Thursday, May 01, 2014

Failure Will No Longer Be Lucrative

I just read the World Federation of Advertisers 2014 Global Agency Remuneration Trends and The Use of Performance Metrics Report.

It’s 26 pages long.  With a title that long, did you really expect it to be any shorter?

Among other things, the report lists the five different acronyms that are commonly used when referring to remuneration models.

PRIP:  Performance Related Incentive Program
PRP:    Performance Related Pay
PRC:    Performance Related Compensation
PFP:    Pay For Performance
IBC:     Incentive Based Compensation

They’re all basically the same damn thing.  Advertiser pays agency for hours worked, with a bonus for results.

It could, and should, be so much simpler.

Here’s how.  Advertiser tells agency this is our new remuneration policy.

            Failure will no longer be lucrative.

How many creative agencies do you think would accept that?

Few, you’re right.

In fact, only the smart ones.

The reason I say this is because smart agencies know that advertisers need to redefine what failure is in this business.

Failure can no longer be based solely on sales.  Advertisers today have too many agencies on their roster to hold any one agency directly accountable for sales.

And, that’s the key, isn’t it?  Figuring out what exactly each agency on their roster is directly accountable for.

When it comes to creative agencies and commercials, they’re directly accountable for creating something that the target audience wants to watch so there’s a greater chance that the commercial can persuade them to buy the client’s product.

A watched commercial has a greater chance of being persuasive than an unwatched commercial.

That’s good to know because we can now measure how much of a commercial is watched.

Why don’t advertisers pay their creative agencies on that basis?

The more involving the commercial, the more the agency makes.

The less involving the commercial, the greater the chance that the commercial will fail to persuade.  So, the less the agency will make.

In other words, failure will no longer be lucrative.

It’s a good model.  But there is a problem.

It makes for a lousy acronym.

I mean, FWNLBL.

Never fly.

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