Keep your eyes on the price

As budgets tighten, procurement has grown in importance, yet many marketers still see it as the enemy. However, businesses can boost profitability and creativity if all sides learn to work together.

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Value. It has become the watchword of this recession. Everyone wants it. Consumers want it. The Chancellor wants it. Voters want it and marketers want it.

As a result, getting value from marketing services is set to become one of the dominant themes in 2010. As businesses continue to keep a close eye on budgets, procurement executives are playing an everincreasing role in governing how these services are bought.

Opinion is divided about the role of marketing services procurement. While some people stress that indiscriminate cost-cutting can lead to lower-quality results, others point out that, if properly executed, marketing services procurement can enable businesses to grow.

WPP chief Sir Martin Sorrell said earlier this year, however, that he may be unable to meet his margins guidance – reportedly blaming the increasing involvement of clients’ procurement and finance functions and their “aggressive” approach to contract negotiation.

“These are very tough times and clients are behaving in quite a tough way. And it’s a pretty brutal environment, more so than it has been for some time,” he told the Financial Times in June.

Many companies are already trying out new business models. Procter & Gamble, for example, has, for the past two years, been testing its Brand Agency Leader model, which sees one executive and one agency put in charge of a brand’s entire marketing. The concept was introduced by Oral B in 2007 and has since been rolled out in differing formats for at least 11 other brands, including Gillette, Pampers and Pringles.

Coca-Cola, too, is planning another potential new concept, which sees suppliers’ payment based solely on output, rather than on input (see procurement viewpoint, page 14). As Coca-Cola head of procurement for Great Britain and Ireland Jane Dormer says: “It can be a win-win situation”, adding that: “I recognise that marketing is an investment for the business, not a cost, so my aim is to focus on this investment to ensure we get the best value and increase ROI.”

Marketing services is often an organisation’s largest indirect spend category. Questions about costs versus value and the intangible nature of
creativity make it a complex area, open to vigorous debate. It is widely agreed, however, that marketing services procurement is here to stay and that both agencies and marketers must learn how to benefit from its increasing use.

Furthermore, there seems to be a consensus between all parties that a greater understanding of each other’s roles and functions could help
improve practice, overcome longstanding divisions and promote more productive relationships (see intermediary viewpoint, page 14).

Agency selection consultant at the Marketing Communications Consultants Association (MCCA) Julie Constable says it is ultimately all about having grown-up, open and honest conversations from the beginning. She says: “Procurement has to get among the efficiencies to understand how suppliers arrived at a fee proposal, and some agencies are reluctant to have an open-book policy.

“But agencies need to understand it is procurement’s job to do that. They are not asking anything out of turn and it’s absolutely what happens in other industries.”

Constable advises agencies to engage with procurement professionals. “Invite them into the agency and make them feel welcome, especially if they are not experienced in buying agency services,” she says (see agency viewpoint, page 16).

Rosie Doggett, director of independent marketing procurement consultancy RD Squared, believes that a lack of experience or knowledge of marketing disciplines among procurement professionals is a problem. “There’s a capability issue, as they are often young and lack experience,” she says. “The thing about marketing procurement is you do need to know what you’re doing and be aware of what everyone is charging.”

Doggett says that sometimes the less wellversed procurement people can “do really silly things, like run fake pitches, because they don’t know how something is done or how much it should cost”.

Furthermore, Doggett claims the standpoints of the marketers involved can vary wildly. “I can talk to three different marketers and hear three different attitudes. A commercially savvy marketer might say, ‘I know I am being ripped off, please help me’; while a profligate, look-atthe-size-of-my-budget-marketer will be thrilled to bits to spend as much as he can.” (See marketer viewpoint, page 15.)

Doggett continues: “It then varies by category: an automotive marketer might have a different attitude to one who is in a pushed-formargin food retailer that is constantly being beaten up by the supermarkets. There’s so many different shades.”

There appears to be little in the way of training for procurement professionals in a marketing context. Procurement industry body the Chartered Institute for Purchasing and Supply offers some basic training courses specifically for marketing procurement. But other industry organisations, such as the MCCA, ISBA, IPA and the Public Relations Consultants Association, have developed – either on their own or jointly – best practice guides, and offer consultancy services in an effort to fill the gap in the market for learning about procurement. ISBA’s Communications Procurement Action Group, known as Compag – formed over a decade ago by a group of members that included Diageo, Boots and BT – will often support those who lack experience.

“Procurement and marketing each need the support of the other; if you can get to this level of mutual respect, then you can do some interesting things.” Ciara Dilley, Premier Foods

Formed to debate common issues, the Compag forum has worked to improve the image of marketing procurement and raise standards of
practice. It aims to encourage agencies to embrace the procurement function as a business partner, while urging marketers to acknowledge
that procurement is a vital part of their team.

Premier Foods marketing director Ciara Dilley believes that while procurement is a “valuable ally” (see marketer viewpoint, right], it is marketers who should take the lead in cost management. She says taking an active role in cost savings is crucial and believes it puts marketing in a stronger position in the wider business.

Dilley says: “If you have demonstrated cost savings over the years and work well with procurement, then it is just common sense that you will be in a better position on the occasions when you do go to argue to keep funding, because at least everyone will realise that you know your stuff.

“In the marketing industry, we often ask: ‘How do we get marketing people on the boards of businesses?’. It is exactly this kind of thinking that is needed for that to happen – the ability to think outside of your function. Instead of thinking: ‘I only work in marketing’, think: ‘I work in a business that needs to deliver a bottom line that we are all part of’.”

