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HOW SOME NORTH AMERICAN AGENCIES ARE TRANSFORMING THEIR APPROACH TO COMPENSATION Presented by Tim Williams ignition consulting group www.ignitiongroup.com [email protected] @TimWilliamsICG
2. CLIENT: I want to hire you for your expertise and your ability to create and execute transformational business ideas for my company. AGENCY: Excellent, we are ideal for that challenge. CLIENT: Yes, but before I hire you I have a few important questions. AGENCY: Okay, shoot. What do you mean? CLIENT: What will you charge me? AGENCY: $1 million dollars for our ability to work with your organization to create the idea, and then if we move it forward another million because truly transformational business ideas are valuable and in limited supply. CLIENT: Why $1 million? AGENCY: What do you mean? Jason DeLand Partner, Anomaly 3. CLIENT: Well if I understand how you arrived at it, then I can negotiate it down. AGENCY: But I dont want you to negotiate it down. That is money out of my pocket. CLIENT: Yes, but its a privilege to work on my brand and youll get lots more business from it. AGENCY: I will? Can you guarantee that? CLIENT: No. But I still need to know how you got to your price. AGENCY: Well, OK...I looked at the size and scope of the opportunity and considered the value of us addressing it for you and calculated a price that I am willing to do it for. A price that I believe to be competitive in the market and a price that affords me the peace of mind that I can make a bit of money. CLIENT: Oh, but I need more than that. I need to know who will do the work... and the amount of time it takes for them to do it. AGENCY: The team I said will do the work...and it will take as long as it takes until we have an outcome that everyone is happy with. CLIENT: Yes...but what if just one person cracks it in one day...and you then execute it with a small team in three weeks that is not worth a million dollars. AGENCY: Youre 100% correct. Its worth more.... If that happens, we will double it! 4. Three basic value pricing approaches A fixed price based on perceived value. A variable price based on outcomes. A dynamic price based on usage. 5. 1. A fixed price based on perceived value What is the customer willing to pay? 6. 1. A fixed price based on perceived value 7. What different options could we offer based on a fixed price? 1. A fixed price based on perceived value 8. Three basic value pricing approaches A fixed price based on perceived value. A variable price based on outcomes. A dynamic price based on usage. 9. How can we get paid in a way that aligns the economic incentives of our two companies? 2. A variable price based on outcomes 10. 2. A variable price based on outcomes 11. 2. A variable price based on outcomes 12. 2. A variable price based on outcomes 13. 2. A variable price based on outcomes 14. Agency compensation determined by three factors: Sales 50% Market share 25% Agency performance 25% 2. A variable price based on outcomes 15. 2. A variable price based on outcomes 16. On many major brands, pays multiple agencies based on shared KPIs, which ensures collaboration and alignment of economic incentives. 17. Global bank 18. Corporate Marketing Goals Creative Testing Agency Performance 50% Brand Relevance Rating 30% Core Preference 20% Product Mix Rating score on 7 factors 30% Client A 20% Client B 10% Client C 10% Client D 10% Client E 10% Client F 10% Client G 100% 50% 20% 30% Outcome-based agreement for major technology brand 19. Bluetooth headset brand Royalty on sales 20. Luxury car brand $ per car sold in North America 21. Liquor brand $ per case sold in U.S. 22. Three basic value pricing approaches A fixed price based on perceived value. A variable price based on outcomes. A dynamic price based on usage. 23. 3. A dynamic price based on usage. How can we get paid for the use of this idea rather than just the production? 24. Advertising is not a service business. Were a product business, like publishing and other businesses that deal with intellectual property. Jeff Hicks Vice Chairman, Crispin Porter + Bogusky 25. 3. A dynamic price based on usage. 26. 3. A dynamic price based on usage. 27. 3. A dynamic price based on usage. 28. B2B marketer Per qualified lead 29. E-commerce website 15% of first year sales 30. YOUR PERSONAL FINANCIAL PORTFOLIO 31. Low-Risk Low-Reward Medium-Risk Medium-Reward High-Risk High-Reward THE AGENCY COMPENSATION PORTFOLIO 32. Every year we dont know what 30% of our compensation will be because we have placed bets on ourselves. Jason DeLand Anomaly 33. www.IgnitionGroup.com @TimWilliamsICG @IgnitionGroup www.linkedin.com/in/TimWilliamsICG Propulsion Blog www.IgnitionPropulsion.com
