Value-Based Agency Compensation Pricing Outside the “Box”, Black or Otherwise Association of National Advertisers Agency R...
So, What’s the Problem? <ul><li>A Critically Flawed Theory of Value:  Fair Price = Labor Costs + </li></ul><ul><li>Years o...
An Alternate Theory of Value <ul><li>IT’S  SUBJECTIVE  - Deal With It! </li></ul><ul><li>No Easy Formulas </li></ul><ul><l...
VALUE DEFINED <ul><li>Webster’s New World Dictionary </li></ul><ul><li>value  (val´ yoo)  n.  { < L  valere  be worth}  1 ...
VALUE DEFINED <ul><li>Value is the intersection of buyer and seller economic interests:  A fair price is determined by the...
Value Pricing - What It’s Not <ul><li>“ We’ll only pay you if……..” </li></ul><ul><li>Differentiation from Incentive or Per...
Value Pricing - What It’s Not <ul><li>The Contingency Lawyer (aka Andy Berlin) Model - Deep Discounts and Big Rewards </li...
Value Pricing - What It’s Not <ul><li>PBRs or “Incentive” Compensation Schemes </li></ul><ul><li>Inherent Flaws </li></ul>...
Where Do We Go from Here?
Acknowledge the Myths and  Fallacies <ul><li>#1  Efficiency and Productivity are definitive hallmarks of successful agency...
A New Compensation Doctrine <ul><li>Focus on Value of Output, not Cost of the Inputs </li></ul><ul><li>Set Out Objectives ...
A New Compensation Doctrine (continued) <ul><li>Value is a subjective notion.  Efforts to benchmark agency cost structures...
A New Compensation Doctrine (continued) <ul><li>Requires Agency Confidence in Calibrating Price </li></ul><ul><li>Requires...
The Challenge and Opportunity <ul><li>EMBRACE CHANGE! </li></ul><ul><li>Re-Focus on Goals, Outcomes and Effectiveness rath...
Moving It All Forward <ul><li>Much to be learned from the writings of Ron Baker - </li></ul><ul><li>“ The Firm of the Futu...
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Value-based agency compensation

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Ana presentation value price

