Advertising Age on Coke's Pay-For-Performance Model Quotes VeraSage's Tim Williams

As a follow-up to my prior post on Coca-Cola's Value Based Compensation Model, here's an Advertising Age article from today that provides more details.There are some interesting quotes in this article, such as:

Some agency executives, speaking privately, said they couldn't argue with the theory behind the shift, but had concerns about how it might work in practice.'Look, if you're talking about getting paid more because you're adding value to a project, I think that's terrific,' said a senior executive at one Coke agency that has yet to switch to the new model. 'The tricky part is how you define value.'

Very true. But consider the status quo. Counting up hours is no way to get to value, hence Coke's model is a move in the right direction. If one agrees with the theory, it's hard to discredit the outcome, difficult or not.Also, in contrast to the conventional wisdom that all customers care about is lowering cost, here's Sarah Armstrong—director of worldwide media and communication operations—on the real motive behind Coke's switch:

Though the shift comes amid a brutal economic downturn that has prompted many marketers to slash agency fees to save money, Ms. Armstrong said cost savings had little to do with Coke's move to a new compensation model. It's 'ironic,' she said, but the shift began in 2006. She declined to comment on whether Coke saw any savings in the five test markets—Australia, China, Germany, the U.K. and the Philippines—in which it deployed the new model last year.

I am traveling to Atlanta next month for a meeting with Sarah Armstrong to get more details on the model.The article also discusses Procter & Gamble's newly revised model, which we also believe is a move in the right direction.Here's a thought experiment for advertising agency leaders: If you don't step up to the plate and offer your customers alternative pricing strategies, some will do it for you. So far, it's the major advertisers who are taking the lead, creating history by forcing a pricing change down the throats of sellers.If you rather be in charge of your own destiny, doesn't it make sense to innovate new pricing models on your own? Anomaly, Crispin Porter, among others—some of which are on the Trailblazers section of this Web site—prove it can be done.The customers are doing it because agencies won't. All they have been doing is complaining, though there are many more exceptions than when I began working in this profession.At least Coke is moving the goal posts, and for that it should be commended.This is not the last word on this historical transformation among advertisers and their agencies.