Majority of UK Advertisers Now Pay Agencies By Results

29 June 2006

A majority of British advertisers - fifty-six per cent - now remunerate their creative advertising agencies relative to the results achieved. Payment by results (PBR) is even more common in media agency contracts, with sixty per cent of such agreements now subject to by PBR factors.

Over the past five years PBR has been increasingly favoured by major marketers, rising from just 33% of creative agency contracts in 2000 to today's 56%. In the same period PBR deals with media agencies have leapt from 36% to 60%.

The trend, among many others affecting client/agency relationships, was revealed in the triennial study - Paying for Advertising 4 - published this week by the Incorporated Society of British Advertisers in conjunction with the Advertising Research Consortium.

The 125-page report focuses on how major advertisers pay their creative and media agencies and, of equal importance, the management of their commercial relationships.

The report also highlights advertisers' accelerating dissatisfaction with global agency agreements. Whilst a majority of respondents appear increasingly satisfied with agency agreements in domestic markets, the reverse is true of international and global deals.

No fewer than 70% of global advertisers are discontented with their agency arrangements, an astonishing reversal in attitudes since 2003 when no global advertisers registered dissatisfaction.

Although the report does not reveal the cause of this sea-change, the Financial Times quotes 'industry experts' who opine that the restiveness probably stems from the paucity of expected savings and other hoped-for benefits.

The insiders also point to unhappiness among national marketers that decisions have been taken out of their hands. They also flag infighting among sister agencies in different countries as another possible reason for client disillusionment.

AAR head of procurement services Tina Fegent told the FT that "global accounts can work", dismissing much of the discontent as "teething problems". She added: "Agencies just have to get smarter about how they deal with them."

Another indicator of ongoing tension in the client/agency relationship is the moving of contractual goalposts. Close to one-half of advertisers (48%) have significantly changed their agreement in the past two years - although that percentage is on a par with the findings of previous surveys.

According to the ISBA report, the prime reason for change is still advertisers' quest for better value from their spend. However, the increased negotiating involvement of clients' procurement departments was a driver in one-third of reported changes.

The first ISBA 'Paying for Advertising' report was published in 1997.

Data sourced from ISBA and Financial Times Online; additional content by WARC staff