Financial Times

In the past, it seemed agencies could name their price – and get it, too. Today, however, procurement departments hold the purse strings and they are scrutinising every penny.

The story of the client parking his car among the many Porsches belonging to the directors of his advertising agency is beginning to take on legendary proportions. As the client nosed his decidedly non-sporty model into a space, it suddenly occurred to him that he was paying his agency too much.

How things have changed. Procurement departments are now in control of clients’ spending and, for a while now, their cruel gaze has been fixed on agencies.

There are the horror stories: people from procurement sitting in creative strategy meetings; procurement deciding who the photographer on a shoot should be; procurement sending out 30-page documents which constitute the first round of pitching for a piece of business.

But on the whole, promotional marketing agencies are being very careful about how they phrase their experiences with procurement or finance departments: after all, it’s the client – and more specifically the procurement department – that holds all the cards.

Even the fact that, in many cases, the marketing director – the point of contact for most agencies – has to defer to his or her own finance department, is being accepted by agencies with a certain amount of equanimity. As joint associate director at Perspectives Mark Beasley says: “It is very hard to fight against, even if we wanted to. It’s a commercial reality.”

And it’s a commercial reality that certainly above-the-line agencies contributed to, with the consequence that agencies of all descriptions are now suffering. Deputy managing director of The Marketing Store Tony Barton was on the client side until he jumped the fence ten years ago. As a client in the Eighties, he says: “I had significant budgets and dealt with all the top agencies. We agreed fees annually for above-the-line agencies and they were very high.

“Clients did feel uncomfortable with the fees, but that’s what we had to pay. The fees agencies charged were passed on without scrutiny. Now things are very different. Clients are under pressure, and so is everyone else.”

What Barton does object to is an apparent lack of common sense applied by procurement departments. He refers to one of his clients which is currently setting up an e-commerce site to enable all its suppliers to communicate with each other and purchase each others’ products or services through the site.

Barton adds: “The point is to give wider access to all those suppliers on a worldwide basis, but we are being asked to detail what units of product we can offer. The spreadsheet we have been asked to fill in speaks in terms of net weights, lengths, widths and so on. I can understand the end goal, but the means to the end is farcical.”

Beasley also acknowledges the need in principle for greater financial scrutiny on the part of clients, but the practice, he says, “is bloody awful”. He refers to the pitching process in particular, which is becoming increasingly depersonalised.

“The first stage involves an enormous tender document about costs and accounting procedures. Next, you are invited to respond to a creative brief which has been e-mailed to you. At no stage do you get to discuss those briefs. When you are invited to ask questions, they have to be sent by e-mail, so you never pick up the things you would in a normal conversation.

“The danger is that you get appointed on grounds of cost rather than return on investment.”

But if the above-the-line sector is responsible for riding the gravy train for just too long, sales promotion agencies, according to Interfocus chairman Matthew Hooper, can be blamed for not explaining to clients the remuneration process. He says that the way agencies make money has, in the past, either been hidden or not disclosed, giving clients an inaccurate view of how much things actually cost.

Hooper says: “How do you value a creative idea? Up to 60 per cent of agency costs are people, and procurement departments need to be educated about that and what our costs are of doing business.”

Hooper recounts how Interfocus fired “a major brewer” because of the client’s inability to understand the value of the work involved. “The value of the work we created was more than what we were being paid. When we produce work that adds value to the share price and is credited by the chairman for having increased sales, we expect them to understand the value of what we are doing. Quibbling about whether we charge &£80 or &£100 an hour when you are talking about hundreds of thousands of pounds being added to the company’s value is not on,” he says.

The fact that an increasing number of marketing directors appear to have little or no control over budgets is, as far as Hooper is concerned, a skillful negotiating ploy on the part of clients. “The agency is appointed by the marketing director, and the agency develops some work. Then the procurement people come in and beat up the agency; the agency feels aggrieved and speaks to the marketing department, which then says ‘We agree with you – but it’s got nothing to do with us.'”

The response of some agencies has been to fight fire with fire and put their own finance people in the front line. Managing director at Tarantula Responsive Communications Steve Harding says: “At least they speak the same language, and we have found it works better for us.”

Disciplined agencies

But Harding also says that the heavy hand of procurement has forced agencies to become more disciplined. “We have to be much stricter about keeping timesheets and being able to quantify our fees. Five years ago, this would have been a difficult pill to swallow, but it is forcing agencies to be more disciplined – and that’s a good thing.”

Although it is not unusual for procurement departments to scrutinise aspects such as print and production, according to managing director of Team LGM Debbie Holt agency fee structures are now being examined as well.

“Until recently, procurement departments have tended to steer clear of agency fee structures, but now we find they are beginning to look more closely at studio rates and other charge-out rates,” she says.

Holt tackles the situation by liaising with the procurement departments as much as possible in an attempt to educate and influence their thinking. This is probably a wise move, as Holt believes the presence of procurement departments will become much more pervasive.

All this discussion about costs and value inevitably leads to the subject of payment by results, which is an increasingly common trend among sales promotion agencies. A lot of research has been carried out as to the validity of payment by results, but the concept is hindered by the absence of a standard benchmark as regards its implementation.

Although agencies may still be adjusting to the shock of having their work and processes subjected to such close scrutiny, procurement departments are here to stay and are likely to become even fiercer.

But will this scrutiny have a long-term impact on the work that agencies produce? Barton at The Marketing Store believes that agencies’ instincts for survival mean they will get through it. “Agencies are very adept at circumnavigating any obstacle. We are used to dealing with difficult circumstances – there is no reason why this should be any different,” he says.

SPCA Marketing Awards

Following the success of the 2000 Millennium Awards, the SPCA will be holding the SPCA Marketing Awards for the second time next year. Backed by Marketing Week, the four awards seek to acknowledge the best achievements in the industry during the past year, as nominated by its peers.

The Awards are:

– Best promotional marketing agency of the year

– Best promotional marketing campaign of the year

– Best client contribution to promotional marketing in the last year

– Best individual contribution to promotional marketing in the last year

In order to register your nominations, visit the SPCA website at www.spca.org.uk and click through to the SPCA Marketing Week Awards 2001 section. Here you will find information on the awards and electronic voting forms. The deadline for nominations is November 10. Once the nominations are in, final voting for the awards will be done via an industry panel chaired by the SPCA and Marketing Week.The winners will be announced at the SPCA Awards Dinner on February 23.

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