Case study on the ethical dilemmas of agency compensation

1. The fee system provides a service in which the client knows exactly what they will be paying out to the agency. However, the danger here is that the agency may not work very hard for their client, as they have already received their fee. With a commission based agency, however, the client only has to pay a fee if they receive good results from the advertising. Therefore, if the agency does not work hard and well for the client, they will not get paid. In this respect, the commission based agency seems a safer choice for most businesses.
2. If a small business chose to use a commission based advertising agency, it could work out well for them as if they do not receive any business from the advertising then they would not have to pay the agency. However, there are also circumstances in which the business could potentially face problems. If the business asked an agency to run advertising for the company as a whole, but they only managed to sell low profit items or services as a result of the service, they would still have to pay commission. This would significantly reduce their profit margin on such products or services, and could be damaging to the company. However, if the business chose to hire the agency just for advertising their high profit products and services, they would only have to pay commission on such high profits that might come in as a result of the advertising. In this way, a commission based agency could be the best decision for a small business, but hiring the agency to advertise the company as a whole certainly carries more risk.

Works Cited

“ 10 Questions to Ask before Choosing an Ad Agency.” Inc. 13 Sept 2000. Web. 8
Sept 2011. http://www. inc. com/articles/2000/09/20317. html
“ Ad Agency Commission and the Rise of the Media Black Market.” Burst Media. 29
April 2010. Web. 8 Sept 2011.
http://burstmedia. wordpress. com/2010/04/29/ad-agency-commission-and-the-
rise-of-the-media-black-market/