Incentive Scheme Could Raise, But Will Likely Cut, Agency Revenues
CHICAGO--Kellogg Co. will abandon its flat-fee agency compensation structure for a plan that offers a base-fee-plus-incentive arrangement tied to sales performance. The move could hurt roster shops' bottom lines, sources said.
That arrangement will likely be implemented in the U.S. early in 1999, then extended to North America and finally enacted globally by the middle of next year, sources said.
A Kellogg representative said it is "company policy not to discuss its compensation" arrangements.
The Battle Creek, Mich.-based client's main global agencies are Leo Burnett in Chicago and J. Walter Thompson in New York. It also works with Young & Rubicam, New York (handling the new, multiproduct Ensemble functional foods line), ethnic marketing agency Burrell Communications Group in Chicago, and The Martin Agency, based in Richmond, Va.
Kellogg spent $400 million on advertising in 1997 and $270 million through the first nine months of 1998, per Competitive Media Reporting.
Several major advertisers have moved to base-plus-incentive compensation, most recently Ford Motor Co. [Adweek, Sept. 14].
Should sales of a given Kellogg brand increase, the agency handling that business will earn more money on the account than it would under the current system.
One agency executive, however, said his experience with incentive-based compensation is that "at best, you get back to equal [to the previous level of compensation], but most likely your net compensation is lowered." Agencies will likely grin and bear the lowered revenue, sources said, but Kellogg may find itself becoming a less attractive client in the event that a roster shop is presented with an opportunity with a conflicting client that pays fees.
The compensation shift continues Kellogg's re-evaluation of its advertising, begun in September, which resulted in its adding Martin to its agency roster. Martin's first assignment will be advertising touting a new program called K-Sentials, under which Kellogg will refortify some existing cereals.
How well Martin handles that first assignment could determine whether Kellogg embarks next year on a realignment of cereal and convenience foods brand assignments among Martin, JWT, Burnett and possibly Y&R next year, sources said.
JWT, which launched Kellogg's Smart Start this year, will handle a new premium-price cereal line called Country Inn Specialties.