While I can speak to the marketing budget slashing issue, that’s been done to death. There is ample evidence that the marketers with the stomach to power through a downturn and maintain (or increase) their marketing investments in times like these are the ones who profit handsomely when the business environment improves.

The other issue that gets my goat is the myopic shifting of multicultural business to a general market agency. I believe that generally to be a misguided decision that will backfire.

When making such moves, the marketers generally cite the savings that they will realize by combining multicultural and general market activities in the same agency. Some openly acknowledge that the quality of the work will suffer but still opt for the short-term savings in order to relieve the pressure put on them by their finance folks. Some others have been led to believe that the quality will be the same as it was with the multicultural agency (in some cases better!) and so to the marketer it seems like a no-brainer. What folly!

For the uninitiated, this is generally what happens:

• Step One: The client finance people issue an edict requiring marketers to reduce their expenses in agency compensation (some clients do that in parallel with overall budget cuts, while others do so as a “share-of-budget” exercise, keeping budgets flat year-over-year but reducing the percentage that is dedicated to compensating agencies.)
• Step Two: Marketers contact their agencies to let them know what will be required. Some contact all agencies, others start off with their “lead” (read: general market) agencies, where the bulk of the agency fee expenditures occur.
• Step Three: General market agencies, facing the prospect of revenue reductions, opt instead for manageable margin reductions and thus offer to take on the multicultural work for the same agency fee as in the previous year (or perhaps a bit more). It goes something like “Hey, instead of cutting our fee, how about we keep it flat to last year and instead we take on the multicultural work for no additional fee (or a very small fee)? That way, you save all those fees you’re now paying the multicultural shops.”

Now the client looks at the option of streamlining his or her life by working with one agency, having one scope discussion, paying one fee, having one meeting, etc. And on top of that, they save a bunch of money! It sounds like a dream. But it is more like a nightmare. Here are a couple of thoughts for marketers contemplating such a move.

1. Ask yourself how the general agency can do the multicultural work for no incremental fee (or a very small one). The work that was being done still needs to be done. If the work can just be absorbed by the general agency, that’s a tell-tale sign that either they have been overcharging or they will put a junior person with the appropriate last name or skin color on the multicultural portion of the business and call it a day (after all, the objective is a lower price tag, not good multicultural marketing). Maybe both.
2. Ask the general agency to provide proof of the quality of the work they say they’ll deliver. Have they done multicultural work before? Are they a leader in their space? Is that their specialty? Would they know good multicultural work if they saw it? Don’t discount the importance of quality work in trying economic times. Remember that alienating a multicultural audience will cost you dearly and for the long term.
3. Don’t cut the multicultural agencies out of the conversation. Share the issues openly with all stakeholders and get everyone working together to arrive at a workable solution that achieves your cost reduction goals without gutting any one area in your marketing plan. If you have to reduce overall compensation costs by X%, see how the whole team can share the burden. (Perhaps efficiencies can be achieved by consolidations in production or by sharing resources, instead of reducing intellectual capital).

All this notwithstanding, should you choose to follow the silly notion of moving business from agency to agency, do the right thing and offer the option to everyone. That is, if you’re considering moving your multicultural work to the general market agency, also entertain the option of bringing your general market work to the multicultural shop.

It wouldn’t surprise me to see the multicultural agency, experienced in working with constrained budgets and compensation, being the best option for the overall account. They can provide the same assurances of quality on the general market work as the general agencies do on the multicultural work, and they will certainly do it for less.

An article that appeared in the 06/11/07 issue of Advertising Age, authors Tim Williams and Ronald Baker call for a new value-based compensation model, arguing that the current model is not in the best interest of either the agency or the client.

The article, which is available here (heads up: subscription may be required), provides some interesting findings from a research study the authors conducted on behalf of the ANA and the AAAA. One of those is a pair of lists of how each group (agencies and clients) believes the other creates value.

How Marketers Believe Agencies Create Value

1. Working in a collaborative way with the client by creating an environment of mutual respect.
2. Ensuring that agency functions are integrated and agency divisions collaborate on behalf of the client.
3. Developing and producing creative ideas that are fresh and unexpected.
4. Developing ideas and programs that can be integrated into multiple communications channels.
5. Developing solutions that go beyond traditional approaches and reach consumers in new ways.

How Agencies Believe Marketers Create Value

1. Giving the agency the necessary time and resources to do its best work.
2. Working with the agency in a collaborative manner that puts a premium on mutual respect.
3. Identifying and articulating the outcomes the agency’s work is expected to produce.
4. Providing clear, complete direction to the agency.
5. Providing constructive, timely feedback to the agency.

Those categories were chosen from 24 possible areas given by the researchers.

The authors state that clients are looking for “campaign integration, media [channel] neutrality, creative innovation, and ‘holistic communication and marketing plans independent of any agency discipline.’” That’s interesting, sure, but hardly news. Anyone who’s been working with clients for some time can recite those client desires more or less verbatim. That’s why we’re all here (to deliver that for clients), isn’t it?

The article later discusses what agencies are looking for from clients (clear direction in regards to timing, strategy, and objectives, as well as being engaged early as an extension of the client team). Again, nothing new here. But what about agency compensation?

The article, while informative and interesting, failed to address the crux of the matter. We can all complain about the current compensation model we use, but until there is a better way to do it, we’ll have to stick with what we have.

In the area of compensation, the authors discuss the necessary shift from efficiency to effectiveness as the focus of new value-based compensation models. As they put it, “a compulsion to increase efficiency—doing things right—reduces the firm’s effectiveness at doing the right things.”

Still, Williams and Baker fall short of telling us how the new value-based model should be, should work, should be structured. They mention a few general and broad comments that describe such a model, but they don’t materially advance the creation of a new agency compensation paradigm.

Newer agencies (for example, Anomaly) are developing new ways to get paid. Some take a small stake in the client company (the ultimate in aligning your interests with those of your client). Some others get a percentage of business generated from their work (ditto as above). But one usually hears of these when the work being done is far from traditional (designing a new mascot for the brand, for example, that gets turned into a toy that is sold at retail). It’s certainly not happening in the more traditional world of marketing communications, at least not yet. For example, McCann-Erickson did not get any incremental compensation for the millions of dollars in sales that the “easy button” office push button toy generated for client Office Depot.

What is the answer? How do we align our interests with those of our clients? How do we get compensated for the value we create? And do we want to leave the relative safety of hours-based compensation with its ease-of-use and predictability benefits to shoot for the higher-risk and higher-reward of value-based compensation? What do you think?