NEW YORK: The proportion of advertisers entering into incentivised contracts with agencies has risen sharply, but not all agencies are happy with this development.
A new poll of members of the Association of National Advertisers, conducted by the consultancy R3:JLB, found that 61% were switching to a pay-for-performance approach, up from 46% in 2010 and 35% in 2000.
Brian Goodall, a consultant at R3:JLB, said that a common incentive deal was structured so as to pay agencies a fee based on proposed staffing with three tiers of potential bonuses added. These were typically based around sales or market share, brand-recall metrics and an agency-performance evaluation.
But agencies remain concerned at the reasons behind these contracts. "Some clients are coming at this from the approach of an opportunity to reduce marketing spend, and if it starts there, it's flawed from the beginning," argued Scott Chapman, executive director of finance at Partners & Napier.
"But if it's a method to fuel performance and success, it can be beneficial," he conceded.
Others supported the initiatives. "I'm a strong believer in incentivisation," Harris Diamond, chairman and chief executive of McCann Worldwide, told Advertising Age.
But he cautioned the need for careful consideration. "It has to have a shared-reward aspect – it can't be just to get back to where you were on basic costs," Diamond said.
"These contracts require a lot of thought on both sides," he added, "and not all clients are willing to take that risk and maybe have to pay us more, so sometimes the talks go nowhere."
Willingness to embrace incentivised contracts varies across the industry, with media agencies seen to be significantly more enthusiastic than digital agencies.
Indeed, Bryan Wiener, chief executive of 360i, described the deals as "perverse", arguing that incentives were often based on paid-media impressions, but that digital and social-media campaigns cost more to create than to distribute.
Data sourced from Advertising Age; additional content by Warc staff