Buyers take the lead in more than half of ad agency contracts

Will Green is news editor of Supply Management
1 May 2014

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1 May 2014 | Will Green

More than half of firms’ contracts with advertising agencies are now led by procurement, according to a survey.

Between 2011 and 2014 the percentage of contracts dealt with by procurement, backed by marketing and finance, increased from 43 per cent to 51 per cent, while marketing-led contracts lost ground, dropping from 26 per cent to 20 per cent. Some 11 per cent of contracts were handled in their entirety by procurement in 2014.

Marketing was solely in charge in 6 per cent of cases, and in the remaining contracts there was no formal system in place or variations in who took the lead.

The survey, by the World Federation of Advertisers (WFA) in partnership with media management consultancy ID Comms, covered 43 global companies representing more than $100 billion (£59.2 billion) of annual ad spend.

The results showed an increase in the number of contracts with performance-based elements, from 7 per cent to 11 per cent between 2011 and 2014, while 37 per cent of firms planned to implement such incentives.

The most popular KPIs for creative agencies were around sales volume and market share, whereas for media agencies they covered buying targets and “composite performance scores”, according to the WFA.

In Global Agency Remuneration Trends 2014 the WFA said firms were “increasingly looking to align agency interests with their business KPIs by giving them the chance to boost their income”, with two thirds wanting to “link agency income more closely to their own performance”.

Stephan Loerke, managing director at the WFA, said: “Establishing common interests in true business success is essential for advertisers and agencies that want to build long-term relationships. This research reveals how the world’s biggest advertisers are working hard to build new relationships that move away from commission and give their agency partners a reward for the success they help generate.”

However, the survey showed labour-based fees remained the most popular model of remuneration, used in almost half of cases, while commission was used in 12 per cent of contracts.

Asian advertisers were more likely to use fixed-rate commission to reward agency partners, with around 30 per cent of all agency agreements using this model, compared to a global average of 8 per cent.

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