The shareholder model of marketing

Some of the underlying assumptions of marketing have long perplexed me. A business or organization hires an agency because they have the skills to drive long term success, but the business relationship between client and agency does not always reflect a long term view of shared growth. The current status quo leads to frustration on both sides. A brilliant Creative Director pitches a campaign guaranteed to increase sales, but can’t get the idea past a skeptical client — as if the client were the target audience and not the public. Perhaps a subpar campaign has no effect on sales, but the marketer gets paid nonetheless. Both dilemmas underscore and reinforce a lack of trust between agencies and clients. If a client doesn’t trust the agency’s expertise, the world’s next groundbreaking campaign is trashed before it can see the light of day. If an agency doesn’t trust the client’s openness to new ideas, the agency might second-guess its most innovative ideas just to keep the account. Perhaps the client is less trusting because a previous agency failed to deliver, only to walk away from the relationship without accountability.
I propose a new approach. Call it the “shareholder model of marketing.” Distilled to four key points:
- First, the agency and the client determine which specific metrics (in dollars) need to change. Is the change companywide or is it division-specific? Is it in terms of revenues or profits? Is it targeted to a local market or is it national or global?
- Once these indicators are isolated, the two parties need to establish a performance baseline. Let’s take global revenues, for example. If a company previously made X dollars in quarterly sales, then X dollars can be taken as a baseline. (The rationale: if the company never hired a new marketing firm, they could still expect X dollars in sales.) More sophisticated statistical methods can be used, but the basic idea is to isolate marketing’s effect on the target metric from a host of other variables, much as a scientist isolates the effect of the independent variable on the dependent variable.
- Once a metric and a performance baseline are established, the marketing firm and its client sign a contract of fixed duration, with the option to renew or renegotiate after the period elapses. Under the contract, the marketing firm is paid a proportional “cut” of any gains in the agreed-upon metric. For example, let us suppose a 15% cut. If the agency and the client agree that U.S. sales is the relevant metric and there is a $500 million increase in sales from the baseline, the company will pay the agency $75 million.
- Conversely, the company will bill the marketing agency should the agreed-upon metric decline below the baseline figure. In the example above, a $500 million drop in sales would lead the agency to pay $75 million to its client.
This approach will deepen the trust and between agency and client. The client will rest assured knowing that an agency cannot profit off the relationship unless lasting value is delivered. (In the event of losses, there will be greater accountability because the agency will have to pay a penalty for failure.) The agency will have far greater creative freedom to do what is right for the brand. If a client wants to trust an agency with its long-term wellbeing, the agency will feel respected. With this respect at the foundation, the agency can focus on delivering the best work possible, without fearing micromanagement from the client. If the agency believes in its work and the public is impressed, the company profits and the agency shares in its success. If the public are indifferent, accountability is built into the system.
