Nestlé Considers Dropping Payment by Commission

12 October 2001

Nestlé is mulling a global change in its agency remuneration system, abandoning payment by commission and switching to fees and incentives.

The food and drinks giant, which spends around $2 billion a year on advertising, is in talks with its global shops about the proposal, and is preparing a trial run in the US. However, should the scheme prove a success, many think it will cross the Atlantic to Europe. Said one insider: “To call this a ‘test’ would be an understatement.”

To be launched in January, the American scheme involves fees based on the number of hours an agency devotes to producing the client’s ads, plus bonuses if the campaign raises market share or sales.

Nestlé insisted the move was not intended to cut spend by the back door: “Our goal is not to reduce what we pay but to get better performance,” it stated. Nevertheless, some agency executives suggested the group might be exploiting the depressed US ad market to effect the changes. “I've not heard of a client in the last three years switching to a remuneration system that rewards agencies better,” muttered one cynic.

However, if the scheme is a success in the US, its expansion abroad may still encounter difficulties, as (Nescafé aside) the client does not own many global brands.

Nestlé’s agency roster includes McCann-Erickson Worldwide, J Walter Thompson, Ogilvy & Mather, Publicis, Lowe Lintas & Partners Worldwide and Dentsu.

News source: CampaignLive (UK)