Is P&G Cranking the Compensation Screw Too Tight?

P&G, which is known as one of the best clients to have in terms of longevity and marketing rigor, has over the last decade been moving from the commission-based compensation to a fee-for-service model. Now it has come up with a new hybrid system which, though well intentioned, is sure to frustrate everyone –- especially those who were applauding as P&G under former chairman A.G. Lafley began to foster creativity and innovation in the making of more effective brand connections with consumers.

Beginning this summer, and perhaps in some cases earlier than that, P&G has begun to assemble all its roster companies on a particular brand for internal pitches. In the past, the “winning” firm got to roll out its own idea and got bonused for its creative thinking. But that’s no longer the case.

Under a new system denoted with the shorthand BAL (Brand Agency Leader), all roster agencies will get paid an hourly rate for their work for P&G. Then, in a creative scrum, they are given a problem and everyone posits ideas for the brand. The ideas become P&G’s intellectual property. The brand then can ask any of its “vendor” entities to become a BAL and lead the others to insure that the idea is translated into effective brand communications. And all participating roster agencies have the opportunity to receive a small bonus of 5% to 10% based on whether the brand increases sales and market share down the line.

“[Agencies] are more accountable now,” P&G finance director Rich DelCore told Bloomberg news service last April. “It’s about total consumer engagement and brand building.”

Well BAL certainly is a way of fostering team spirit and, you could argue, it’s just creative collaboration on a grand scale. But it strikes me that P&G, which at $8 billion now has the largest annual marketing budget for any company in the U.S., is really creating a system that prices creative thinking as a commodity. And it’s a system that is not only unfair to the different players but bound to fail.

Advertising and intellectual property lawyer Rick Kurnit, of the New York’s Frankfurt Kurnit Klein & Selz PC, believes that this new system merely reinforces the myth that brilliant creative and strategic thinking can be purchased on an hourly basis.

P&G has already ratcheted down its “retainer” payment to agencies of from 15% (of mediaspend) of yore to a reported 8.5% equivalent today. And it can be assumed that procurement officers will ratchet that fee even lower if agencies agree to stay in the game.

As for collaboration, everyone is teaching this today. But by collaboration trainers in creative thinking mean that people should work on problems as teams and not fight with each other for mediaspend and revenue.

But it’s never been proposed that brands should be blind to who was coming up with the best ideas. At collaboration training sessions, teams are given a brand problem. They retire and return, and the team with the best solution is recognized as the “winner.”

It’s bad enough that brands won’t allow their different elements retain ownership of the intellectual property (IP) of what they devise—based on the argument that they are working “on the client’s clock.”

But in the new P&G model, agencies will only be rewarded minimally for winning ideas. “For the key people who make a difference in creative thinking and strategic thinking to get an extra 5% of profit margin for the agency does not reward them or the agency sufficiently,” says Kurnit. “These kind of stars need to be brought up to a competitive level with other creative endeavors or they’re going to leave the business.”

P&G has over the years consolidated its advertising from a roster of many shops down to a few global networks, basically Saatchi & Saatchi, Grey and Leo Burnett. These networks can’t afford to stay around for skimpy retainers. When their ideas do prevail they expect and deserve not only ample rewards but enough longevity to assure that their early efforts for a brand compensate for their investment.

We are still waiting for a model that pays an agency a premium for great ideas and still gives roster agencies the security and fair payment they need for maintaining manpower and overheads to be great.

What are these great ideas worth? “A man will turn over half a library to write one book,” said Samuel Johnson. P&G may have to pay “half a library” just to get one very powerful, enduring idea—but whatever it takes to launch and sustain brands over time it is worth it.

Flash: Volkswagen Fires Crispin! Is It Worth Having a Review?

What does it mean when a car brand fires an agency?

Perhaps not that much, unless you happen to be living with one of the principals of the incumbent, in which case you might as well pack up and take a long vacation in Kenya or the Antarctic, because your significant other isn’t going to be fit to live with for some time to come.

Volkswagen this week called a review on its $200 million-plus account at Crispin, Porter & Bogusky, Boulder, CO, after almost five years together.

There will be those who claim they could see it coming. The brand has new global and U.S. marketing directors and the parent is anxious to see the brand grow market share everywhere and certainly in America.

Sales here are down this year, but only 13 ½% compared to an industry average of 30%. But maybe sales alone don’t tell the whole story.

Tim Ellis, vp/marketing for Volkswagen of America isn’t giving very many clues on what sparked the decision. He issued a statement saying: “Our goal of rapidly increasing our volume in a mature market requires the Volkswagen brand to evolve into a more relevant mainstream choice.”

I suppose the emphasis here is on “mainstream,” raising questions about Crispin’s sometimes oddball work for a brand that didn’t seem itself sure of what it wanted to be in the competitive United States market. Sometimes it stood for safety, sometimes for value. Its cars other than the Beetle at the low end and the Touareg at the high end were mostly mid-market.

