One of the extraordinary anomalies of the contemporary advertising
business is that it is still largely based on a compensation system
which was designed in the coffee houses of London in the 18th
century.
The agency commission system - and the 15 per cent rate which
accompanies it - is still the preferred method of clients to pay for
advertising in Asia. In North America, we estimate 30-40 per cent of
compensation is now feebased; in Asia, outside of the US- based
multinationals, fees hardly exist in advertising.
Where commissions yield to fees, the usual result, in my experience, is
that clients save money and agencies are guaranteed a proper return.
It sounds like a win-win. So, how come so few Asian advertisers and
agencies are prepared to dance the fee tango?
Well, let's take the worst possible view. First, it seems like too much
hard work for the client. Let's face it, the commission system is easy;
you just negotiate the rate - and ignore everything else. Second,
there's just too much greed on behalf of the agencies: you never know
when commission might yield windfall profits. Actually, there is some
truth in both stances.
Fee systems do need effort to make them work, particularly in the early
days; they can require more administrative support. And, when agencies
often perform small advertising tasks at a loss, there must be some
attraction in raking back revenue from a big "commission run".
But I do not believe this situation to be healthy in the long-term. It
essentially de-professionalises the relationship between advertiser and
agent. Unlike normal professional engagements, scope of work becomes
replaced by abstract notions of service. Yet, a mutually agreed scope of
work is the single best way for defining expectations, and for matching
remuneration to the actual activity, and to the level and quality of the
participants.
Fortunately, from my perspective, there is a trend at work tending
towards consideration of fees, and that is the increasing integration of
communications disciplines. Quite simply, if a client is buying services
from one menu, it becomes much less attractive to pay for them in
different currencies.
Except in markets such as Japan, where an entrenched commission system
and a weak specialist sector has allowed agencies to give away other
services as loss, I can see the disciplines and benefits of labour-based
compensation slowly taking root in clients' consciousness.
We should do everything we can to accelerate this. If you believe, as I
do, that ultimately the future of our business lies in being the
repositories of out-sourced work from slimmed down marketing
departments, then the sooner we make the change from the ambiguous role
of media owners' agent into being genuine professional services firms,
the better. Clinging on to the past is something agencies are quick to
condemn in others; but it seems difficult to behave as bravely in their
own back-yard. It shouldn't be.
