Close-Up: Can payment by results work for COI?

Would the Conservatives' pre-election pledge to cut ad costs work in practice, John Tylee asks.

Some pre-election pledges disappear faster than a Conservative opinion poll lead. So it will be interesting to see if such a fate befalls the party's vow to optimise COI's £232 million annual budget by having it pay roster agencies by results.

Just how serious the Tories are about seeing this idea through is a moot point. Adland cynics believe it's a handy weapon with which to beat Labour over its alleged profligacy at a time when the parties are reluctant to come clean about how deeply they'll have to cut.

"This is very much a broad-brush policy by the Tories," a Whitehall source says. "They won't have thought about it in any detail and it's unlikely they've worked out how to put it into practice if they come into power."

A senior industry figure compares the news with the Tories' recent call for agencies found guilty of "inappropriate marketing" to children to be banned from bidding for government contracts for three years. "It's just another example of their 'shoot-from-the-hip' thinking," he says.

Indeed, Lord Bell, the Chime Communications chairman and long-time Conservative election strategist, suggests the time and effort needed to implement such a scheme means it will probably never see the light of day. And despite much chasing, no-one from the Conservatives would speak to Campaign to explain how the idea would work.

Certainly, any savings pale into insignificance when set against a national debt rising by many millions of pounds each week. "It's laughable that people are concentrating on the COI budget when there is no relationship between the numbers," Hamish Pringle, the IPA director-general, says.

Nevertheless, agencies are not dismissive of COI adopting a payment-by-results system. After all, they argue, PBR is now an element in most client contracts. Couldn't it work for COI also?

The big problem is how the effectiveness of long-term behavioural change campaigns, such as the anti-smoking and childhood obesity initiatives, could be measured.

What's more, how could agencies be fairly remunerated while those measurements are taking place? Many believe that measurement criteria would have to be changed drastically with the emphasis more on how a campaign was being received rather than the end result.

"It's a tough one," Chris Hirst, Grey London's chief executive, acknowledges. "However, there are lots of COI campaigns - from recruiting more police officers from ethnic minorities to getting people to fill in their tax returns on time - whose effects are measurable."

Also, as Laurence Green, the Fallon chairman, points out, COI is sitting on a mountain of data that would enable PBR to form a component part of remuneration agreements with agencies.

"COI has always been very good at measuring the effectiveness of what it does," Andrew McGuinness, the Beattie McGuinness Bungay founding partner, says. "But it would need to have some very robust evaluation systems that wouldn't add significantly to the cost of a project."

Pringle, though, questions how COI, subject to relentless reviews, staffed by experts and with some 150 effectiveness case studies on the IPA database, could deliver better value than it already does.

"You don't get on the COI roster - and you certainly don't stay on it - unless you can prove the value of the marketing investment made in you," he says.

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AGENCY HEAD - Lord Bell, chairman, Chime Communications

"I think this is one of those issues on which the Conservatives may have one view while in opposition but a very different one if they get into office.

"Such a system would have a serious knock-on effect because media costs couldn't be paid until the results of a campaign are known. Agencies are not banks and this would change the industry's economic model.

"I suspect that, because it's so controversial, it could only be introduced after much debate and over a very long period of time.

"Also, measurements of success - whether it's about boosting the number of GCSEs or reducing NHS waiting times - are completely subjective."

AGENCY HEAD - Chris Hirst, chief executive, Grey London

"Big companies like our Procter & Gamble client pay by results with some success and this could force COI and its agencies to focus heavily on what a campaign is setting out to achieve.

"However, it's very tough to measure the effectiveness of long-term behavioural change campaigns aimed at reducing smoking and obesity levels among children. But if campaigns are tough to measure, then you have to question if advertising is the right thing to be doing.

"The problem that COI would have, given the sheer scale of its activities, is how it could introduce a more bespoke remuneration system. That would be very complicated."

AGENCY HEAD - Andrew McGuinness, founding partner, Beattie McGuinness Bungay

"In principle, it's an excellent idea. We already have PBR elements in the contracts with most of our clients. However, there are challenges for COI to overcome should it go ahead with this.

"One is getting a simple system for evaluating success. Another is to ensure that such a system doesn't add significantly to the cost of a project.

"But it's possible to overcome these things with the result that COI and its agencies have a clear agenda from the beginning.

"Agencies will relish this kind of challenge. But they'll need to be reassured that there's an upside as well as a downside to PBR."

ASSOCIATION HEAD - Rory Sutherland, president, IPA

"Payment by commission works badly in an age when many of the best solutions - especially the behavioural ideas which the Tories particularly like - don't pay any commission. Payment by the hour is possibly even worse. It means there is virtually no connection between the agency activities that add value and those that make us money.

"Clearly there is every opportunity to improve on present arrangements. However, the task of developing PBR formulae poses a completely new set of problems.

"My verdict? Yes, there is scope for improvement here, but there are also many pitfalls. It's a good idea, but not one to be rushed."