Coca-Cola is the latest advertiser to push a value-based remuneration model for ad agencies: if the agency achieves certain targets it gets a substantial reward (reported up to 30% margin on costs), but only recovers costs if its work doesn’t achieve its objectives.
Coke tested the new model last year and told the Association of National Advertisers Financial Management Conference in Phoenix recently that it is rolling the model out to encompass all ad and media agency relationships by 2011.
Being rewarded for value add is fine in theory but defining the value is going to be the tricky part. True and lasting value doesn’t happen overnight and we have all seen the results of companies chasing quarterly results at the expense of long-term value-creation.
Being allowed to create value means a partnership over time that allows the results to work their way through to the bottom line. It also means a closer alignment over a longer period of time of business strategy and creative execution.