A tactful, informed approach to this well-guarded category will bring the best savings, says David Meikle
If generalisations or conventional wisdom eventually become truths then to date, marketing and procurement have made pretty unhappy bedfellows. But, together or apart, neither party seems to believe that optimal value is being achieved from their marketing budgets – about this much both parties appear to be mostly agreed. After more than twenty years in the advertising business I have witnessed a once quite arrogant and frankly greedy advertising industry humbled – their revenues and profits slashed – but nonetheless I agree that more savings remains to be had from them. Largely these savings are currently lost in the ways in which most agencies are used and both clients and those agencies are culpable for these inefficient practices. Judging by my own experiences, and having been on the agency side of negotiations with both marketing and procurement, we are all still a significant distance from achieving these extra savings and their potential value for clients’ businesses. But I have a firm conviction that there is a more productive way forward.
Business, by and large makes sense, and basic market economic forces will ultimately prevail to establish equilibrium between value, price and cost. But I also believe that if marketing and procurement could work more effectively together then their marketing budgets could realise that latent value sooner.
Where they do cooperate at all, the most common current modus operandi between the two parties is that marketing departments will first specify a scope of work for their agencies (on the larger accounts they usually also agree a staff resource plan, too) and then they hand over the reins to procurement to negotiate a best price. After a protracted war of attrition with the agency involving many fruitless meetings, much table thumping and indirect or perhaps even direct threats, the client and their agency reach an agreement but usually more through exhaustion than anything else. Although somewhat unpopular I’ve previously likened this process to a company sales rep specifying his Ferrari and then asking procurement to negotiate the price. However, worse still, procurement is frequently kept at arm’s length from being involved in the process at all, ostensibly because marketing is “too complex” or for fear that they might damage a “special relationship”.
Left alone, it seems clear that marketers and their agencies could quite happily proceed without the strategy and diligence of the procurement discipline, so if you’re a procurement manager tasked with establishing a productive and harmonious relationship with marketing, here are my five steps to reaching a workable, mutually satisfactory outcome as there is still much to be gained by marketing from good procurement practice.
1. Get yourself a marketing education
That is of course, if you don’t already have one. Marketing is a vastly complex discipline whose success relies on an optimal combination of the product itself, how it is distributed, its price and how it is promoted. Much of the procurement role in marketing is in relation to the marketing services that promote products, which is even more diverse and includes: advertising, media, design, digital, PR and direct marketing agencies (and in some cases even their own respective supply chains) in delivering promotional messages through printed matter, broadcast media, online etc. To add to this complexity, most of these elements are interdependent – so to gain an overview of marketing from the outset would set you off to an immeasurably better start. Many marketing businesses offer free marketing agency consultation. This is great if you want to capture more leads and convert them into clients or you want to increase your sales and earn bigger profits for your own business. (If your organisation’s marketing department is a member of ISBA there are a number of one-day training courses they are running specifically for marketing procurement.)
2. Establish a Common Goal
Tasked with increasing their brands’ sales the most powerful weapon in a marketer’s arsenal is their budget. Rightly or wrongly, procurement often represents to marketing a department tasked with reducing their budget in favour of the company’s bottom line – hence procurement’s approaches to help with marketing are so often met with defensive/protective behaviour from the marketer.
Marketing is a strategic investment with sometimes-complex ROI models that are not always calculable in any normal manner or time frame. The procurement community is almost universally incentivised by savings and the marketing community by sales targets, which on the surface of it, would appear to be mutually exclusive ends. If savings can be booked by procurement against their targets and then repurposed by marketing toward their sales then all will be well with the world. But if your procurement objective is to reduce your company’s marketing expenditure for the bottom line then, even before you start, be certain that the Marketing Director is equally incentivised to do so. You will need to ensure that he or she is still predominantly incentivised by their sales target so they don’t agree to cut too much, but if there’s nothing in it for them at all then they will have little or no incentive to cooperate. And such is the complexity of marketing that it is easy to feign cooperation and produce little hard savings.
3. Be nice
Many marketers may also fear the potential exposure of their hitherto poor or irrational buying practices. The introduction of procurement procedures for things they have been buying for years may present to them the prospect of huge embarrassment. So be nice.
By my own estimation most marketing expenditure could be reduced by up to 30% without compromising sales in the short or long terms. To achieve such a saving would require a number of areas of change:
Increasing the efficiency with which third party resources are used (and thereby achieving economy)
Reducing wastage – many of the services marketers buy from their agencies may be relevant but often they go unused or even ignored
Better stakeholder management – a large amount of inefficiency is due to hierarchical approval structures and poor stakeholder management in creative development processes. This results in the same work being done over and over again at huge expense.
But the discovery of such significant savings is unlikely to be achievable unless your marketing director has 100% confidence that you’ll be nice if you find them; that you wont expose their perhaps inefficient or uneconomical ways of working to boardroom ridicule and to potentially career-limiting consequences.
4. Propose, agree and above all execute buying strategy
Proposing that procurement execute their buying strategy might sound like preaching to the choir but I can assure you it isn’t. According to one presentation I saw about agency remuneration a 2006 ANA survey in the US “Inside Advertiser and Agency Relationships” found 78% of clients see their agency as a partner and in the same year a survey by the AAAA on Agency compensation practices suggested that only 7% of clients compensate their agency as a partner. Confirmation of this practice can be found in a piece of research into agency profitability by Willot Kingston Smith that was quoted in Magic and Logic, the ISBA, CIPS, IPA joint initiative on marketing procurement (well worth a read, too, by the way). Willot Kingston Smith’s research suggested that 35 of the top 50 UK agencies are not even making 15% operating profit, which indirectly but ultimately compromises their performance for most of their clients. This is not due to agency management blithely frittering away their profits on opulent client lunches, most of the top 50 agencies are publicly listed and their management is routinely bullied and/or incentivised to improve on this feeble number.
Most marketers understand that their agencies’ success will aid their own brands’ success. Better performing agencies can attract better talent can therefore produce a better work for a better ROI for their clients. So, if the agencies fall into the top right hand box of the procurement buying-strategy matrix, as most of them do, then look to the scope of work or more efficient ways of working rather than hammering away at their profits.
5. Look beyond the obvious for value
When you are considering which suppliers require which buying strategies, look past the obvious when you are assessing their value – consider instead their potential value. A good packaging design agency can change the fortunes of a consumer goods brand overnight; and however unlikely it may have been, an ad campaign about meercats has delivered way beyond the value that would have been expected from the terms of the agency’s SLA. So think about which services require talent and which require a learnable skill or technology. Talent based services, those that require the development of brand strategy, creativity, artistry etc., need to be nurtured for best value – though you can still save money through more efficient ways of working. Skills-based and technology-based services, such as the duplication and distribution of advertising materials, can be bought more cheaply with a leverage strategy, as their value is almost entirely measurable and quality control is not subjective.
As procurement practices march inexorably through service sectors such as marketing, HR and legal it’s perhaps worth remembering that one of the reasons these services weren’t first on the procurement radar is that they are indeed hugely complex. Successful marketing procurement will come from procurement category managers’ ability to adapt their own behaviours to the needs of marketing, to use specialist help where they need it and to embrace the complexity of the marketing mix from a big picture perspective. Those who just try to pick off some easy wins to chalk up a savings number will most likely come to a sticky and early end. Smart marketing procurement is about encouraging all parties that are involved in the specification and the delivery of marketing services to work together more strategically, intelligently and efficiently – that’s where the high-value prize is.
David Meikle is a founding partner of Salt Value Management