Study: Clients Don’t Pay Shops for Performance

NEW YORK Despite a steady drumbeat from clients demanding measurable results from the work their agencies produce, only about a fifth of the client executives polled this month by consultancy Reardon Smith Whittaker actually pay their shops in a way that rewards performance.

Asked if their agency compensation arrangement included some element of payment according to results, 81 percent of the execs answered no, and just 19 percent yes. Yet, when asked to give marketing advice to agencies pursuing new business, the execs repeatedly urged them to demonstrate results, saying, for example, “Truly understand the client’s end goal of growing the business and [achieving] measurable results.”

So why aren’t more of these clients putting their money where their mouths are?

Pay-for-performance arrangements can get complicated, particularly given a long list of business goals and multiple ways of measuring them, said consultants. And sometimes the goals change mid-year, making such deals difficult to administer. “It’s a great and easy thing to talk about,” said Steve Centrillo, a partner in CommonGround Partners, a strategic brand consultancy in New York. “It’s a hard thing to achieve.”

Mark Sneider, U.S. managing director of Reardon Smith Whittaker in Cincinnati, acknowledged that respondents to his questionnaire were “talking out of both sides of their mouth.” He added, however, that “it’s tough to measure sales results and tie them to advertising performance. Also, there are dimensions beyond just strictly sales that you’ve got to look at in order to make those calls, like the degree to which you’re affecting awareness and affecting perception and dimensions of the brand.”

Like last year, respondents also cited unhappiness with strategy (46 percent) and dissatisfactory creative (41 percent) as the top reasons for launching reviews, followed by a desire to get more ideas for a new project (33 percent) and a “lack of proactivity” by their incumbent agency (31 percent). Under “other” reasons, respondents mentioned client mergers and acquisitions, turnover in client management, budget cuts and a need for new specialists, said Sneider.

Echoing other recent studies, respondents are “most interested” in online marketing (68 percent), followed by brand-experience marketing (64 percent), word-of-mouth efforts (48 percent), search-engine marketing (39 percent), mobile marketing (23 percent) and product placement (21 percent). “There have been lots of talk about these areas and budgets are going toward them,” said Brian Martin of SourceMartin, a New York-based search consultancy.

The findings in the 2007 New Business Report (www.rswus.com) were based on responses from 140 marketing chiefs, brand managers and product managers working at companies such as IBM, General Mills, Citibank, General Electric, Bayer, Heinz, Lego, Electrolux, Moen and Maserati. The respondents’ annual marketing budgets range from $2 million to $500 million, according to Sneider.

Once they launch a search for an agency, respondents seem to enjoy the process, with more than 41 percent saying they either “find it exciting” or “look forward to it,” perhaps owing to the prospect of starting fresh. Or, as Sneider put it: “Clients aren’t afraid to make changes.”

In fact, 46 percent of the respondents said their previous agency relationship lasted two years or less, roughly equal to the average tenure of a chief marketing officer (26 months). And even when the clients don’t change their lead agencies, they still like to shop around for ideas, such as for new assignments. Eighty-two percent of the respondents have assigned work to non-roster shops, the report found.