay based on the actual value delivered.

At least, value as defined by the consumer.

If the results show that nobody hung around very long, then the agency won’t make very much. On the other hand, if the agency did keep the viewer’s interest and attention, they can, and should, be paid very well.

It’s the difference between rewarding value-creation versus cost-cutting.

Which should appeal to both marketers and agencies alike.

After all, if you’re a marketer that values creative brilliance, there’s now a way to let creative brilliance define value.

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