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    Monday, April 27, 2009

    Will Coke Pioneer A New Agency Model?

    Advertising Age is reporting that Coke is pushing it's media agencies to adopt a new model, where what the agencies are paid is directly tied to the performance of the programs they roll out for Coke. This means in a worst case scenario, if a program bombs, the agency will have their costs covered, and nothing more. For agencies who have typically based project costs on time and materials, this is a huge shift, and puts much more risk on their shoulders.

    The problem this poses for the agencies is that financial projections can no longer be made accurately, since exact payment will never be guaranteed. Profit won't be measured until a program is completed. This means the financial health of agencies can fluctuate, and even top execs won't have a handle on their current status at any given moment. And when financial forecasts are used to plan business growth, this performance-based model will have a very big impact on how agencies are managed.

    Bottom line, with a slumping economy, Coke is sharing the risk of doing business with their media agencies. They're asking agencies to put their money with their mouth is, and take responsibility for delivering results. Conceiving and pitching a concept that's innovative and full of promise will be half the battle. Now, following-through and generating results will be equally important. And with payment being tied to performance, you can bet the level of monitoring and ongoing commitment on the agency side will increase.

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