Archive for the ‘GREEN ROOM’ Category
It surprises most agency professionals to learn that many marketers—both consumer and B2B—are intensely interested in exploring a value-based compensation arrangement in place of the traditional hourly rate.
A recent position paper from the Association of National Advertisers states clearly:
“Traditional metrics used in today’s cost-plus compensation agreements (usually based on time) have no relationship with the external value created for the client in today’s intellectual capital economy. Therefore, pricing should instead be based on results and value created.”
In forward-thinking companies across the country, marketing, finance, and even procurement officials are actively engaged in internal discussions around value-based compensation. If the marketing services profession isn’t more proactive in this area, clients may well be the driving force behind a change in compensation practices. And that’s ironic, because almost all pricing innovations come from sellers, not buyers.
Selling outcomes instead of hours
From a marketer’s perspective, the chief frustration with the traditional cost-based compensation system is that they’re not sure what they’re really buying. Are they buying the firm’s time? Dedicated staff? A set amount of work? In the end, they don’t really want to buy any of these things; they want to buy outcomes.
In a cost-based compensation arrangement, the client pays for efforts rather than results. Agency professionals log and charge hours regardless of the outcomes the hours produce. In a value-based arrangement, marketing firms and clients identify specific metrics of success and structure agency compensation around outputs instead of inputs.
Value-based compensation works primarily for one major reason: it aligns the interests of the agency and the client. Both parties are working to achieve the same things. They both have similar financial incentives. Structured properly, value-based compensation agreements can also give both parties similar risks and rewards.
Imagine how this could change the dynamics of an agency-client relationship. Suddenly, the concept of “partnership” takes on real meaning. Clients start to view “risky” agency recommendations differently, because they know the agency has skin in the game. A new level of trust and mutual respect emerges, because both parties have a stake in the outcome.
Value-based pricing is unquestionably where the marketing world is headed. The question is, who will get there first: agencies or their clients?
If you haven’t revisited your brand architecture in more than a year, it’s likely what you’re building is a façade, rather than reinforcing a foundation. Because technology and innovation are inextricably linked, tech companies are continuously introducing new products and services, and in most cases, adding brands and sub-brands into their product portfolios. Over time, even a sound architecture can begin to crumble under the strain of too many overlapping brand layers.
It’s not as if tech marketers are trying to create brand disorder and chaos, it’s just that inattention to brand architecture necessarily results in inefficient brand structures. When I was at FileNet (now part of IBM), the company had already made a smart decision to consolidate disparate brand identities under the master brand FileNet. Nevertheless, after several years of acquisitions and a steady stream of product introductions, our branded house was in disarray, with five levels of brand architecture creating confusing and often overlapping messages to the marketplace.
In addition to the product brand (e.g. FileNet Content Manager), the company was branding specific features (e.g. ZeroClick), technologies (Content Federation Services), even the GUI which was only evident upon product installation (i.e. FileNet Workplace). After careful examination with help from a strategic branding firm, we streamlined our brand architecture to just two levels (FileNet + Product Brand), and relegated all other competing brand identities to the descriptive level to better support and maintain a coherent brand architecture. This process resulted in better informed sales and channel personnel and, most importantly, increased customer clarity over what we offered.
Take this simple test: ask three salespersons to describe your brand architecture and hierarchy (i.e. the various levels of meaning) and see what they say. If you get three different answers, it’s probably time to evaluate your brand architecture. If you get a consistent articulation of your brand hierarchy and associated meaning, congratulations, you can rest until you next major product introduction. If you are actively involved in M&A, this is an even more critical endeavor. In this challenging economy, you need every advantage you can get in driving brand consideration and brand preference, so make sure your building upon a strong foundation and not merely erecting a façade.