There seems to be an industry buzz around payment by results (PBR) currently, with hundreds of procurement marketing professionals meeting at the ProcureCon Marketing conference to discuss this very subject, to the IPA’s recent Performance Adaptathon session, which was mainly attended by agency personnel with some clients, intermediaries and procurement professionals thrown in for good measure. I attended both sessions hoping to find that holy grail.
ProcureCon – OK, I’m being honest here, I partly went along to check I was up to date on the latest negotiation tricks, so I’d be armed and ready for battle. Sorry, did I say “battle”? I meant negotiation. But I came away from the day really inspired, feeling that the new mind-set for marketing procurement, was to start looking at agency spend as an investment and not a cost. (Note, the use of the word “start”.)
It was also clear that this thinking was from the true leaders in the industry and currently is still not a widespread phenomenon. Where there was a disconnect was on how procurement professionals are themselves incentivised. When a hands-up poll was done of “are your personal KPI’s based on savings targets?”, the overwhelming response was, “Yes”. Herein lies the problem – focusing on measuring savings targets instead of measuring value from investment.
But that’s the tricky part. Measuring value. And that’s what I believe is a key component of finding a holy grail of remuneration models. There is not a “one size fits all” answer to this.
IPA Peformance Adaptathon (with WFA president Martin Riley of Pernod Ricard, above) gave me insight into what my peers are thinking on this topic. I was relieved to hear that most agree that fundamentally we still do need to get paid for inputs (time spent). Without the assurance of getting paid enough to cover staff, overhead costs and some profit, there’s no point being in business. But many agreed that a PBR model if structured right could provide a win-win for clients and agencies.
But who is getting it right? I’m still not really sure. There was talk about embracing procurement, which I’m more than happy to do, especially if I can find the ones who are looking at marketing spend as an investment, and want to work with me collaboratively on how we can measure the value.
So what do we, at Wieden and Kennedy really think about “new” remuneration models? Firstly, we’re not sure how “new” they really are. We’ve been experimenting with Payment By Results models for going on ten years. This is essentially what everyone seems to be talking about.
We’re open to the idea, but in practice, there are a few principles that we need to get right first before we’ll commit to one.
Our inputs – staff and overhead costs need to be covered. If they are not, we’ll go bust, as simple as that.
Risk and reward – it has to be structured in such a way that there really is risk and reward. A “new” model can’t just be a way to reduce agency fees. If we sacrifice some of our margin, there needs to be an upside beyond our normal margin.
Keep it simple – Complex and long negotiations over the methodology will cause inefficient use of resource just coming up with PBR proposal. Not just on the agency side, but on the client side too.
Fair – We only want to be remunerated and measured on stuff within our control. Product sales may seem like an obvious target, but it would seem unfair for the agency to suffer if sales are down due to a product fault or a supply problem, or for the agency to benefit if sales are up due to a price cut.
Rewarding – the full 100 per cent should be budgeted by clients. If you don’t budget for it, it shows you are planning for the agency not to achieve that. The agreed criteria and marking system should allow for great results.
So – a holy grail? Not sure. But, as did the Knights of the Round Table, we continue our quest.