Improving on paying for performance

Regardless of economic climate, cutting cost is always easier than getting more value from your spend. As businesses bow to inflationary pressures, a looming recession, fluctuating interest rates, and political instability, marketers must seize this opportunity to educate the rest of the organisation on cost versus value, and demonstrate marketing’s effectiveness and impact on business. 

 

R3’s New Business League APAC data for 2022 highlights the difference in average value of accounts year-on-year, with creative decreasing 42% and media decreasing 51% from 2021. It’s clear that consolidation and contract reviews of service and operations vendors remain a priority for many marketers looking to reduce costs and drive efficiencies. Other areas include a realignment of marketing focus to meet any company-wide restructures, adjusting the media mix model, and evaluating talent mix. 

 

So how can CMOs prove their value to stakeholders? The key here is increased accountability to business goals that can be measured — be it contributing to company-wide efficiency and optimisation or driving innovation. Your agency partners play a significant role in helping you and your team deliver that value, and it is now more critical than ever to ensure their remuneration model is aligned to your success.

 

What’s happening now

 

Moving towards paying for performance.

 

Marketers are holding partners accountable via Performance Based Remuneration (PBR) that has a robust KPI framework with a balanced scorecard of hard, medium, and soft metrics; sales targets and market share; brand health; campaign effectiveness; and client-agency performance. In R3’s experience, PBR has proven successful in building trust, performance, and accountability for our clients on a sustainable basis, for both global and local businesses.

 

Focusing on outcome, rather than hours and quantum of spend.

 

There has been greater movement away from the traditional labour-based fee or commission methods as marketing performance becomes increasingly measurable. Some marketers are negotiating deliverables-based (or output-based) fees as a “baby step” away from labour-based fees. Ultimately, the most empowering model would be totally outcome-based where the agency is fully empowered to do what is best for the business, with a significant upside. Albeit riskier than traditional labour-based model, it has potential to rebalance the client-agency power dynamic and build stronger, stickier partnerships.

 

Seeking greater clarity on issues of talent capability, retention, and offshoring. 

 

There are more conversations around how to best structure internal marketing teams, in-house agencies, and external suppliers, as well as how to manage processes, and how performance requires an understanding of overarching business needs, resource and capability, and marketing goals. 

 

 

What’s the challenge

What to do next

Shufen Goh, co-founder and principal, R3