Issue 95, 10/6/08

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In recent months we have had a number of client sapproach us for advice on re-structuring their retainer based remuneration to provide greater flexibility and allow them to respond to business pressure to tighten marketing costs.

In this edition of the P3 e-news we look at how many retainer based remuneration agreements lock advertisers into a level of remuneration, even when the amount of service being delivered is falling due to economic and business pressure on the marketing budget.

Why retainers should not lock you in

With Government monetary policy driving an economic slow down, there is increasing pressure on business to tighten the belt and reduce expenditure. One of the first areas often targeted is the marketing budget. Yet often cuts in this area are difficult and counterproductive.

When many marketers look at their budget, cuts invariably mean lowering the amount of activity and therefore the number of resources they need from their agency. And yet ,they are often locked into a retainer agreement based on a level of resources they no longer need.

Retainers retain the resources you need

Retainers have become popular remuneration models for creative and media agencies because of the relative ease of administration. But underlying the retainer is a set level of resources based on the projected scope of work required.

In the worse case, the level of resource is not based on a scope of work, or is based on a poorly defined scope of work. Therefore, when the scope of work falls due to budget constraint there is no tangible basis for reducing the retainer.  Even where the scope of work is well defined under most retainer models it is generally fixed and only revisited on an annual basis.  If the scope ever increases you will be the first to hear of the difficulties faced by the agency however if it reduces, there will be “silence”.

The pressure to maintain the retainer

From an agency viewpoint, a retainer provides a level of certainty of remuneration level against their largest cost base, being the human resources required by the advertiser. But the downside it that their level of profitability is also locked in, with incremental profit increases only available on incremental work outside of the retainer.

Agencies operate as businesses just like you. They have budgets, targets and report against them throughout the year.  A reduction in revenue has implications to their business and staffing levels, and for senior agency management and their own level of performance-based remuneration.  So reductions, no matter what the cause, are not welcome.

With a fixed retainer, if the advertiser wants to reduce the scope of work, with a corresponding reduction in the resources required, the agency has the opportunity to re-deploy those resources to generate additional revenue and profit on other business, while continuing to receive the full retainer revenue.  Some might say resulting in a “double dipping effect”.

Managing changes in scope of work

So the essential requirements are to:
1. Develop a detailed and transparent retainer model based on the scope of work or the deliverable requirements of the marketer.
2. Develop a mechanism that allows the adjustment of the retainer and resource level going forward based on changes in budget and scope of work.
3. Consider alternate models or retainer “hybrids” to allow greater flexibility between the marketer and their agencies.
 

P3 has developed a number of models for clients, which clearly define their scope of work and the resources required to deliver the scope based on industry benchmarks and experience. We also have extensive experience developing and managing these remuneration agreements for many of our clients across a wide range of categories including FMCG, financial services, automotive and retail.

To find out more, contact P3 in Sydney on 02 8399 0922 or in Melbourne on 03 8682 6800 or email Darren Woolley on darren@p3.com.au
 

Marketing & C02 Emissions

AMI - Marketing in the Green Environment
Wednesday, 18 June 2008
The Establishment Hotel, 252 George Street, Sydney

With the present focus on sustainability and the introduction of carbon trading, 'greening' your brand is becoming more imperative for marketers. But what defines a 'green' brand and how can you avoid the legal pitfalls of marketing your brand as green?

Darren Woolley will discuss How can you asses the C02 emissions associated with your campaigns, advise on how you can reduce the carbon footprint of your advertising and debunk some of the myths and misconceptions of green marketing.
 
For more information on this AMI event, click here.

P3 sets global expansion

As reported by Matthew Eaton of Hong Kong's Marketing Interactive last week, P3 has started its global expansion, opening a Hong Kong office under the name of TrinityP3, and will expand into Singapore next month.

As part of the name change, the Australian arm of P3 will also adopt the TrinityP3 name from July 1. Darren Woolley has taken on the role of regional managing director and said after Hong Kong, TrinityP3 will move into Singapore, Dubai, London and eventually the United States.

The company will go head-to-head with other consulting groups like R3, Accenture and Faulkner, but Woolley said he is confident that TrinityP3 would find success in the region. He said the marketing discipline is undergoing significant change and that clients and agencies must adapt. "People have to rethink advertising and change the game. Marketers have to realise that there are new ways to tackle this market," he said.

Woolley added that many marketers are still looking to get cheap services from their advertising partners, but he said cheap services add little value to the creative output.

If you have any inquiries about TrintyP3's global services, email people@p3.com.au