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.

If Agencies Are Going To Be Paid For Performance, What Performance Should They Be Paid For?

Performance reviews are heating up. It was inevitable, to say the least. There is just too much at stake these days for advertisers not to hold their agencies even more accountable.

Add in the tough economy and the bottom line has never been clearer. Agencies need to prove their worth.

What is still a bit murky though, is determining what is the best sort of performance to evaluate agencies on.

According to a recent survey by the ANA, qualitative performance such as media costs savings, sales and market share, still carry more weight than quantitative measures.

Is this how it should be? Especially with all of the quantitative measures that are available today. Particularly on the digital platform.

Sales used to be the main measure of performance for an agency. Back when this was the case, it was actually a fair measure. After all, the brand had one agency of record in charge of all communication with the public.

But today, instead of one agency of record, advertisers have a record number of agencies. Which makes it somewhat unfair to hold any one agency totally accountable for sales.

If not sales, then what should an agency be accountable for?

If you spin this question around and ask it of agencies, their response is along the lines that they want to be held accountable for that which they have control over. Difficult to argue that.

But then the question becomes what is it that they have the most control over? I would argue that it’s the work itself. Not the result of the work, i.e. sales, but rather how well did the work engage, involve, intrigue and interest the viewer. All of these things are, of course, a precursor to sales. If the viewer doesn’t become engaged in a commercial, chances diminish that a sale will occur.

It’s a little like the old adage that you can’t save souls in an empty church. Or, as Bill Bernbach said, “You can’t sell a man who isn’t listening.”

The interesting thing about the digital platform is that it lets us know when people are listening. It lets us know whether people watch 10% of the commercial or 90%. I’m going to bet that sales increase the longer that people watch.

If view duration time is indeed a precursor to sales, then why not pay creative agencies based on the amount of time that they get people to interact with the brand?

In other words, the more "time spent" that they create, the more money they make.

And, what if sales still don’t happen?

Well, then, of course, the agency gets fired. That’s just one of the unwritten rules of advertising. That doesn’t change. Nor should it.

Hire and fire based on sales.

But, in the interim, base the agency’s pay on how well they perform in creating "time spent" with the brand.

If they do that well, then chances are that the firing issue will rarely come up.