A couple of months ago, I presented to the leaders of the organization I am connected with. The topic was simple: accountability in the marketing world and how we can be prepared for the emergence of payment-by-results.
Seth Godin now writes about "everyone gets paid on commission" - which at first glance, made me wince because the "C" word was sort of like anathema to me.
But after reading what he had to say about commissions, it was not entirely about "commissions" as we know it in the ad and marketing world: it's about delivering results - and getting paid for it.
Ad agencies started out as "media space brokers" - and that's the reason, I believe, why they were called "agencies". In the same manner that travel agents get a commission from the vendor (the airline, the hotel, the vacation packager) for every trip they book, ad agencies were also paid based on the amount of media space they book - it used to be 15% of the gross amount or 17.65% of the additional amount.
The name got stuck - in spite of the fact that ad agencies started to move towards "hour-/time-based" fees - which supposedly would allow agencies to recommend to "not advertise when the time is not right", something that would have been unheard of in the world of commissions.
It is supposed to be something that should benefit both clients and their agency partners.
Now, we are moving towards payment by results: Agencies get paid based on the results that they generate for the clients' business.
This - I believe - is what Mr. Godin is writing about: being paid for the results that you generate.
Photo from Corrie at Flickr
However, implementing this in the world of marketing and communications is that easy. Here are some of the barriers that I can think of (and feel free to add more):
1. Agencies think that they have no control over other factors that affect sales (or profits or any other business metric/KPI). A valid reasoning - if agencies are supposed to be measure on sales or profits, it follows that they should have influence over how the business' marketing communications and marketing operations programs should be created. And not all clients are ready to give agencies that seat on the decision-making table.
Clients have yet to truly realize the value (yes, in spite of the history of advertising) that agencies can bring to their business - and most clients still see agencies as "go-for-it/do-it" companies.
The onus is on both agencies and clients: Agencies have to demonstrate that they are willing to be measured against sales and real business metrics (and circumvent this thinking and #2 below) - and clients will have to give agencies far more than just a "go-for" status and be real business partners with them, in the same way that they treat consultants from McKinsey, Booz, and Accenture.
2. Agencies think that their business is not about driving sales - but influencing people to buy by reminding, encouraging, and inspiring consumers to buy. Which I think is not entirely valid.
Sure, some campaign briefs talk about creating awareness and driving engagement. But no marketeer in her right mind - and definitely no CEO in her right mind - would want to spend money just to create awareness for her brand and drive 'differentiating brand experiences' that do not get translated to sales and profits.
Agencies need to rewire their brains - and accept the fact that all the things that we do from 9 to 5 (or beyond) point to one thing: driving sales, revenues, and profits for our clients' businesses.
Sure. Getting there entails creating awareness and driving engagement and loyalty to a brand. But what use is awareness and engagement and loyalty if it does not translate to sales and/or profits?
Marketing investments are (1) expense lines on the clients' balance sheet - that is a fact that we have to accept, and (2) investments - and therefore ought to deliver returns that would allow the client to further her business.
[There is some truth - of course - to this objection. "If a client wants to decide on whether to pursue a geographic expansion or not, can an agency help?" "If a client wants to do pricing promotions with key retail accounts, does the agency have the expertise to advise?" "If a client wants to create a new product with R&D, can agencies advise?".
My response: Agencies should be able to do so. If the expertise doesn't exist, then agencies ought to resign the business - after all, agencies ought to know the business they are managing inside and out.]
3. Clients are not sure what metrics they should be measuring. Should clients be measuring revenues? Number of transactions? Value per transaction? Profits?
I think part of the reason why we never got to really implementing payment by results is because clients themselves are not sure what to measure in order to judge their agencies.
My response: It depends on your business model and the short- and long-term goals of the business.
Dell - I would reckon - would be very much interested in immediate response per campaign in the form of number of transactions and value per transaction, because their business model is built on JIT deliveries to consumer and efficient corp-to-consumer relationships. Microsoft's could be very different.
P&G, Unilever, Coke and PepsiCo brands could very well be focused on immediate short-term sales - whilst at the same time ensuring long-term business goals are reached.
Immediate response to and sales relationships with promotions (price-offs, new packaging, new innovations, brand extensions) amongst consumers AND amongst key retail accounts are probably the best metrics for short-term effects.
For some, it's about profitability - ensuring that they are profitable, since sometimes, revenues and profits are not entirely linear.
Whatever it is, clients - and their marketing and finance teams - ought to start thinking what metric they should be monitoring - and judging their agencies on.
I believe marketing needs to change - and the current economic scenario has hastened that need for change. The area of marketing accountability needs to be fully entrenched in each and every agency and client organization.
That means embracing what Seth Godin is suggesting: Everyone gets paid on commission - on results.