Wednesday, September 30, 2009

Advertising As Hedge Fund

It was an interesting idea proposed by Miles Nadal last week at Advertising Week in New York. Miles is Chairman and CEO of MDC Partners, a holding company of sorts with controlling stakes in Crispin, Kirshenbaum and others.

What Miles suggested is that agencies should be paid like hedge funds. In other words, the agency's upside is based on the performance of their campaigns.

Which means, in Crispin’s case, the agency for Burger King, the more Whoppers sold, the more money the agency makes.

I agree and disagree with Miles. I agree with Miles that agencies should be based on the performance of the campaign. But I disagree with Miles in regards to which performance agencies should be accountable for.

In the past, when brands had one agency of record, sales did directly correlate to that agency’s efforts. But today, rather than having an agency of record, brands have a record number of agencies. Which makes it’s difficult to say exactly which efforts, from which agency, definitively move the sales needle.

Fortunately, what can be measured today is each agency’s individual effort in regards to the creative they developed. If we’re talking about a coupon ad, how many were clipped and returned? A banner ad? What was the click through rate? If we’re talking about a TV commercial, how much of the time that was created - :30, :60 – was actually consumed by the viewer?

Is there a direct correlation between time spent with a commercial and sales? While that hasn’t been definitively proven, what is fairly obvious is that lack of time spent with a commercial won’t lead to a sale.

So, would Miles allow his agency to be paid based on the amount of time spent that they create between the viewer and the commercial? In other words, the more of the spot that is watched, the more the agency makes.

I bet that Miles would say “yes” to this.

After all, the lament of good creative agencies for decades has always been, “Why can’t good creative be worth more than bad?” If good creative is defined as creative that people want to see more of, rather than less, then it appears that now it can.

Miles, last week you put out challenge — pay my agencies like hedge funds.

Now that you can, the ball’s in your court.

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