Coca Cola is trying to start an industry wide movement that enforces a “value based” compensation model.  This model clearly states that agencies would not get any monies if the product did not perform.  This is of course is a disadvantage to the agencies because they would not be allowed to project profits before their work is delivered, as they have done in years past.

Coke’s director of worldwide media and communication operations believes that this model forces agencies to earn their profitability.  The value-based compensation model has been a hot topic in the industry for the past decade but few marketers have actually gone through with it.  Coke on the other hand shifted from the flat fee based on hours worked model in five markets last year with plans for rolling it out in 35 more this year.  They want all of the company’s global ad and media agency relationships to adhere to this model by 2011.  With 3 billion in global advertising spend, Coca Cola may have the upper hand in this decision.

The agency is used to defining the value of the assignment by hours needed to finish the creative process but this new model will allow Coke to determine the value of the assignments based on the work’s strategic importance, the talent involved and whether or not other agencies could product the same work.

This model could definitely be a huge blow to agencies, especially those who put together brilliant campaigns that the public doesn’t necessarily respond to.

What are your thoughts, from an agency standpoint? From the client standpoint?

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