Coca Cola recently made a major announcement regarding a new strategy on advertising. The soft drink giant, which spends $3 billion globally on advertising, has announced a plan to use value-based compensation for their advertising agencies. This means a performance-based system where agencies will be able to earn up to 30% profit if all goals are met. If none are met, the agency would merely be compensated for its actual out-of-pocket expenses. The traditional model has been for agencies to be compensated for the amount of time put into creating a campaign.
Coke began experimenting with this new model in 5 territories over the last 3 years: Australia, China, Germany, the U.K. and the Philippines. Coke says that the move is not one designed to cut costs in the fact of the global downturn, pointing out that the testing predated the economic crisis. Values-based compensation models have been talked about a lot in the ad industry over the last few years, but other than Proctor and Gamble using it for a few of their brands, this is the biggest move by any major advertiser.
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