Posts Tagged ‘CFO’

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First published in Advertiser Magazine

Research against $US 1 billion in advertising spending reveals that 47% of campaigns fail before a dime is spent on media [1]. This would suggest that not only was John Wanamaker right but that the ad industry has improved little since he predicted that was the case 100 years ago.

While my book, What Sticks, addresses a variety of reasons on why advertising fails, there is one element I believe is doing the most damage to advertising effectiveness. That is the underlying economic fundamentals of the relationship between Agencies and Marketers and in particular the misaligned incentive system. I’ll let the reader decide if this explains a horrific 47% ad failure rate.
So what does the current business relationship between advertisers and their agencies incentivize? Based on what I have observed, it is winning awards. Let’s look at how that works. Commission structures and hourly fees structures incentivize volume, or more revenue, for agencies. When the incentives are directed at volume, then the agency is perpetually directed to win new business (the backbone of any agency today) and one of the contributing factors to winning new business is awards (the backbone of new business). And I’ll go one step further, awards are best garnered from “big idea” high production values TV commercials, which is certainly reflected in today’s media allocation. It’s a perfect system, unless you value effectiveness.  (more…)

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