So what kind of agency is Volkswagen looking for? Ellis didn’t say. Most commentators are handicapping either another creative agency or something a bit more safe.

David Kiley, the respected Business Week auto specialist says in a post to B/W’s website Monday, when the story broke, that he is expecting Omnicom’s DDB, Volkswagen’s agency in most other markets, “to pull out [all] the stops to win the business.”

He rates IPG’s Deutsch/L.A., which has handled Saturn and Mitsubishi, as a top contender. [Saturn has just been bought by Penske and it’s expected that spending will be cut way back and the account moved or done in-house.]

But IPG may get a signal from GM to hold Deutsch out of the VW pitch on the chance that GM’s new marketing czar Bob Lutz will put Buick, now at Leo Burnett, or Cadillac, now at Modernista!, up for review later this year.

Another IPG agency hungry for a car account is Lowe/New York, led by British creative star Mark Wnek. Wnek’s team did the “born from jets” campaign for Saab, only to see GM move the account several years ago to McCann/Detroit.

Moving down the IPG ladder is the Martin Agency, with Saab and Maserati in its DNA. The Martin Agency won Wal-Mart’s stunning $400 million business over a year ago and has managed to digest it nicely. So maybe VW could lure it into the scrum.

If Volkswagen finds itself locked out of the IPG stable, there are still plenty of other great agencies on the horizon—namely the three “old” creative sisters: Goodby, Silverstein & Partners, San Francisco; Wieden & Kennedy, Portland; and Fallon, Minneapolis.

Fallon lost BMW several years ago to GSD&M, Austin, TX, where it rests, apparently safely, today. Goodby lost Saturn to Deutsch/L.A. and then had Hyundai for a time, only to find the brand moving its advertising in-house. Wieden hasn’t had a car for decades. It’s perking along nicely with Nike and some Coca-Cola business, and no doubt would be interested in a car. Its London office has done iconic work for Honda, but there’s no sign the marque is thinking of moving the U.S. account from Rubin Postaer & Associates, Santa Monica, CA.

But all of them should ask how beat up VW felt by Crispin’s sometimes famously quirky work. All good creative agencies get cranky at times; how else can they come up with work that’s interesting and breaks through the clutter? But unless VW is ready to give its agency some room to breathe, none of these fine, creatively-focused companies would want the business.

VW AG has named Fiat marketing chief Luca De Meo as its new global marketing chief. If he wants to insure the brand communicates the same values in its advertising all over the world, he’d be better off directing Tim Ellis to go with DDB.

According to press reports in Detroit, Volkswagen of America wants to quadruple its 800,000 cars and light truck sales by 2018. Besides the lower-priced Beetle, the mid-range Tiguan, GTI and Jetta and the $30,000-$40,000 range CC and the Touareg (over $40,000), it will introduce a new compact sedan next year and begin producing a new mid-size sedan soon in its new Chattanooga, TN, assembly plant. So the pressure will be on to step up the pace.

This blog is written on a Tuesday, only a day after the review was announced – and six days before the trades publish their in-depth look at the pitch. I don’t like to compete with the weeklies. But for my money, it’s DDB/New York’s account to lose. I’m not sure Eric Silver counted on pitching a major car account six months after taking the creative helm of DDB/NY. But with DDB’s awesome global resources and its closeness to the parent in Wolfsburg, it’s hard to imagine any other agency having much of a chance.

TOYOTA FLIRTS WITH GOING IT ALONE

AdAge reports that Toyota is thinking of firing its ad agencies and doing everything in-house. And what a bonanza that would be for the bottom line. Toyota spends $900 million in measured media in the U.S. alone, according to Nielsen. That means they’re probably paying $90 million to $100 million a year to their several ad agencies including, by my count, Saatchi & Saatchi/Torrance, Team One/El Segundo, Attik/ San Francisco, DentsuAmerica, New York and some dogs and cats who probably work on a project on an occasional basis. I’ll bet someone told Yukitoshio Funo, CEO of Toyota Motor Sales USA, Inc., that he could create an in-house agency that could produce the same amount of work with the same punch for one-third the cost.

Who wouldn’t want to save $60 million on ideation and production and $100 million on media in an economy like this?

Right? Wrong. This is the latest in an unhappy series of examples of client impatience with the high cost of advertising, as search and other digital forms of communication become more important and agencies have increasing problems with proving the ROI of what they do. Clients want communications that are measurable, have more punch, are produced faster and with less cost and that can be repurposed across multiple formats as audiences multi-task and become more elusive.

That’s a worthy goal. But, if in trying to meet it, you conclude that advertising can best be made in the same kitchen that manufactures and sells Corollas, then you’re missing the whole point of using arms-length creative resources.

Creative people--the men and women who actually unlock the puzzle of how to communicate brand messages in fresh ways that people hear and remember—are hard to recruit and retain. Coming up with ways to make the oddly shaped Scion or the pricey Prius seem as charming and appealing as a square Taurus is not an easy task.

