Why marketers should stop paying agencies for ideas
February 14, 2013
This post is by Darren Woolley, Founder of TrinityP3. With his background as analytical scientist and creative problem solver, Darren brings unique insights and learnings to the marketing process. He is considered a global thought leader on agency remuneration, search and selection and relationship optimisation.
As more people are jumping on the bandwagon and declaring the current agency remuneration model broken, there are those who are still suggesting that agencies should be paid for their ideas. The problem is that in most cases they want to be paid for these ideas upfront and mostly offer no solution to the issue of valuing the idea beyond the current cost based system.
The fact is that marketers should not pay agencies for ideas and here is why:
1. Agencies have been happy to give their ideas away for free
I have spoken about this previously at The Caxtons and in AdNews. Agencies began giving creative ideas away as part of selling media. Later creative was incorporated into the media commission with service fee. Then with the dismantling of accreditation and the split of media and creative, the creative agencies adopted a cost based system.
But irrespective of the method of remuneration, only about one percent of the advertisers budget is actually spent on creative concepts and idea creation. (This represents about 15% – 20% of a creative agency retainer and less than 10% of the creative agency billing) The fact is that marketers have never had to pay any significant amount for ideas in the past, so why should they now?
How many ideas do you have a day?
As a creative, paid to come up with ideas, you could have a hundred ideas a day. But most of them can be worthless or just plain stupid. If you look at the movie industry, for every one thousand movie ideas, if one hundred get written only ten may ever get made and perhaps one will be a hit.
The same with advertising ideas. Not every idea is a hit, no matter what the creative who developed it will tell you. You could pay for ideas and get less than 0.1% hit rate. (Ten times worse odds than paying your creative agency retainer). The saying that ‘ideas are a dime a dozen’ is a fact. So does that mean advertisers should pay less than a cent per idea?
3. Ideas are worthless until someone is willing to invest in them
The fact that an advertiser is paying an agency to come up with ideas does not mean that they believe the ideas created have value. After all, it is highly likely that the advertiser is not paying for the ideas but the resources that are engaged to develop the ideas. They are not investing in the ideas per se, but in the people.
As such it is perfectly reasonable for the marketer as the buyer to set the price of the concept development and the agency to accept it. And on the basis that the ideas are highly likely to have no intrinsic value, it is smart business to pay the lowest possible price for those ideas as a way of mitigating the risk of failure. Think of most other areas of commercial creativity such as novelists, composers and artists. In each case they are rewarded for the value that they create through sales, downloads or licensing.
4. Most advertising ideas are actually novelty and not innovation
The biggest issue is defining what is required of the idea. Words such as creativity and innovation get bandied about the industry, but the truth is in most cases all that the agency is required to produce is novelty, which is as transient as tomorrow’s new fashion. While you will accept that screen writing is a creative process, there are screen plays which are innovative and those that are simply novel.
By way of example, the latest instalment of the Die Hard franchise, ‘A good day to die’ is simply a novel interpretation of an existing concept. It is derivative and yet novel in execution. But certainly not innovative. But then again how many advertising concepts are simply derivative and novel, rather than representing in their category or the industry? So much of the creative advertising that fills our screens, browsers, airwaves and print is nothing more than novelty. The problem with novelty is that is largely based on fashion and interest wanes quickly with little residual value created.
What marketers should value
Consider the fact that marketers currently pay around one percent of their advertising and promotion budget on concept development and creativity. That means they are spending 99% on implementation and administration. So with very little risk to the agencies financial performance, you could stop paying agencies for ideas. This would be a simple 1% drop in total agency spend. And start paying agencies for the value created by their ideas.
Of course agencies will argue that they cannot influence all aspects of the sales and marketing mix, but if the big idea is as powerful as marketers and agencies make out and if the purpose of advertising ideas is to change consumer behaviour in a positive way, then why wouldn’t agencies and marketers be willing to put 1% of the A&P budget at risk?
Now I know that people will raise the usual issues about control and determining cause and effect, but I am talking about putting less than 10% of the creative agency billing at risk. Most offer this risk factor as part of a largely flawed performance based remuneration model. So rather then dragging up the same tired old hurdles to innovation in agency remuneration, what do you think of this idea?
Let me know by leaving a comment here.