This article is written by Srishti Kaushal, a first-year student in Rajiv Gandhi National University of Law, Punjab pursuing B.A.LLB (Hons.). It explains the importance of a marketing agreement and its essentials.
Marketing refers to activities undertaken by a business to promote its goods and services in the market. It is a very important step that is required by any business as it allows a company to:
- Build and maintain its reputation;
- Inform customers about the various goods and services offered, boost its sales;
- Maintain relevance by producing goods and services which are required in the market; thereby enabling the company to make informed decisions.
Many times, a business hires outside contractors to boost its marketing efforts. Such outside contractors can be individuals, marketing companies, etc. They help a company in creating, implementing and sustaining market strategies which give a boost to its business. When this is done, the business enters into a marketing agreement with the marketer.
In this article, we will discuss what is a marketing agreement, why is it required and what are the essentials that a marketing agreement must contain.
What is a Marketing Agreement?
One of the most essential documents a marketer would need is a marketing agreement. It is a legally binding document, signed by all parties involved, which lays down the scope of the work, duties, and expectations of the parties, remunerations, legal remedies available in case of a breach, etc.
Thus, a marketing agreement is essentially a legally binding contract between two parties. One of them is offering their goods and services in the market while the other is the one who would market or promote these goods in the market.
Illustration: ‘A’ is a bank providing financial services, while ‘B’ is engaged in telemarketing. ‘A’ enters into a contract with ‘B’ to market these services by making calls to various customers for 6 months. This contract is based on a marketing agreement and it contains all terms and conditions guiding their relationship.
Why do you need a marketing agreement?
Following with the above illustration, ‘A’ and ‘B’ could have simply discussed what they expected from each other so that A’s services are marketed and B could have gone and done what they discussed. The question which arises is what was the need for a written marketing agreement. To answer this question, let us look at the importance of such an agreement:
- It allows the parties to provide a clear written explanation about what they expect from each other. This way, it clarifies the scope of work and ensures accountability.
- It clearly provides what can be negotiated and what cannot be negotiated and thus helps in avoiding time wastage and confusion.
- It lays down proper deadlines that have to be followed, thus ensuring efficiency.
- It clearly provides how and for what the remuneration would be given and payments would be made. Thus, a marketing agreement goes a long way in creating a feeling of faithfulness and trust in the minds of the parties involved.
- A good marketing agreement also helps in ensuring that no party releases vital information of the company policies to the public and thus eases doubts of treachery in the minds of the parties.
- It provides for penalties that can be given in case a party fails to perform its work or goes against the agreement. Hence, it provides assurance to the parties.
- Most importantly, it provides for what would happen in case one party defaults the agreement. Thereby, it acts as a safety net and provides legal protection to the parties.
Hence understandably, a marketing agreement is a very essential legal document.
Challenges faced while drafting a marketing agreement
While drafting marketing agreements, several challenges can be faced. Some of them are:
The clarity in terms of employment
Marketing agreements are usually entered into for a period of 2 years or more. Thus, it becomes exceedingly important for the person who is drafting the agreement to ensure that the terms of the contract are very clear. If these terms are not clear a lot of additional time and effort of the parties is wasted.
The drafting process can be very complicated as the requirements of marketing agreement differ from industry to industry and state to state. As such it must cater to each organization specifically.
Vagueness in Clauses
A clause in a contract can either be specific or generic. For example, the results can either have specific provisions like return on investment, while a clause with general provisions can provide for things like brand building, social media awareness etc. A specific clause is always preferred but drafting a specific clause can be a very complicated process, which requires understanding the complete company profile.
Formulating a time frame
While drafting a marketing agreement, the inclusion of an incorrect time frame or deadline can lead to enormous problematic consequences. Hence, before including any date, the person drafting the contract needs to have proper discussions with the parties involved.
Unclear limitations and liabilities
A major problem that arises while drafting a marketing agreement is putting down the liabilities which the parties have to face if the agreement is broken. This is because each party wants to protect and give benefits to themselves. While drafting, it needs to be ensured that the rights of both parties are adequately protected.
Essentials of Marketing Agreement
A marketing agreement does not have a clearly defined structure because of its creative nature. But there are certain essential elements that every marketing agreement must-have. Let’s discuss these elements in detail:
Parties and their relationship
- The marketing agreement should clearly mention the names and essential contact details of the parties involved.
- The agreement should also mention whether the employment of the marketer is on a retainer basis (long term for a fixed fee or otherwise decided) or a fixed-term basis (definite start and end to the relationship).
