Coke's Pay-For-Performance

Ad Age reports that Coca-Cola is adopting a pay-for-performance model for its agencies that will promise nothing more than recouped costs if their AOR’s don’t perform, “but margins as high as 30% if their work hits top targets.”

The magazine quotes Sarah Armstrong, director of worldwide media and communication operations as saying, “We need [Coke’s agencies] to be profitable and healthy, but they have to earn it through performance.”

Under this new model, the clients determine the “value” of a project in two ways: First they determine how important the project is and set the price tag accordingly; Second, the client sets the goals of what the campaign needs to achieve. The more goals the agency meets, the more it’s paid. So hours worked is no longer a factor. Theoretically, you could put in a day’s worth of work and be paid the entire sum, or several 80-hour weeks and get paid nothing but recouped production costs.

Here’s what I like about the idea: It pushes agencies toward accountability and innovation.

Here’s what I don’t like about the idea: It places the onus on communication and not on the actual product. Bill Bernbach said “A great ad campaign will make a bad product fail faster. It will get more people to know it’s bad.”

Pay-for-performance works depending upon the agency’s control of the product. We’ve all worked on campaigns that the client has whittled and morphed and rearranged beyond what the agency originally recommended. Should the agency suffer losses because the client mandated several changes to the campaign which ultimately didn’t perform well?

Coke is probably not such a client. They’ve hired agencies like Wieden & Kennedy, Crispin Porter & Bogusky and Mother for a reason. And there’s a lot of room to play with a brand that doesn’t have a list of bullet-pointed product benefits.

Ultimately, I think pay-for-performance is a model that must first be dictated by the client, and then accepted by the agency on their own terms. Otherwise, clients would be just as well off producing their work in-house.