Coca-Cola China launches creative cost-intelligence exercise

SHANGHAI - The procurement division of Coca-Cola China has sent a request for information (RFI) last week to 13 agencies in China to detail rates for specific creative deliverables.

Coca-Cola has approached 13 agencies
Coca-Cola has approached 13 agencies

The request is directed at 13 roster and non-roster agencies, including Lowe, Bates CHI&Methinks, Leo Burnett, Saatchi & Saatchi, JWT, Ogilvy, Grey, McCann, FCB, Cheil, Fred & Farid, Wieden+Kennedy, and The Gate.

An industry observer in China said the move was "unprecedented and unusual". Coca-Cola responded to explain that it was part of a global inititaive to update itself on market-standard agency fees and to assess market averages. "It smacks of procurement getting a little out of control and trying to dominate agencies in China," the source said.

The initiative is based on a Coca-Cola renumeration model called value-based compensation (VBC) rolled out in 2009. "Coca-Cola’s VBC is, as the name suggests, built on value—not lowest cost without factoring in quality. China is one of the countries who adopted this early in the process," said Stephen Drummond, senior director of integrated marketing and communications at Coca-Cola China.

Coca-Cola has already developed a standardised approach to agency management, in which the scope of work is divided into five parts: discovery, strategy & idea creation, development, implementation, and flexible deliverables.

On top of this, Coca-Cola is seeking to establish cost benchmarks for specific creative deliverables. The information collected from the RFI process will provide direction with regard to the specialist capabilities that Coca-Cola should be investing in for the future.

Agencies are requested to provide approximate price ranges and timeframes for delivery for defined deliverables all the way from competitive analysis, ideation, graphic concept derivations, mood videos, local activation kits, vignette implementation, IMC coordination and print production. In-market examples are provided as a reference point for these listed deliverables. Notably, updated agency showreels are also requested.

The showreel request forms a basis for Coca-Cola to make decisions as to which agencies to invite for future pitches. A further source described the pricing request as "fair" since ballpark ranges are provided, eliminating possibility for price wars.

At least half the agencies approached do not have a relationship with Coca-Cola and declined to respond openly for comments. Creative services are hard to price, because they depend on the complexity of the project, with some agencies tipped to be unhappy due to the potential for commodisation of creativity. However, one 4As business director suggested that "most agency heads want to break out of the price-sensitive norms prevalent in China".

Although Coca-Cola is understood to be putting its core brand up for review in China, sources have indicated that this exercise is unrelated. Leo Burnett is the brand's primary incumbent.

Typically, creative agencies bid for a piece of business in separate creative-driven pitches with equal chances of winning and clients then set cost benchmarks from that.

Coca-Cola's value-based compensation model has been in place for several years globally and in China. A brand representative called it a "progressive means of handling agency compensation". However, another source cautioned: "It’s very dangerous when procurement is left to its own devices with agencies. Other companies are likely to jump on board [and take a similar approach].”

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