- It should be mentioned whether the agreement is exclusive or not. This means the agreement should specify whether the marketer is the exclusive provider of marketing services for the particular duration of the agreement to the business or not.
Scope of the work
The marketing agreement must clearly define the work that the parties are required to perform as it serves as a record of the expectations of each party. Hence, for instance, in reference to the marketer, it can specify that the marketer is supposed to prepare marketing strategies, carry out marketing research, what is the mode of execution of marketing strategy, etc. In terms of the business, it may specify what information must be provided, etc. It can also specify how deliverables will be reviewed and how approval/rejection will be handled and what are the implications of not completing the work. Additionally, the overall aims and objectives of the agreement can also be mentioned here.
It should also contain a clause regarding how either party can request the other party to do work which has not been expressly mentioned in the contract.
This clause must clarify all the terms related to the overall amount to be paid to the marketer as well as the payment structure and cycle. The payment may be made regularly (like on a monthly basis), or after the entire work has been completed, or it could even be on a performance basis.
This clause must be very detailed, and should also provide the actions that the marketer can undertake in case the business fails to make the payment.
The agreement should tell in detail the predetermined budget as well as the terms of expenditure that each party would incur. For example, it should specify who (the business or the marketer) would pay for the taxes which arise during the marketing process.
Timeline for Completion of work
There should be a clause in the agreement containing information about the time frame for completion of the work. This time frame directs the services given by the parties. To understand this let’s look at an illustration: if ‘A’ is a business which requires ‘B’, a marketing firm to make a marketing strategy for 3 products and implement it, this clause in their marketing agreement must provide:
- How long will the marketing firm provide services to the business?
- When the different components and deliverables of the project are due,
- And any other date-specific information.
Non-disclosure/ Confidentiality Clause
When a marketer and a business organization work together, they share a lot of information. Some of this information must be kept a secret. Hence, in regard to such information, confidentiality must be maintained. For instance, the marketer can be required to keep all information about the company’s internal marketing and sales policies, which affect the business in the long run, confidential. At the same time, the business organization must not tell anyone about the unique aspects of the strategies it uses by way of which it formulates and implements a plan.
This clause should clearly define what is confidential and lay down that all confidential information is to be protected. It should also state the circumstances in which disclosure is allowed.
At times this is made as a completely different agreement. In such cases, this clause would only state that a confidentiality agreement has been signed by the parties.
This clause must answer when, where and how the disputes arising between the parties should be settled.
For instance, it can provide that in case of a dispute, an internal informal meeting for dispute resolution should happen. Following this, mediation or arbitration can be used for dispute resolution. The clause should clearly specify how the mediator or an arbitrator would be appointed and the rules that would be followed during this process. It can also provide for litigation and specify the court which has jurisdiction to look into this case.
Intellectual Property Rights
This clause of the marketing agreement should specify how the intellectual property created as a result of marketing would be handled. It should clearly tell who owns the intellectual property created during and after the work has been performed; if owned by the marketer, this clause should specify if a license has been given to the business to use the intellectual property, for how long it is given, etc.
Involvement of third parties
For successful marketing, the marketer needs to take services from third parties like search engines, advertising platforms, printers, social media sites, etc. The third parties involved and to whom they are responsible should be clearly mentioned in the agreement.
For example, it can be provided that the marketer will not be liable for acts or omissions of the third party, for reasons beyond its control. Hence, Let’s assume that the third party is Facebook. Now, in the instance where Facebook’s server fails and because of this the business’ service is not marketed on Facebook, the marketer cannot be held liable.
This clause should cover how and when can the agreement be prematurely terminated. It should be specified whether either party can terminate the agreement and the circumstances in which they can do so. It should also provide details regarding the penalty to be imposed upon the party who prematurely terminates the agreement.
For instance, it can allow the parties to terminate the agreement if a clause of the marketing agreement has been violated. It can allow the business to terminate it if the marketer does not perform up to standards and fails to meet the required results. Similarly, the marketers can be allowed to terminate the agreement if the business does not give proper instructions to it or rips them of their intellectual property.
A marketing agreement is clearly a very essential legal document that must clearly define what each party would do and how they will do it. By setting out clear rules and expectations that each party has, it enables all the parties to run their practice peacefully and not fall into costly disputes.
While these essential clauses must be present in a marketing agreement, it cannot be ignored that many clauses would be completely dependant upon the laws of a particular state and industry. Thus, before drafting a new marketing agreement or signing one based upon an available template, the parties must ensure that the agreement meets their needs and requirements and enables their growth.
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