LONDON: Unilever, the Anglo-Dutch consumer goods company, is said to be looking to shift its model of agency remuneration away from hourly rates and towards a performance-based system, echoing the previous moves of major advertisers like Coca-Cola and Procter & Gamble.
Industry title Ad Week reports that the FMCG giant – which spent $7.2 billion (€5.2bn; £4.5bn) on advertising and marketing last year – informed its creative agencies in March that their upfront profit margins would be reduced from 10% to 5%.
While agencies will be able to increase their earnings if they meet performance targets, as under the previous system, it is argued that the reduction in margins means that achieving these goals would only return profits to their former levels.
Other areas that Unilever is said to be putting under scrutiny include whether or not it should be given more than 30 days to pay the expenses charged by its advertising partners.
The move is said to represent one of the variety of initiatives Paul Polman, the company's new ceo, and formerly cfo at Nestlé, has adopted in an effort to trim its total marketing costs.
Talks are thought to have been going on between Unilever and its agencies since the end of last year, as the organisation seeks to finalise its plans.
Procter & Gamble and Coca-Cola have both previously announced that they are moving towards similar "value-based" models.
Arthur Anderson, of Morgan Anderson Consulting, said this was indicative of the fact that many advertisers are under "tremendous pressure,” and are therefore "trying to contain costs without loss of quality in advertising work."
A new survey of 300 marketing and advertising agency executives, including participants from Leo Burnett, Mindshare, Ford and Kraft, by RSW/US has also found that 51% of respondents predict adspend will continue to fall this year.
Some 53% of ad industry contributors argued that their clients' expenditure levels had declined by over 10% in the first half of 2009, compared with just 39% of marketers who said the same.
Similarly, while 30% of the adland members of
Data sourced from AdWeek; additional content by WARC staff