Ad Industry Leaders Explore New Economic Models, Methods of Compensation

The best and the brightest of Madison Avenue's advertising and media minds convened Thursday morning in New York to explore critical impediments to the industry's economic expansion. The group, a panel comprising members of the American Advertising Federation's Hall of Achievement Alumni, agreed that new, creative methods for establishing industry value - both in the form of ROI for marketers and compensation for agencies and the media - need to be developed.

"I'm mad about this," said Mary Baglivo, president of ultra hot ad agency Arnold Worldwide, noting, "We've never really been creative about proving the value of good ideas."

But Baglivo said a few visionary chief marketing officers are beginning to think beyond conventional metrics like short-term advertising results and brand awareness to understand the bigger impact great advertising has on their business.

As an example, she said her clients at Volkswagen have recognized that Arnold's "Drivers Wanted" campaign has created $1 billion in incremental value to the automaker.



She said this was figured out from three components: 1) $500 million from incremental unit sales that were above and beyond Volkswagen's most optimistic sales forecasts; 2) $350 million in profits from the higher margins Volkswagen has been able to charge; and 3) $150 million in savings from discounts Volkswagen did not have to make to move its product.

"How much did they pay Arnold of that $1 billion," chided Mike Lotito, a former agency media director who is now president of media auditor Media IQ.

Baglivo demurred. Meanwhile, others on the panel also struggled with the idea of fair media compensation.

David Verklin, president-CEO of Carat North America suggested agencies adopt a new "return on involvement" model being popularized by some San Francisco shops.

"Agencies could be rewarded based on involvement. The longer the viewer stays on [an ad], the higher the rate of return of the agency," he said, noting, "That is a very fair way to compensate the agency."

Verklin can suggest that because Carat has long been using proprietary systems for planning and buying media based on how involved viewers are with the media - and conversely - the ads that appear in them.

J. Scott Crystal, Executive Vice President and Publisher of TV Guide Publishing Group offered an equally bold idea for compensating media companies like his that create advertising and marketing programs for advertisers through their own in-house marketing department: retain the agencies traditional 15% commission on media buys.

"Why should we be paying 15% back to anyone?" asked Crystal.

Kevin Roberts, CEO Worldwide of Saatchi & Saatchi and moderator of the AAF panel, meanwhile, had an equally bold retort for the media. When an agencies TV commercials prove great at holding viewers, he said, "I think the media should be giving us a discount."

A top marketer, Deborah Wahl Meyer, corporate manager of marketing communications at Toyota Motor Sales USA, meanwhile, expressed outrage about the escalating costs of network TV.

"We're pissed about it," she said, but acknowledged that she and other marketers nonetheless felt compelled by the networks during the upfront out of "fear." She said Toyota sis trying to "find a way of getting over it," but that the economic model for other media leaves too much risk on the advertiser.

"They have no guarantees for the advertiser," she said.

"It concerns me that you have no options," chimed Carat's Verklin. "You're Toyota and you have no options? You have thousands of options."

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