Can 'performance' pricing pay off?
Many media agencies now use pay-for-performance compensation. It calls for tying media efforts to trackable metrics. What metrics should be used, and how can an incentive-based fee model work for healthcare brands?
Managing partner, Ogilvy CommonHealth Worldwide
Pay for performance is a topic both inside and outside the borders of pharma marketing. The metrics choice remains the most difficult aspect. Our media plans have evolved to more digital channels where the measurement has improved. Nevertheless, attribution modeling remains difficult. Our experience has taught us one valuable lesson: pay-for-performance media planning must include an agreed upon, up-front performance plan. Like any analytics campaign, we need clear key performance indicators (KPIs) that isolate the true impact of the campaign elements. These KPIs must be attributable to specific media tactics and not be open to wide interpretation. We must also monitor these KPIs for a reasonable amount of time, since there can be a lag effect between media exposure and user action.
SVP, group director of media strategy at ID Media, an IPG media agency
“Skin in the game” or hybrid incentive models offer a great approach to compensation solutions since the agency would have a vested interest in the client's success. Metrics should be customized for each client, but should be measurable and allow for optimization.
Both parties should collaborate on incorporating qualitative performance measures. One way we do this is through agency “report cards.” This is especially important because, in many cases, we can control the media buy, but not the creative treatment.
The key is to make sure that compensation models address clients' needs. This way, clients can account for potential agency fees, while agencies can protect themselves for their hard costs, which is why such models are leveraged.
EVP, chief global media officer, Digitas Health and Razorfish Healthware
Four words, skin in the game. The key for these types of compensation models to be successful is when they are designed under the spirit of partnership. The brand and agency agree not only on how to track performance, but also on what is needed for the agency to be successful. Historically, pay-for-performance models were tied to meeting defined buying goals. This worked when we were in an era of buying tonnage. Today media is changing faster than advertising. Therefore, quantitative and new qualitative metrics are needed. Qualitative metrics like driving innovation, cross-agency collaboration, and service is even more critical. This approach requires engagement from both parties, in turn driving a true spirit of partnership and optimal results for the brand.
Media director, AbelsonTaylor
Tying pay to performance makes sense in theory. But in practice, it is difficult to tie change in bottom-line items to media metrics like reach and frequency. This is because the influence of one tactic on sales is difficult to isolate. More appropriate metrics are actionable, such as downloads of an asset or recall of an ad message. Lift relative to normative data or between test/control groups helps compensate for uncontrollable factors. Most procurement organizations are looking for cost avoidance tied to agencies not achieving agreed-to metrics. There are times when this is acceptable, but it is not a guarantee of better performance.
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