MPG's Steve Lanzano Advocates Performance-Based Pricing Models for Agencies and Media

"If we let another ten years pass before we take advantage of new media technologies the agency business will be disintermediated," believes Steve Lanzano, who has been chief operating officer of media agency MPG (a unit of Havas) for the past five years.

Lanzano expresses concern that several marketers have been talking about working directly with media companies and are publicly questioning the value of agencies. "We have to become consultants for our clients, serving them in similar ways as Accenture, Booz and McKinsey. We have to create real insights and act on them. We need to be more expert in vertical industries such as retail, packaged goods and automotive, providing custom insights on how our clients can move the needle in their competitive categories. Our goal is to put ideas in the pipeline that grow our clients' business and that demonstrate both our value and the value of our industry," he says.

Lanzano, a 27-year industry veteran who began his career at N.W. Ayer Advertising, acknowledges that the compensation model for underwriting innovation and new initiatives is a challenge. "Some clients recognize the need and opportunity for change but change in organizational models is difficult. The agency business has to look at its pricing models, which are broken. We need to get paid for the value we deliver to clients and as an industry we need to come to grips with this need. In every one of our contracts with clients there are performance based incentives but there needs to be more upside than we have now. If we can increase your business we should be compensated accordingly." Lanzano believes there are similar opportunities for media companies, especially emerging media, to engage in similar performance-based pricing models.

In this economy, comments Lanzano, "like everybody else we need to look at what's bringing the greatest value to our business and our clients' businesses. Those that put in place information systems to measure performance and R-O-I will be the most successful. They can show they are returning real value. Those who don't have those processes in place will have the greatest declines in budget. There are many new opportunities for our clients and their value needs to be demonstrated. The models for compensating them cannot be dependent on the same models used when there were only a few media options."

Lanzano and new media expert Mitch Oscar have recently launched the Collaborative Alliance, a quarterly presentation of media advances that is open to all industry executives including MPG competitors. In addition to the Collaborative Alliance, MPG has been organizing a series of customized Tele-Visual Day events for its clients, inviting as many as 25 new media vendors to share details of their products and services in a trade show format.

Lanzano points out there is no historical precedent for where we are in the economy and where we are in terms of the fundamentals of the business. He expects a "very slow build up and recovery for the economy and our business." While Goldman Sachs and others analysts believe there will be GDP growth in the 3rd and 4th quarter of 2009, Lanzano suggests that's optimistic and adds that the advertising business typically follows the general economy by six to nine months. "In the most optimistic scenario we can look toward an upturn maybe by late 1st quarter 2010 with the Winter Olympics, but even that's rather aggressive. The real turn around will be mid-2010," he believes. Although he says he'd like to believe things could also turn-around positively sooner, he recognizes with the rapid global communications, "things can get even worse very fast but it will be difficult for them to get good very fast."

Lanzano says MPG is hiring and training its staff to offer clients strategic marketing insights and "real working knowledge of how all media work in tandem as well as individually." He describes this as a "unification" strategy as opposed to the more commonly used descriptor -- integration. "I don't know what integration means anymore. We call it media unification. We need more research on how messages sequence. With digital production, it's fairly inexpensive to put together different types of messages to create a messaging sequence based on how consumers interact with media throughout the day." Lanzano admits MPG needs to completely review its media buying operations across network television, spot, interactive, out-of-home and print to "create groups that work in parallel with major media companies, focusing on connecting all their platforms based on specific client's needs – focusing on how we can bring assets of that company to bear for each of our clients."

"We have to drive to where the vision is and demonstrate how we can provide value moving forward," Lanzano explains. "The best we can do is deal with reality – lock hands, challenge clients, and not put our heads in the sand and just do what we have in the past. We need to see what is driving the most return-on-investment and identify where we think the communications business is going. We are asking our clients and media partners to test with us so when the business does get better we and our clients will be ahead of the competitors and be prepared."

Contact Steve Lanzano directly through the Jack Myers Media Network.

Jack Myersconsults on organizational models and business development strategies with media companies, marketers and agencies. He can be contacted directly at jm@jackmyers.com.