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Ms. Sarah Armstrong

The Coca-Cola Company's Value Based Compensation Approach: What Do You Think?

In a recent 4A's Webinar, Sarah Armstong of The Coca-Cola Company described TCCC's unique approach to Value Based Compensation. Coke's new compensation plan features the following tenents:
  • Coke establishes a base fee for a project;
  • The base fee is established through a combination of past fee amounts (adjusted to remove the profit component) plus/minus Coke's "current value considerations" (such as budget, strategic importance, talent assigned, industry dynamics, etc.);
  • The base fee is not directly tied to agency labor or cost;
  • Coke adds a pay for performance (P4P) overlay that allows the agency to earn +23% margin (+30% mark up) on the base fee; and
  • The P4P criteria (and weighting) include Agency Evaluation Score (40%-50%), Specialist Metrics (40%-50%), MarCom Metrics ( 10%) and Business Performance Metric (10%)
We'd like to know what you think about TCCC's VBC approach. Do you plan to discuss a “Coca-Cola Type” VBC arrangement with any of your clients or prospects?

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Comments

TCCC's VBC approach

I agree with TCCC's new Value-Based Compensation plans, and I hope that many more brands & agencies adopt this type of compensation plan going forward. With the advent, and mass adoption, of social media tools and user-generated content within the marketing realm there is less and less value in the creative content that advertising agencies can create. There instead exists a larger opportunity for brand engagement and brand enthusiasm by the activation of a brand's existing customer base to generate significant Word of Mouth and resulting sales/conversions. Earned Media tools need to be the focus of all brands/agencies going forward, and everyone will benefit: from the brands themselves, to the agencies, and finally the consumers.
Posted by Tyler LeCompte (Monday, May 18, 2009 2:20 PM)

Great Insight - Thanks for Sharing

We're a mid-sized agency attempting to move more of our client engagements to a P4P model. It's great to see a company the size of Coke putting the effort into the model and sharing outside of their organization. We'd like to see this type of model catch on this year.
Posted by Kevin Hawke (Monday, May 18, 2009 2:21 PM)

Will this stifle innovation?

Wondering if TCCC's plan will stifle agencies' ability to innovate. http://marketinghitch.com/marketings-identity-crisis Appreciate your comments. David Wiggs Hitch www.marketinghitch.com Seattle
Posted by David Wiggs (Monday, May 18, 2009 2:25 PM)

benefit to client

A good VBC plan will require an effort and a suitable mindset from a client.
 
Can TCCC or other readers spell out and suggest a framework for quantifying the client-side incentives?
 
Potentially,
 
- reduced agency billings
- reduced administration costs
- reduced procurement costs
- reduced (need for) agency churn due to an alignment of incentives. Another 4A post suggests that an agency switch can be 15% of marketing budget?
 
What else?
 
Rajeev
Posted by Dr. Rajeev Jain (Monday, May 18, 2009 3:03 PM)

Value-Based Compensation or Agency Payment Dilemma

Value-based compensation, according to pricing guru, Ron Baker, is built on the premise that the seller determines pricing. 
 
Coca-Cola's approach, and to a lesser degree the P&G model, is the latest evolution of Clients dictating pricing and compensation models to the real "sellers" of services. 
 
Given that Agencies supporting Coke's marketing efforts will earn no margin on fees, media or production for 13-15 months, is this not just another veiled attempt by a Client to create cash management woes for its "poorly capitalized partners?"
 
In my opinion, this is NOT a fair shake for TCCC Agencies and is an arbitrary "cost-plus" in every sense of the words... 
 
 
Posted by J. Francisco Escobar -- JFE International Consultants, Inc. (Monday, May 18, 2009 11:41 PM)

Value Based Compensation

Whilst this is not a new idea (I wrote a paper for the marketing procurement community in the UK on the same theme around 4 years ago) it is the first time that an organisation with sufficient buying muscle has put into operation a method of paying for outputs rather than inputs. This is to be applauded and I hope that it sets an industry changing trend.
 
 
Posted by Robert Rodwell (Tuesday, May 19, 2009 6:38 AM)

Too little control for Agency

What if the client doesn't choose good work? What about the inevitable "Mr. Potato Head" portion of the process, in which client begins to pick and choose parts they like, and require the agency to start to meld concepts? Does the agency get final say on creative? And if they push too hard to get their work produced, how does that affect the Agency Evaluation score? So many variables. My 20 years of skepticism says it will end badly for most agencies that play this game.
Posted by Ms. Mary Lorson (Friday, June 12, 2009 4:26 PM)

I think the Client got to dictate the "price" here instead of the Agency because they are big brands that would be nice to have in your portfolio - I doubt it's gonna apply to SMEs. Still, I'm a believer of performance-based compensation but have trouble establishing the base price. In Coke's case, what would happen if there was no previous fee history to base on?
Posted by Larry Lim (Sunday, October 04, 2009 6:15 AM)
 

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