How McDonald’s and Omnicom plan to make zero-margin, performance-related pay a recipe for success

How McDonald’s and Omnicom plan to make zero-margin, performance related pay a recipe for success.

A zero margin, performance-related pay model might seem more beneficial for McDonald’s than Omnicom but both advertiser and agency are confident it’s the best way to balance the intimacy of a small agency with the cost efficiency and breadth of a big agency.

It’s a model its creators – McDonald’s first ever chief marketing officer Deborah Wahl and DDB North America chief executive Wendy Clark - refer to as the “agency of the present’. Present, not future, because of the urgency behind the advertiser’s search for a model that can help it view marketing in its entirety amidst a wider turnaround of the global restaurant.

While the ambitions of both McDonald’s and Omnicom has excited many observers, their promises of ‘breaking down silos’ and clearer consistency throughout its advertising bear similarities to those bygone integrated agencies that struggled to offer all-round expertise. Bob Hoffman, a former advertising executive and author of the Ad Contrarian blog, went so far as to say it is destined to fail on account of the agency having no control over how its activity is measured, given no national advertising plan for the restaurant ever gets approved without the franchisees’ backing.

Both McDonald’s and Omnicom acknowledge the collaboration will have its bumps but at Ad Week they took time to outline how they will try to make it work in the early stages. Pitched as McDonald’s own micro agency in a global behemoth, the union is based on the two working “good, fast and cheap,” with Clark claiming at Ad Week New York that “speed is now the currency of business”. Neither shed much light on the pay-for-performance model, the most keenly observed part of the deal, opting instead to focus on the less polarising aspects.

Wahl did say the business was “aggressive” with the zero margin, performance related pay part of the RFP, though did assure it had “profit built in”. Interestingly, this unusual arrangement points to a shared responsibility between the restaurant’s marketers and the agency that allows both from achieving certain goals established at the outset. “While we wanted a performance-based system to make sure there was growth for everyone with profit built in,” she continued. “I don’t think anyone’s budgets can go up dramatically unless their sales go up dramatically. We’ve got to get a lot smarter.”

It gives an insight into just how far Omnicom had gone to demonstrate it could abide by ‘profit only if we succeed’ model as well as sheds light on why WPP felt it wasn’t quit the right relationship for their own commercial model. To some observers like Mark Ritson, Melbourne Business School associate professor of marketing and Marketing Week columnist, the reaction of both agencies was really to McDonald’s decision to reward its agency should it hit brand objectives above media buying rebates.

It wasn’t just the agency that had to change; McDonald’s cut a number of meetings in order to quicken the flow of ideas. Some 20 to 25 people were in “every creative brief” claimed Wahl, which isn’t “as nimble or as fluid as we need to be in the future, particularly if it is to generate around 5,000 pieces of marketing content this year.

The hardest part of that pivot is striking a consistent voice, admitted Wahl. She joined in 2014 and has been instrumental in laying the foundations for the brand’s throughline, with a core part of the new model introducing external and internal creative procedures to react quickly to “macro, micro and mega” events. Part of the content’s success will depend on how polished it looks; audiences can be suspicious of polished branded content masquerading as though it isn’t and so McDonald’s and Omnicom are setting up an alternative way to give its creatives more freedom to have fun with the work.

Clark continued: “Brands have to remember that they are not invited to every conversation. You have to think about adding value. Just throwing your body across top ten trending hashtags is not a strategy for social media…what we will be doing is listening to the consumer as well as getting the cultural foresight so that we can predict when trends will happen and when they will be right for McDonald’s.”

To further clarify the importance of real-time insights, Wahl added: “People reach out once every two seconds and we respond every ten. The goal is that we want to respond to all of them all the time and keep dialogue going. Today (26 September) we are launching more [additions to the] all day breakfast [menu]. You do get that immediate feedback [from social media].

From TV to social media, in-store to digital menu boards, the scale of what McDonald’s wants to achieve is one that only few advertisers could achieve. It’s why the 200 team of staff, which includes experts from Omnicom Media Group, Critical Mass, data hub Annalect among other agencies, also features Facebook and Google. Wahl’s team is even set-up at the agency so they can be hands on throughout the whole process.

The “sphere of the communications brief is consolidated”, claimed Clark, who spoke of the need to “take down the silos” within the relationship and create “one team”, from “marketing intelligence to data, to put out content across those spectrums”.

“We are a fantastic agency but there are people who will contribute amazing ideas for McDonalds, a part of how we are working together going forward,” she said.

Spending $1bn on an unsure bet like what McDonald’s is doing with Omnicom is a rarity in adland. Marketers (and more importantly their bosses) like certainty and yet unanswered questions linger as to how it will be measured and how much autonomy the agency will have. The fast food chain isn’t the first to insist everything must work together but it’s another alternative for how future marketers hope to get closer to having that holistic strategy.

“We all need to take another look at the whole digital ecosystem because there is so much going on around. Where is the real value when it comes to transparency,” said Wahl. "We’re focused on getting better at storytelling and figuring out the whole ecosystem again in the next five years.”

Additional reporting by Natalie Mortimer.

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