Tuesday, April 28, 2009

A New Model for Coke

“Under its new model, Coke will determine the value of assignments based on a range of factors including the work's strategic importance, the talent involved and whether other agencies could duplicate the work -- if they could, it's worth less. After those factors are used to set the value of a project, the agency's performance and the business results that follow determine what, if anything, the agency deserves to be paid beyond its upfront costs (which, in practice, are sometimes inflated). If all targets are hit, the agency could make as much as 30% on a project; if all targets are missed, the agency won't make any profit at all”.

Great idea! This further pushes creativity and encourages good marketing by shifting the emphasis to brands instead of sales.  A large part of why consumers are so wary of advertising these days is because a lot of ads are just junk.  Those junk ads are usually made because companies just want to make a quick buck.  Consumers today are smarter and less patient than ever, they have tools and they can control what they see.  So the ad industry is long overdue for a change…they need to make ads that really try to engage the consumer as opposed to flashing brands in the consumers’ faces. 

The tricky thing mentioned in the article is how one measures “value”.  I don’t think it’s that tricky…if you and a client can agree on certain goals, you should be evaluated by whether or not you meet those goals.  Goals may be hard to quantify in terms of numbers, but whoever said that numbers are the only measure?  Numbers are easy to understand and hard to dispute, and that’s why everyone uses them, but a value-based model calls for a more value-based way to evaluate campaigns, so the way in which we think about results would have to change.  Instead of putting all the importance on sales numbers, maybe we can shift to a more brand-centric evaluation.  This system forces companies to figure out their identity.  I understand that that requires a lot of work and almost a complete overhaul of how we think about returns, but I think it’s a good thing.  Most brands are so undifferentiated these days to the average consumer that the only thing that’s driving most consumer decisions is price, especially in consumer packaged goods.  However, I think there’s a lot to be gained by building a solid brand, and that’s not a new idea, it just hasn’t been emphasized as much as I think it should be. 

Back to the whole measuring value thing.  Think about something that is valuable to you, can you put a price on it?  Probably not.  So how can you measure how valuable that thing is if you can’t quantify it?  Well, you take other things into consideration.  Things like sentimental value and what it represents – all those things cannot be made into statistics.  Same thing goes for a brand, things like brand perception and brand value can’t truly be quantified because they don’t correlate directly to numbers.  Instead, they are great in terms of building a loyal consumer base.   I’m a Mac user, I’m pretty convinced that I’ll be a Mac user for life.  If there was another computer that did the exact same thing a Mac does, looked exactly the same way, costed $200 less, but didn’t have the nice little apple logo on the cover, I would still shell out the extra $200 for the Mac.  That logo is important to me because I identify with it, so I want it around.  Funnily enough, you can technically say that the Mac brand is worth $200 to me, so maybe you can quantify brand value after all.

Also, the value-based compensation model would shift more importance onto strategic planning, which is definitely a good thing.  Great advertising and effective communication come out of good strategic planning.  Take the Volkswagen “Drivers wanted” campaign, for example.  Arnold Communications took the insight gained from really good research and created one of the most successful campaigns ever. I think research provides enormous value for advertising, and if you conduct your research well and identify the necessary insights well, you are almost guaranteed to make a great campaign.  Because in advertising, you are just trying to get people to do something, so you need to really understand their wants and needs before you can figure out how to talk to them – and the best way to do that is to do really good research and analysis.

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