  1. 1. Value-Based Agency Compensation Pricing Outside the “Box”, Black or Otherwise Association of National Advertisers Agency Relations Forum Santa Monica, CA February 9, 2006 © sjk advisory group 2006
  2. 2. So, What’s the Problem? <ul><li>A Critically Flawed Theory of Value: Fair Price = Labor Costs + </li></ul><ul><li>Years of Wasted Time, $, and Resources Seeking the Perfect Cost Template </li></ul><ul><li>The Endless 4As/ANA Dance </li></ul><ul><li>Devaluation of Agency Services </li></ul>
  3. 3. An Alternate Theory of Value <ul><li>IT’S SUBJECTIVE - Deal With It! </li></ul><ul><li>No Easy Formulas </li></ul><ul><li>More Art than Science </li></ul><ul><li>It’s Difficult and That’s No Excuse </li></ul>
  4. 4. VALUE DEFINED <ul><li>Webster’s New World Dictionary </li></ul><ul><li>value (val´ yoo) n. { < L valere be worth} 1 the worth of a thing in money or goods 2 estimated worth 3 purchasing power 4 that quality of a thing which makes it more or less desirable, useful, etc. 5 a thing or quality having intrinsic worth </li></ul><ul><li>worth (wurth) n. {OE wearth} 1 material value, esp. as expressed in terms of money 2 importance, value, merit, etc. 3 the quantity to be had for a given sum {a dollar’s worth} - adj. 1 deserving or worthy of 2 equal in value to 3 having wealth amounting to </li></ul>
  5. 5. VALUE DEFINED <ul><li>Value is the intersection of buyer and seller economic interests: A fair price is determined by the worth a buyer (ie, client) attributes to the services to be provided, and the willingness of a seller (ie, agency) to provide services at that price. PERIOD. </li></ul>
  6. 6. Value Pricing - What It’s Not <ul><li>“ We’ll only pay you if……..” </li></ul><ul><li>Differentiation from Incentive or Performance-Based Compensation </li></ul>
  7. 7. Value Pricing - What It’s Not <ul><li>The Contingency Lawyer (aka Andy Berlin) Model - Deep Discounts and Big Rewards </li></ul><ul><li>Two problems: </li></ul><ul><li>Uncertainty </li></ul><ul><li>Willingness to Budget (and Pay for) </li></ul><ul><li>the Big Upside </li></ul>
  8. 8. Value Pricing - What It’s Not <ul><li>PBRs or “Incentive” Compensation Schemes </li></ul><ul><li>Inherent Flaws </li></ul><ul><li>---What are we measuring and for what period? </li></ul><ul><li>---Difficulty in isolating the variables </li></ul><ul><li>---More Stick than Carrot - set up more to punish than reward </li></ul><ul><li>---Absurd Premise (at least in the agency business): Quality work and providing best efforts only comes with opportunity for supplemental reward, or fear of financial penalty. </li></ul>
  9. 9. Where Do We Go from Here?
  10. 10. Acknowledge the Myths and Fallacies <ul><li>#1 Efficiency and Productivity are definitive hallmarks of successful agency-client relationships. </li></ul><ul><li>#2 A Killer App ROI methodology is right around the corner which will provide the master template for how agencies should be paid. </li></ul><ul><li>#3 Incentive compensation schemes offer the magic bullet to determine fair compensation for agency services. </li></ul>
  11. 11. A New Compensation Doctrine <ul><li>Focus on Value of Output, not Cost of the Inputs </li></ul><ul><li>Set Out Objectives to Achieve (Scope of Benefits), then determine resources required </li></ul><ul><li>Ask the Right Questions: How much is it worth to realize objectives? - Not, what does it cost to provide the services? </li></ul>
  12. 12. A New Compensation Doctrine (continued) <ul><li>Value is a subjective notion. Efforts to benchmark agency cost structures as a determinant of value should be rejected. </li></ul><ul><li>Defining Objectives and Scope of Benefits - The Critical Cornerstones </li></ul><ul><li>Agencies should be ready, willing and able to structure Fixed Price Agreements (FPAs) : Price Guarantees </li></ul><ul><li>Price Adjustments through Change Orders </li></ul>
  13. 13. A New Compensation Doctrine (continued) <ul><li>Requires Agency Confidence in Calibrating Price </li></ul><ul><li>Requires Agency Diligence in Managing Resources </li></ul><ul><li>Scope Setting Must Be a Client Driven Exercise with Agency as Facilitator </li></ul><ul><li>Allow for Mid-Course Corrections </li></ul>
  14. 14. The Challenge and Opportunity <ul><li>EMBRACE CHANGE! </li></ul><ul><li>Re-Focus on Goals, Outcomes and Effectiveness rather than the Cost of Doing Things </li></ul><ul><li>Agencies must not expect clients to guarantee or “fix” agency profits </li></ul><ul><li>Clients in turn should not expect that they can intervene in their agencies’ internal cost or strategic plan decisions for purposes of “controlling” what agencies are paid </li></ul><ul><li>Recognize that Pricing is a Discipline - Agencies need to hone this skill as most clients have done in their respective industries. </li></ul>
  15. 15. Moving It All Forward <ul><li>Much to be learned from the writings of Ron Baker - </li></ul><ul><li>“ The Firm of the Future” </li></ul><ul><li>“ Pricing on Purpose:Creating and Capturing Value” </li></ul><ul><li>Joint ANA/4As Compensation Task Force - Finding Common Ground </li></ul><ul><li>Progressive 4As Initiatives: </li></ul><ul><ul><li>Value Oriented Compensation - educational seminars, cross-industry research </li></ul></ul><ul><ul><li>Standard Marketer New Business Questionnaire </li></ul></ul>

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