Close-Up: Live Issue - Will remuneration guidelines work?

Will the best practice guide to evaluating ads help agencies reap fairer rewards, Noel Bussey asks.

Attempting to put a value on the advertising that an agency executes is one of the major challenges facing any client. It can also pose a problem for the agency, especially when it comes to the thorny issue of remuneration.

Evaluating an ad's effect on sales is widely regarded as the best way around these problems and most clients - 90 per cent of the companies surveyed by the IPA in a recent report - use this method. However, only 20 per cent of the clients surveyed actually evaluate the ad's effect on profits.

In a bid to remedy this, the IPA, ISBA, the Marketing Communications Consultants Association and the Public Relations Consultants Association have joined forces to produce the Best Practice Guide to Evaluating the Effects of Your Campaigns.

"There is already a groundswell of clients desperate to get their act together on this," Sven Olsen, the chairman of the IPA Value of Advertising Committee, says. "Ninety per cent of clients said they wanted these guidelines and the remaining 10 per cent are already measuring effectiveness on profits, so we're very confident the guide will be extremely successful."

The crux of the document is to show the shortcomings of common evaluation techniques and put forward new ideas on how advertising effectiveness can be measured on profit, rather than sales.

Both methods of evaluating advertising's effect on profits are based on core sales assumptions. The common technique was to assume sales would stay constant without an advertising push, and would surge following a campaign. The idea was to measure the surge.

However, the guide says that because brands are under constant pressure from competitive activity, if you halt your communications activity while competitors carry on theirs, the likely result will be a drop in sales. This means clients need to measure effectiveness based on assumed decline rather than on a constant level.

"When budget decisions are being made, some clients think that if they cut ad budgets, sales will remain constant. This isn't the case, and the guide explains this. The onus is now on the client to make sure they measure correctly what's happening with their ads," Tina Fegent, the procurement director at Lowe, says.

All the interviewees agreed that with a better way of evaluating the success of a campaign, the thorns on the remuneration issue could, eventually, be pruned away.

"If you can better evaluate the effect of ads, of course it will have an impact. The more hard key performance indicators you can put out, the better for the industry," Debbie Morrison, ISBA's director of membership services, says.

There was also a view that the guide will bring up a lot of other questions when it comes to agencies being paid.

"Agencies need to be accountable, that's why there's not many of me around," Fegent says. "What's the point in making a crap ad? This will become especially relevant if this guide moves more clients to offer bonuses for good work."

The overall feeling is that if enough people adopt the tips laid out in the guide, it can't fail to improve evaluation techniques, and therefore agency remuneration.

"The best practice guide is obviously not going to hit everybody - some companies already have good systems in place. But we're confident it will make a difference," Morrison says. "If we hit 20 per cent of the market, we'll know we've had a major success."

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CONSULTANT - Andrew Melsom, senior partner, Agency Insight

"It's a very good guide with good contributors on both sides and it's good for people to see different approaches to evaluation. But I don't think it's simply a case of good guide/bad guide. It's about raising questions.

"It is going to raise informed discussions on agency remuneration. Clients I work with at the moment are constantly asking whether agencies should be given bonuses for brilliant results. Its major strength is in highlighting the ways in which clients can evaluate agencies."

TRADE BODY - Sven Olsen, chairman, IPA Value of Advertising Committee

"Clients have always monitored the effect of advertising, but they have never monitored the effectiveness of spend on the bottom line. They haven't been taking this as seriously as they should. If you look at the research, only one in five companies do this.

"Clients now have to consider whether they want to be taken more seriously by their boards. If they do, then this set of best practice guidelines will work and everyone will want to use them.

"Board members speak a different language from marketers. They speak in profit and loss, they don't look behind the brand as marketers do. These guidelines will help everyone work in the same language."

AGENCY - Tina Fegent, procurement director, Lowe

"It's an absolutely great idea. It's wonderful for purchasing departments to be able to lead the way. This is tremendously important because the industry has gone down such a cost-focused route in the past.

"Every switched-on purchasing person will be looking to get their hands on this guide. It's also great to see the IPA and ISBA working together. Two years ago, the IPA didn't even accept purchasing, so it's a great step forward.

"It will also be invaluable for planners because once there is a degree of measurement for the quality of ads, they will be able to measure the success of a campaign before, during and after it has run."

TRADE BODY - Debbie Morrison, director of membership services, ISBA

"It will work because it is filled with great advice, but it is easy to read and in no way daunting. This means anyone, no matter how long they have been in the industry, will be able to use it.

"It isn't a catch-all, but it's a good introduction. We are really trying to influence the junior people coming up through the ranks of the industry. If we can get the young marketers using it, it will eventually become an industry standard.

"You can't go to college and learn to be a good client, but hopefully this guide will help provide one of the pivotal building blocks."