Toyota makes great cars at a great price, sans doute. As a result, according to a senior Saatchi executive I interviewed for my 2003 book, “Casting for Big Ideas,” Toyota USA executives “have contempt for just about everything that we do.”

How many ubiquitous American brands have felt the same way? Howard Schultz of Starbucks, after all, launched his brand by just building stores without any advertising. As a result, his customers have forgot that what he was really was selling is a personal reward and have begun to think of a Starbucks as a $2 cup of a black, caffeinated beverage. Wal-Mart kept their ad agencies on a tight rein, limiting them to cheap commercials featuring yellow smiley faces, until the anger consumers felt for the way Wal-Mart stores destroyed the retail environment of their small towns and pretty suburbs grew stronger than the desire to go into a noisy, dirty, giant warehouse and buy something cheap.

Eventually brands have to communicate not only price and availabiliy but value and emotion. Even as our attention moves to the Internet, where brands are often accessed as a button on a search page, there still has to be a reason for picking a J.Crew wedding dress over one bought at Macys.com. We have plenty of research proving we’re not really rational animals when it comes to shopping. If we were, then I suppose Toyota is right: it’s a lot cheaper to hire several 100 20-somethings and lock them away in a windowless office with plenty of free coffee and pizza, to grind the work out 24/7, then it is to deal with a number of different agencies, each with their prima donnas and occasionally over-the-top notions of great ideas.

But it won’t take long, as it did for Wal-Mart, for Toyota to realize there is something very wrong with the captive agency model. That, in fact, it’s better to have professionals knock themselves out—and even trash half of what they present--then to try to shoot “junk” and run it so often, the Toyotathon message finally gets stuck in people’s brains. Even if you saved $50 or $100 million a year this way, sooner or later your sales department is going to complain that the work is not “making the cash register ring.”

I wager that before long you’re going to hear from Toyota that the press release about firing its agencies “was an exaggeration.” And all Toyota Motors USA wanted to do was have a little in-house design agency in Torrance that could knock out an occasional sales brochure. Fire their agencies? Where did the “media” come up with such a bizarre idea?

Wendy's: Still Mourning the Passing of Uncle Dave?

For 20 years or so Wendy’s rocked along at Saatchi & Saatchi Advertising, a confident player in the fast food stakes, behind McDonald’s and Burger King, safe in the knowledge that its fare was fresher tasting and sometimes cheaper. So all the advertising had to do was deliver an appealing message to keep Wendy’s “top of mind. That it did, built on the shoulders of a genuine celebrity, founder Dave Thomas who even well into his 80s gave us a reason to want a non-frozen, freshly grilled, square burger, with plenty of fixings.

Then Dave died in 2002. And Wendy’s has been lost in the wilderness ever since. Someone came up with the idea of building the brand around the iconic red-haired, pigtailed woman in its logo. Not a bad idea, but by itself neither a marketing nor an advertising strategy, as the people trying to make this character come alive quickly learned.

So they tried jokes and added some new lines. “3conomics” for three sandwiches for 99 cents, and “It’s Waaay Better than Fast Food.” Then they had a red-haired, pigtail-wig wearing white man walking in a forest, crying out “I deserve a hot juicy burger!” And later a red-haired, pig-tailed black man sitting next to a white guy eating a less than appealing “air supply” burger.

None of this really worked. While McDonald’s menu outdistanced the other two for innovation and breadth and Burger King tested a line of new sandwiches, Wendy’s pretty much limped along at the back of the pack.

Now investors Nelson Peltz and partners, who bought Wendy’s and Arby’s from the Thomas family to form the Wendy’s Arby’s Group (NYSE symbol: WEN), have called for a review and moved the $300 million advertising account from Kirschenbaum & Bond across town in New York to the Kaplan Thaler Group, an agency known for building Aflac from nowhere with an intrusive, quaking duck.

Kaplan Thaler beat out an impressive list of finalists: the Martin Agency, Bartle Bogle Hegarty, California’s Venables Bell & Partners and the incumbent. That’s because Linda Kaplan-Thaler’s people not only know how to entertain with the sensibilities of musical comedy, they are smart, strategic thinkers.

I predict that Linda Kaplan and her gnomes will figure how to crack this brief. I expect they will build red-haired, pig-tailed Wendy into an icon that delivers a smart, memorable message, not a sense of “What was that about?” irritation. You only have to look on YouTube for all the riffs on what’s been wrong with Wendy’s to realize that the under-30 crowd really doesn’t like the advertising, but is still intrigued with red-haired icon and just about anything from the fast-food chain named after Melinda Thomas’s nickname. So there’s still a lot of heritage to build on.

All fast food today still tastes like cardboard to me. But some of it is more appealing than others. And all of it is fast and cheap. You just have to pull a few aces here to strike a winning hand.