These days, we spend more and more time negotiating terms of business with the Procurement departments of clients and potential clients. These negotiations are more protracted and more contentious than used to be the case in my experience.
Increasingly, Marketing is disconnected from conversations about terms of business and Procurement seeks to impose standard terms across all suppliers and to bring any agency that seeks different terms into line. A prevalent approach is simply to say that these terms are ‘company policy’ and not open to negotiation. This can lead to discussions lasting for months, often long after work has started, or even finished.
This is no doubt part of the reason why the IPA and ISBA have been meeting recently (at The Performance Adaptathon) to discuss whether and how to remunerate agencies for value creation. As observed by Claire Beale in Campaign, “Let’s hope that, while they’re at it, they make a fresh stab at positioning marketing as an investment rather than a cost.”
This the heart of the issue – not just positioning marketing as an investment, but agreeing remuneration terms that are based on that principle.
How to avoid the Marketing Procurement dilemma
In the interests of understanding both sides of the debate, this week I have been reading ‘Buying less for less. How to avoid the Marketing Procurement dilemma’ by Gerry Preece and Russel Wohlwerth.
Authored by Gerry Preece, ex-head of marketing procurement for the world’s largest advertiser and by Russel Wohlwerth, an ex-agency executive who is now one of the industry’s most respected consultants, this book hits the “marketing procurement dilemma” head on. Preece and Wohlwerth deliver a punchy, concise, clear-minded assessment of the problem and offer straightforward solutions. If you’re an agency leader, a CMO, or a brand marketer, this book will empower you to influence how procurement approaches the space, thus enabling you to deliver better marketing work. And if you’re a Chief Procurement Officer or a marketing procurement professional, you’ll discover a powerful road map that will maximize your bottom line performance and results.
One of the Amazon reviewers commented, “If there was a "beach read" for Procurement within the marketing space, this would be it.” So I took the book on holiday with me and can now offer you this summary to help you decide whether it’s your sort of a beach read or not.
(Good news: it's a much slimmer volume than Donna Tartt’s The Goldfinch and much easier to read than Edmund Gosse’s Father And Son, my other summer 2014 ‘beach read’ selections.)
The background to the current situation, say the authors, is Procurement’s success in the 1980s and 1990s in buying marketing materials like printed materials. They were able to deliver measurable savings. So, over time, Procurement began to get involved with other marketing spend areas: telemarketing services, mailing lists and, bit by bit, Procurement started to deal with agencies, and areas in which not all value arrived in the form of price. This is where conflict started to develop. Marketers accused Procurement of failing to understand marketing and undermining creative relationships, Procurement accused marketers of feeling threatened by their superior buying skills, and accused agencies of fearing accountability. Agencies accused Procurement of heavy-handed fee-slashing that made it hard to do the job properly and profitably.
Well, yes, that does all sound pretty familiar.
Cutting agency costs may reduce the value of the services being purchased
But, say the authors, these complaints about procurement not understanding marketing and agencies being overpaid and complacent are not getting to the root of the problem, which is this:
“Marketing dollars are limited. They are finite. There is a broad, universal need for every CMO to become increasingly efficient with the limited resources that are available, and that translates into an undending pressure to do more with less. The real problem is that we have to increase marketing ROI.”
This, I think, is the “marketing procurement dilemma” referred to in the book’s title: the problem caused when Procurement wants to buy more marketing services for less, but – because they’re focusing on price, not ROI – they end up getting less for less. Because, if agencies are forced to cut costs, they can do so, but the ways in which they do so will affect the value delivered – putting cheaper, less experienced people on the client’s business, spending less time thinking about strategy, cutting creative development time, presenting fewer options, attending fewer research groups, reducing the number of face-to-face meetings, etc. In this ‘less for less’ scenario everyone loses.
Why marketing is different
The reason for the dilemma is that marketing is different from the other goods and services purchased by Procurement. The authors cite several reasons for this. They include:
– Marketing is an investment not a cost. (Nothing is easier than cutting marketing costs – if you don't believe it’s adding value, just stop spending.) Nobody makes an investment decision based solely on price. (Who buys a share in Microsoft because it’s cheaper than a share in Coca-Cola?) Marketing Procurement should not be about minimising costs, it should be about maximising the value of the investment.
– Specifications are fluid and quality is variable. £1m worth of campaign A is not worth the same as £1m worth of campaign B.
– Because of this variation in quality, the consequences of choosing one apparently comparable proposal over another may be substantial. Good marketing can drive significant uplifts in profits. Bad marketing can lead to a decline in profits.
– Agency differentiation lies in people and processes, not equipment and technology. Obviously, it’s hard to benchmark the talent of one agency against that of another.
– Measuring Procurement performance in marketing is imperfect and complicated. If you’re buying materials, you can quantify volume, quality and cost paid and benchmark this against what was spent before. But in marketing, specifications are hard to quantify and no two proposals are of the same value, so cost saving alone is not a relevant metric.
How do you get more for less?
Okay, marketing is different. Now, how do you get more for less?
Preece and Russel Wohlwerth suggest that this can be done by following four principles. On your Procurement team you need:
1. people with the right mindset (maximisation of value, not cost-cutting)
2. measured by the right metrics (value-add, not savings. Marketing and Marketing Procurement should be tasked with the same metrics.)
3. applying the right skills (strategic sourcing and good interpersonal, trust-building skills)
4. in the right assignments (long-term, ongoing assignments that enable people to learn the area and build trust)
Some companies do employ procurement people who fit this description, and we’ve been lucky to work with them. But not all do.
Putting this into practice
The book suggests four steps when sitting down with Chief Procurement Officer / financial decision-maker:
1. Confirm mutual understanding that marketing is a good investment
2. Explain in detail why marketing is different (as seen above)
3. Describe the implications (right mindset, metrics, skills and assignments)
4. get agreement and get going
Sounds simple. And the book is definitely a concise, clear and well-argued case for the basics of how to solve ‘the dilemma’, which makes it a useful beach read, but a less entertaining one than ‘The Goldfinch’.
The lesson for agencies is that we need more than ever to be focused on accountability for what we do, so that we can prove the value we are providing. We must do this in close partnership with client marketers, who share our interest in accountability. Without this, the debate will only ever be about cost.