17 October 2005 | Anusha Bradley
British Airways will for the first time pay its newly appointed advertising agency Bartle Bogle Hegarty (BBH) on a performance-related basis.
The five-year contract will take effect from 15 November, ending a 21-year, £60 million-a-year relationship with M&C Saatchi. The revelation follows comments by BA procurement director Silla Maizey, who hinted at a CIPS event last month that she wanted to change the "balance between risk and reward" by linking the performance of creativity with business performance.
BA declined to explain how BBH's performance would be measured and would not say how much it expects to save. However, BBH finance director David Spencer told SM it was usual for the firm to receive payment to cover running costs and to have its profit margin dictated by results.
"It's about putting your money where your mouth is," he said.
The fee BBH receives would reflect BA's achievement in hard sales, market share and brand awareness, which would be tracked before and after advertising as well as agency performance based on a survey of BA's perceptions, he said.
BBH has used this type of fee scheme with clients for the past 10 years. Bob Rodwell, managing director of marketing procurement firm DWR, said there was still resistance from companies and agencies against performance-related pay because it was difficult to determine whether one factor, such as advertising, had changed sales or brand awareness for better or for worse.
Commenting on why it chose a performance-related scheme, a BA spokesman told SM: "The pay-by-results was stipulated in the tender process. It's a very tough industry and has become leaner and tighter. We want to get a 10 per cent operating margin. Last year we achieved 6.9 per cent, so have still some way to go."
Rosie Doggett, marketing procurement consultant at RAD consulting, said it was usual for 10 to 30 per cent of an agency's fee to be based on performance. Multinational company Procter & Gamble pays its creative agencies based on its sales performance, she added.
Martin George, BA's commercial director, said BBH was chosen for "the outstanding insight, creative ability and proven track record of delivery effective advertising it demonstrated throughout the pitch process".
Other BBH clients include Audi, Levi's and Vodafone.