Advertising Age recently put out an interesting article where they suggest that the current cost-based compensation model that exists between advertisers and advertising agencies is flawed and provides the wrong incentives, further suggesting that a value based model is needed.
"The current cost-based compensation model for advertising agencies is flawed for a simple reason: It misaligns the economic incentives on each side. The client pays whether the agency adds value or not, and the agency is paid a fixed amount regardless of the value it creates. Clearly, this model is not in the best interests of the client or the agency."
"Even more perniciously, the existing compensation model focuses entirely on the wrong things: efforts, activities and costs. It does this at the expense of the right things: output, results and value. "
The article goes on to suggest that one of the main factors keeping advertising agencies from moving to this type of model is the lack of information and trust on value based metrics as well as control over the value creation process.
Hello? Welcome to the world of affiliate / performance based marketing. Those of us in the industry have been doing this years!
It works like this, Top Affiliates, call them Online Advertising Agencies, decide who they are going to create a value based relationship with, then they spend their time, efforts, and dollars to promote these advertises on pre-agreed terms which are managed by affiliate networks, a 3rd party that both the advertiser and marketer trust to manage the technology that facilitates the relationships and track the results. Special links from these networks are used in ads created by the "performance agenecies" to track the results.
It seems hard to believe when such an efficient model exists, that companies continue to rely on individual ad agencies and pay them on a percentage of ad-spend basis. Hire an army of performance marketers with a great affiliate program, preferred compensations and terms for top performers.
Ask your advertising agency to spend THEIR money on the marketing campaigns and pay them based on their results, let THEM put their money where their mouth is, just like we do every day.
Bottom line. Top Affiliates are the advertising agencies of the future.
Results, Results, Results.
The only companies that should need to hire cost-based advertising help are those that a focused on none performance based brand advertising or are just starting up and need help being able to convert the traffic at a level where performance based affiliates make sense.
Welcome to the new world of Advertising!