Although ad agencies are becoming more concerned about the increasing involvement of clients’ procurement departments in the pitch process, research suggests their influence is not that great
As we read week in week out of pitches and agency wins and losses, there remains the issue of how involved procurement departments are in the appointment process.
New research carried out by the AAR among 300 agencies across all marketing disciplines reveals the extent to which client procurement departments are used in competitive pitches.
While agencies of all sizes covering different disciplines are aware of the increasing role procurement plays in the new business process, the research shows that it is not as omnipresent as it may sometimes appear to be. In reality, only 25% of advertising agency pitches experience involvement of procurement departments, with media agencies experiencing 27.3% and direct marketing agencies experiencing 32.4%.
Thomas Cook procurement manager of marketing Martin Hall says: “Marketing procurement means different things to different companies. For some it is just support on the traditional disciplines – print and direct mail, where production costs and manufacturing methods are the key drivers. However the past ten years have seen many procurement professionals move into the less tangible areas – like advertising, creative, PR and media.”
Media is usually the first point of call. It is normally the highest spend of any marcoms budget and payment models can be more clearly defined than, for instance, creative. The greatest degree of involvement is in the digital arena with 40% of pitches involving procurement departments.
There is no obvious reason why this may be the case, but the AAR believes it is caused by a number of factors. First, digital is the newest marcoms discipline and therefore marketing teams often do not have sufficient comparative experience in the sector to be able to benchmark value. Secondly, digital is possibly the most complex and functional of all of the disciplines and therefore more likely to seek the involvement of procurement. Finally, in the early days of the dot-com boom many clients had their fingers burnt when appointing agencies whose projects ran significantly over budget while the industry found its feet. This meant clients were often in a weaker negotiating position as demand for agencies exceeded supply.
RAD Consulting marketing procurement consultant Rosie Doggett agrees: “The AAR’s digital critique is spot on. The digital arena is growing so fast – both in terms of spend size and share, it’s taken many procurement people by surprise, and there’s a need to learn on the go, as it were. The cost of these fast-developing technologies is rapidly changing too – only six months ago many clients were still paying a great deal of money for hosting – which of course is peanuts today.”
With website development projects, procurement managers will often establish service level agreements (SLAs) for project delivery (including change in management procedures) to help protect both clients and agencies against late delivery – again a common problem of the past. Today, the digital agency market has matured to a great extent and these issues are less prevalent.
Of all the disciplines, public relations is seen to have the lowest levels of involvement from procurement departments, at 22.1%. This seems to suggest there may be a direct correlation between the level of subjective opinion about the agency’s output and the extent to which procurement is involved in the pitch.
Doggett adds: “In my experience those agencies under the most financial pressure from their parent companies, and those in financial peril are the least likely to engage with procurement. Additionally, an agency which has enjoyed very robust profits from an account for a long period of time invariably resents having to justify its engagement, the results, and particularly the historical/current cost of its work.”
As might be expected, those client pitches that experience the greatest involvement from procurement departments are at the larger end of the market and often involve agencies owned by holding companies, where the prizes are often largest. When the top 20 advertising agencies were looked at in isolation, the figure rose from an average of 25% to 32.1%.
Sarah Billson, group buying marketing manager for tobacco company Gallaher, provides an interesting perspective: “All agencies can work with purchasing, and most that I have come across do so actively. Initially it can be a little difficult, as the commercial relationships are removed from the day-to-day account work, and the relationship dynamics change. The larger the agency, the more the ability and skills to provide purchasing with the information they need, but sometimes they seem the most reticent.”
The research also identifies a wide divide between agencies, with some seeing no involvement from procurement departments, while others experience over two-thirds of their pitches being overseen.
Procurement specialists are clearly playing an increasingly active role in the pitch, although as the figures show, they are not as all-pervading as many might have thought.
One thing is certain, procurement is here to stay in large-spend areas, of which marketing is definitely one, so those agencies that work positively with client buying teams will benefit most long term.â¢