WFA.- Advertisers, keep moving to output-performance and value based agency remuneration models, but gencies still not meeting this clients’ trend at the same pace

The latest report on Advertiser’s agency remuneration and satisfaction shows that while big multinationals keep on moving towards output-performance and value based agency remuneration models, not all kind of agencies are embracing this new remuneration models at the same pace their clients would be interested.
The report shows that transparency concerns still remain, poisoning client-agency relationship.

In fact, over the next 12 months, 81% of global/regional senior marketing procurement experts in big multinational companies plan to increase the prevalence of output, performance and value-based remuneration models.

This reflects a continuing trend, noted in WFA research, during 2011 and 2014 when the percentage of pure labour-based contracts was the main model, currently at 36% down from 49% in 2014 and 54% in 2011.
However, there is still some way to go, shows the study recently published by the WFA (World Federation of Advertisers) and conducted in collaboration with The Observatory, as across all types of agencies, on average less than 20% of the total remuneration is linked to performance, so pointed 80% of the respondents.

More than half of the respondents say that less than 10% of remuneration is related to this. Performance payments also come in many shapes and sizes; earn back or true joint risk and reward, for example, represent very different outcomes for the agency involved.

And seventy-one percent agree, including 19% who strongly agree, with the statement that “I feel that changing my current agency remuneration models would improve the relationships that I have with my agencies”.

The increased recognition of the business contribution that agencies make to their clients is likely to be welcomed by most agencies but only as long as the framework used ensures that both parties interests are considered and balanced. Businesses must ensure they set realistic and achievable KPIs and there are robust methodologies in place to ensure appropriate measurement, underscores WFA report.
The research looked at how advertisers are evolving the way they pay agencies of all types and in all markets. It is based on responses from global/regional senior marketing procurement experts from 42 different companies with a total communication spend in excess of $84Bn.

“Whilst there has been some positive change in approaches over recent years, many have yet to define the most appropriate remuneration model to deliver positively to all stakeholders. Advertisers need greater insight into the range of models being used, and what each delivers, if they are to develop the most appropriate model, one that can deliver positively against their specific business needs,” said Stuart Pocock, co-founder of The Observatory International.

“Agencies are vital partners for many advertisers and the way they are paid is a critical step in establishing a productive relationship that delivers real return on investment while also offering agencies the chance to be rewarded for the success they help generate. The move to performance-based remuneration is a recognition that where agencies and advertisers are aligned, the outputs are more likely to be better for both,” said Laura Forcetti, Global Marketing Sourcing Manager at WFA.

87% or advertisers feel they receive value for money but transparency concerns remain

Perceptions of the value delivered by agencies is very positive, with 87% of respondents feeling that they are getting genuine value for money from their agencies (up from 67% in 2011). In addition, nearly 70% agree that their agencies are now accountable for the value that they create.
Transparency concerns remain, with more than half (52%) of the respondents not feeling that they are getting full transparency on their agencies’ costing models.

Getting sufficient detail on scope of work is a significant issue for respondents with only 31% believing they get a highly detailed scope from their marketing counterparts. This issue is the cause of the vast majority of issues with fee negotiations.

Fifty-two per cent of respondents think they focus too much on remuneration and this has a detrimental impact on agency relationships. Creatively-oriented agencies would prefer to focus on return on investment, which delivers far greater value.

Pace of change towards output-performance and value based models differs among agency types
WFA data show that the pace of change over the past seven years has been different among agency types:

Creative agencies have seen a 20% decrease in the use of FTE-based models and a 14% rise in the use of fixed/output-based models since 2011.

Media agencies have experienced a fall in the use of labour and commission-based models; 44% of respondents (compared to 16% in 2014) now offer a performance-based fee/bonus to their agencies on top of labour fee, while 7% have also started to use fixed/output-based remuneration models. Despite the recent furore about transparency, more respondents are ‘happy’ (77% from media planning and 69% for media buying) with their media remuneration models than any other agency type.

PR agency remuneration also see declining reliance on labour-based models in past seven years, with increasing usage of fixed/output-based models (up from 20% to 29% in seven years) and a small number are now using commission-based models (4%). PR outputs are notoriously difficult to measure and 41% of respondents are not happy with their arrangements.

Production house remuneration has been fairly consistent. The majority (67%) of respondents seem happy with their approach to remuneration in this area, with the majority sticking with output-based fees (41%) or labour-based fees (35%). Value-based remuneration has almost vanished from this area.

Image over the headline.- WFA logo. © WFA.

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