Procurement needs to increase its marketing knowledge

Published October 2012

Buyers need to reassess their approach to marketing spend if they’re to start adding strategic value and stop butting up against marketeers

More than ever, it seems that the procurement function is getting involved in the purchase and commissioning of marketing services. But is procurement’s involvement adding value?

A new survey, published this week by marketing services procurement specialists The Observatory International, suggests not. Gathering the views of senior marketing decision‑makers — of whom three-quarters oversee annual budgets of over £10m, and nearly one‑third control budgets over £50m —it found that, while procurement’s involvement is yielding short‑term cost reductions, it is not necessarily addressing the real needs of its marketing colleagues in terms of driving value.

“Many procurement professionals don’t yet fully understand the deeper process involved in employing marketing services—the allocation of resources, how agencies work with marketers, the dangers of removing people based on cost,” says Lucinda Peniston‑Baines, co‑founder of The Observatory. “It’s not like buying widgets.” 65% of those who saw a greater procurement involvement in the buying of marketing, advertising and PR services, for instance, saw the rationale as being to ensure best value for money. 35% saw the goal as introducing more financial rigour into the buying process.

But value is less in evidence than pure cost reduction, warns Peniston-Baines. The main benefits of procurement’s involvement were purely financial—in improved contract negotiation (82% of respondents), or reducing the price of services (52% of respondents). And while 81% said procurement had reduced average costs—achieving savings of, in some cases, of 5-10%—very few respondents saw procurement contributing to more strategic buying activity, such as agency shortlisting, the scoping of deliverables, or assessing the creative and strategic capabilities of agencies.
“Almost anyone can negotiate price cuts—but there’s a danger of procurement ‘knowing the price of everything, and the value of nothing’,” warns Peniston‑Baines. “There are mid‑to long‑term implications of simply pushing down prices, with potential damage to the quality of communications campaigns and ultimately, your brand. This is a people business, which means there is a real danger if it is wrongly or under‑resourced as a consequence of a price squeeze.” And the research supports this concern: 71% of respondents reported that procurement’s involvement had had no effect on the effectiveness of campaigns, while 8% felt that it was having a negative effect.

So what can procurement do to address this?

Peniston-Baines pulls no punches, calling on procurement to increase its breadth and depth of marketing knowledge, and open up communication channels between the two disciplines. “Marketing departments differ from one category to the next, and within categories,” she says. “Company culture will influence the way marketers work, so it’s incumbent on procurement to get under marketing’s skin.” In other words, she says, it’s in procurement’s interest to “immerse itself in marketing”—understanding its processes, resourcing needs and how agencies and marketers interact, a task that’s no small order in an industry that is undergoing rapid change, and which has never been known for its uniformity of approach. Yet the rewards are evident, she asserts.

“The best procurement departments often employ ex‑agency professionals, and are not shy about employing outside specialists to support specific project requirements. It’s important to recognise that pulling a lever on agency cost generally requires a corresponding improvement to the effectiveness of the marketer/agency way of working. If that’s not addressed, tighter costs will constrict the quality of agency staffer deployed to a brand.”