Agency Challenge

Advertising Age featured an article detailing a new pay-for-performance method that Coca-Cola has recently adopted. Coca-Cola established a new model where marketers are only rewarded if they meet their initial campaign goals. The bonus for marketers is that if they reach the goals set forth, they can receive up to 30% of profit margins. If the agency doesn’t reach their goals they simply recoup their costs. Another important factor is that instead of paying an agency hourly rate, each project will now be assigned a flat rate.

This new method was established to create a model where performance is rewarded and mediocre results reap no benefits. The issue that really seems to be causing some concern amongst marketers is that traditionally agencies determine what the goals are and then report those goals and expectations to their clients. With this new model, Coca-Cola will establish the goals of each project or campaign.

Another tricky aspect lies with measuring the value of a project. There are a few factors considered when determining the value of a project: the talent working on project, the work’s strategic importance and whether other agencies can duplicate the work.

The hourly fees can really pile up when modifications are made and when modifications are needed. It would be interesting to see how the results are measured. Evaluating the success of a campaign can be subjective. The goals have to be extremely poignant to ensure that they are measurable. What is not clear is if an agency can receive some compensation if some of the goals are met but not all. If Coca-Cola is establishing these goals, who is to say that they will be measurable.

The results of this new method could benefit both the marketers and the client. The client may see better results and the agency could receive compensation for their success.

There could be some negative affects that are incurred for utilizing a pay-for-performance method. Perhaps the best agencies won’t want to take a gamble that they will only receive compensation if their campaigns work. Additionally, Arguments may arise amongst clients and agencies when determining whether goals are met.

It will be interesting to take a comparison of traditional hourly rates verses this new pay-for-performance method. Will the marketers end up making more money? Will the client end up saving money?