Publicis Groupe announced today the creation of “The Pact, Powered by Epsilon,” a new digital media planning and buying service that offers money-back performance commitments that guarantee the business outcomes from digital marketing campaigns. The introduction of The Pact is a timely move to give brands a mechanism to manage the risk of marketing during the global pandemic in the short term. The long-term implication of a performance guarantee, however, promises to rewire the nature of agency-client contracts and, consequently, the agency’s economic model. Performance-based compensation is not a new concept, but it is used less frequently. The presence of a guarantee tied to performance will change the way brands, procurement, and agencies provide value and structure contracts. If successful, Publicis Groupe sets a new precedent in which:
- Paying for performance becomes the new compensation normal. The concept of performance-based compensation is desirable among brands and service providers. The Wall Street Journal and Barron’s recently introduced an advertising recall guarantee. And Forrester has found that hybrid performance arrangements represent over 80% of contracts among brands and global media agencies. The Publicis Groupe’s money-back performance guarantee throws the doors wide open for agencies and marketers to explore pure performance arrangements. Marketers eager to mitigate risk and agencies anxious to recover losses from the sudden cut in commission fees are more than willing to explore revenue models based on results.
- The agency economic model shifts from people to products. Widespread adoption of performance-style compensation changes how firms pay their agencies. Data and technology platforms to scale execution and calculate return become the basis for remuneration. A software platform model is attractive to marketers as their firms perceive technology investment and advertising overhead. Agencies contending with layoffs averaging 12% of staff will gladly embrace a model that allows them to account for the outputs of their products and not solely rely on services from the dwindling talent pool.
- Ideas must outweigh outcomes. Distinctive ideas and innovating the advertising experience are imperative. Today, 51% of online adults claim they avoid digital advertising, and 42% disagree that advertising is a good way to learn about new products. Look no further than the myriad of COVID-19-themed advertising that leverages similar tone, language, and ubiquitous benefits such as touchless transaction and curbside pickup. Do not allow your brand to be led into advertising irrelevance or ubiquity. Emphasize both outcomes and brand distinctiveness, especially during an economic downturn in which the brand that maintains its brand awareness benefits when consumer demand returns.
Initially, some agency and consultancy competitors may suggest Publicis Groupe is “buying” new business with its money-back guarantee. This criticism misses the mark. Agency innovations are more often adopted industrywide. Look no further than the meteoric rise of data management and audience platforms in agencies, which took off in 2016 with one holding company and, now, can be found in most agencies. Ultimately, The Pact, Powered by Epsilon moves the industry a step further toward transforming its model. More importantly, it provides CMOs and their companies a mechanism for accountability during a time when it is greatly needed.