Tim Williams on how agencies are transforming approach to compensation

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Ignition Consulting Group Founder Tim Williams reveals how some North American agencies are transforming their approach to compensation using fixed, variable and dynamic price models. This presentation was shown at the IPA's Performance Adaptathon in London on 8th July 2014. Find out more at www.ipa.co.uk/adapt/performance and get involved in the conversation on Twitter #ipadapt.

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HOW SOME NORTH AMERICAN AGENCIES ARE TRANSFORMING THEIR APPROACH TO COMPENSATION Presented by Tim Williams ignition consulting group www.ignitiongroup.com twilliams@ignitiongroup.com @ TimWilliamsICG

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CLIENT: I want to hire you for your expertise and your ability to create and execute transformational business ideas for my company. AGENCY: Excellent, we are ideal for that challenge . CLIENT : Yes, but before I hire you I have a few important questions. AGENCY: Okay, shoot. What do you mean ? CLIENT : What will you charge me? AGENCY: $1 million dollars for our ability to work with your organization to create the idea, and then if we move it forward another million because truly transformational business ideas are valuable and in limited supply . CLIENT : Why $1 million? AGENCY: What do you mean? Jason DeLand Partner, Anomaly

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CLIENT: Well if I understand how you arrived at it, then I can negotiate it down. AGENCY: But I don’t want you to negotiate it down. That is money out of my pocket . CLIENT: Yes, but it’s a privilege to work on my brand and you’ll get lots more business from it. AGENCY: I will? Can you guarantee that? CLIENT: No. But I still need to know how you got to your price. AGENCY: Well, OK...I looked at the size and scope of the opportunity and considered the value of us addressing it for you and calculated a price that I am willing to do it for. A price that I believe to be competitive in the market and a price that affords me the peace of mind that I can make a bit of money . CLIENT: Oh, but I need more than that. I need to know who will do the work... and the amount of time it takes for them to do it. AGENCY: The team I said will do the work...and it will take as long as it takes until we have an outcome that everyone is happy with . CLIENT: Yes...but what if just one person cracks it in one day...and you then execute it with a small team in three weeks – that is not worth a million dollars. AGENCY: You’re 100% correct. It’s worth more.... If that happens, we will double it!  

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Three basic value pricing approaches A fixed price based on perceived value. A variable price based on outcomes. A dynamic price based on usage.

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1. A fixed price based on perceived value What is the customer willing to pay?

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1. A fixed price based on perceived value

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What different options could we offer based on a fixed price? 1. A fixed price based on perceived value

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Three basic value pricing approaches A fixed price based on perceived value. A variable price based on outcomes. A dynamic price based on usage.

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How can we get paid in a way that aligns the economic incentives of our two companies? 2 . A variable price based on outcomes

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2 . A variable price based on outcomes

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2 . A variable price based on outcomes

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2 . A variable price based on outcomes

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2 . A variable price based on outcomes

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Agency compensation determined by three factors: Sales 50% Market share 25% Agency performance 25% 2 . A variable price based on outcomes

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2 . A variable price based on outcomes

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On many major brands, pays multiple agencies based on shared KPIs , which ensures collaboration and alignment of economic incentives.

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Global bank

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Corporate Marketing Goals Creative Testing Agency Performance 50% Brand Relevance Rating 30% Core Preference 20% Product Mix Rating score on 7 factors 3 0% Client A 20% Client B 10% Client C 10% Client D 10% Client E 10% Client F 10% Client G 100% 50% 20% 30% Outcome-based a greement f or major t echnology b rand

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B luetooth headset brand Royalty on sales

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Luxury car brand $ per car sold in North America

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Liquor brand $ per case sold in U.S.

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Three basic value pricing approaches A fixed price based on perceived value. A variable price based on outcomes. A dynamic price based on usage.

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3. A dynamic price based on usage. How can we get paid for the use of this idea rather than just the production?

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“ Advertising is not a service business. We’re a product business, like publishing and other businesses that deal with intellectual property. ” Jeff Hicks Vice Chairman, Crispin Porter + Bogusky

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3. A dynamic price based on usage.

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3. A dynamic price based on usage.

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3. A dynamic price based on usage.

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B2B marketer Per qualified lead

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E-commerce website 15% of first year sales

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YOUR PERSONAL FINANCIAL PORTFOLIO

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Low-Risk Low-Reward Medium-Risk Medium-Reward High-Risk High-Reward THE AGENCY COMPENSATION PORTFOLIO

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“Every year we don’t know what 30% of our compensation will be because we have placed bets on ourselves.” Jason DeLand Anomaly

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www.IgnitionGroup.com @ TimWilliamsICG @ IgnitionGroup www.linkedin.com/in/TimWilliamsICG Propulsion Blog www.IgnitionPropulsion.com

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