Multinationals Ambivalent About Agency Payment by Results

25 September 2001

Agency remuneration by results – flavor of the year among multinational advertisers in 1999/2000 – has left global giants uncertain as to its efficacy, reports a new study, Paying for Advertising in Europe.

Jointly carried out by the UK’s Advertising Research Consortium and the World Federation of Advertisers, the study quizzed 450 multinational advertisers and uncovered a high degree of ambivalence as to the efficacy of paying ad agencies according to pre-agreed results criteria. Such arrangements pertain in 20% of pan-European and 30% of global ad agreements.

“Payment by results is a good thing – but 42% of global advertisers don't know how good, or why,” discloses ARC founder and author of the study, Jonathan Lace. The report also reveals that only one third of global advertisers noted improved agency performance attributable to PBR, compared with 50% of pan-European advertisers.

Lace, who is Allied Domecq associate professor in advertising at the Southampton Business School, believes global advertisers' lack of certainty over the benefits of PBR is due to the differences in remuneration structures between global and other accounts.

Most such remuneration packages (71%) are based on three categories of performance: advertiser-fiscal, agency and advertising; whereas only 25% of global contracts do so. “It's quite hard for a company with fifty brands in 50 markets to establish criteria for advertising performance, so they've probably swept it under the carpet,” Lace deduces, although “clearly, some are doing it”.

The report details how major advertisers in Germany, France, the UK, Finland and the Netherlands pay both their creative and media agencies, and also indicates the structuring of such remuneration agreements.

Over 30% of advertisers had altered agency payment agreements significantly during the two-year period studied, and none now pay the traditional 15% commission on media buying.

News source: AdAge Global