ISBA director of consultancy and best practice Debbie Morrison does not believe procurement has become more aggressive. Instead, she argues that its growing emphasis is solely the result of the recession. “It isn’t procurement that sets its own agenda. It has been about the state of the market. If your chief executive tells you you have to get 25% out of your costs, then it is not a negotiation – it is a business reality.”

Morrison believes that, despite a resurgence in debate about procurement’s role, the parties are not more divided than ever before, as some people have suggested.

She says: “Most of the really big companies have had a marketing communications procurement professional in place for about 12 years.
What tends to surface are the newer, less experienced people, and they can taint the many years of good work we have had with established procurement professionals.”

Morrison adds: ” It is not a them-and-us situation. Everyone is on the same side.” Although everyone claims to be working towards identical goals, there is little doubt that in the future much will have to change. In the past, agency charges and fees have often been eye-wateringly high and impenetrable. Many feel that marketing activity, with its intangible, creative needs, has resisted the march of procurement for far too long.

However, while agencies acknowledge that they must improve processes, be more transparent and reduce waste, is it really possible to successfully buy ideas or creativity in a mechanical way?

For the past 15 years at least, the marketing industry has been going through a period of exponential development. Years ago, businesses had a single agency that did everything. Now they have a plethora of suppliers across a wide range of disciplines, including creative, media planning, media buying, strategy, design, digital and public relations. This set-up is now increasingly perceived as untenable.

Marketers will have to look at a more simple way of working, and the supplier market will be impelled to respond to that. While many agencies accept the need for, and are openminded about, new business models such as the Procter & Gamble or Coca-Cola concepts, there is also anxiety about business relationships that are framed as “partnerships” but where all the terms are determined by one side.

Additionally, some agencies have concerns that they risk leaving themselves exposed if they invest in people and infrastructure to run a piece of business that can be terminated by the client before the agency has had a chance to cover its investment.

But because all companies will have to demonstrate greater value for money than ever before in 2010, it seems likely there will be even more new business models developing throughout the year. Iris Worldwide chairman Drew Thomson (see agency viewpoint, right] envisages a day when agencies and clients enter into genuine partnerships, with ownership in each other’s businesses.

With procurement likely to be playing a greater role in fresh developments, it seems to be in everybody’s interests to look at new ways to optimise performance, develop best practice and work together to maximise return on investment for all.

Premier Foods Dilley sums up: “I worry if procurement and marketing work in isolation. Each needs the support of the other; if you can get to this level of mutual respect, then you can do some interesting things.”

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viewpoint procurement
Jane Dormer, head of procurement for Great Britain & Ireland, Coca-Cola

Procurement is still a relatively new area in marketing, but the role has changed quite a bit in the past few years. And it continues to evolve. Where previously, procurement may have tried to hardball an agency, demanding discounts but not really explaining or understanding why, now we have a much more collaborative approach. It’s important for procurement and marketers to respect each other’s skills and capabilities – we can all learn from each other – and cultivate our relationship.

We are here to help. I believe marketers on the whole are very commercially minded and are looking to deliver the best return on investment, but if they spend all their time focusing on the commercial elements, they can limit the opportunities they have to work magic on our brands.

The key to striking the right balance in the relationship between procurement and marketing is not to overload on process. My role in procurement is not to police. I recognise that marketing is an investment for the business, not a cost, so my aim is to focus on this investment to ensure we get the best value and increase ROI. This does not mean looking solely at the financial arrangements, but all areas where we can achieve efficiencies and productivity. viewpoint procurement Jane Dormer, head of procurement for Great Britain & Ireland, Coca-Cola

As a procurement professional, understanding the business you work in is crucial. I have specialised in marketing procurement, operating as a subject matter expert within the marketing community rather than just part of a separate finance structure.

I enjoy marketing and, while I don’t have the skills of a marketer, I do understand the field and I really enjoy working in it. This helps me better support marketers to deliver their campaigns at the optimal investment level. Only by being immersed in what the brand team is trying to do and achieve will you get the best results.

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viewpoint intermediary
Tony Spong, business director, AAR

My first encounter with someone dedicated to marketing procurement was more than ten years ago, when I was at my previous agency.

For the following 18 months, the focus was on improving the performance of the marketing department, not on beating the agency up on price. This person got right under the bonnet of what we, and client marketing, were up to and quickly spotted where key improvements could be made.

I have always taken the view that when client and agency hit that sweet spot – where it all clicks into place – some great work gets done. It’s something that takes hard work and late nights, as we all know, but boy, is it worth it.

So nothing impresses me more than when marketing and procurement professionals focus on optimising performance, rather than just the cost of the petrol at the pump.

I have had some good experiences with procurement but I think there are issues with consistency. This is driven more by the companies the procurement people work for, rather than just the profession itself.

When marketing directors and their teams look for a new agency, they are invariably looking to improve performance – be it in awareness, leads or PR column-inches. We never hear the words “find me a cheap agency”.

However, there is one very interesting question that I ask of the client; the answer to which I find quite telling and rather disappointing. I always ask them: “What are you going to do to improve your own performance?” and 99% of the time the answer is: “Nothing” because they haven’t even thought about that. For me, this is a massive opportunity missed.

What better time to review internal processes, systems, technology support and resources and come to the party bright, shiny and fit? If marketing procurement professionals are to become more consistent, they need to be given the chance to get involved in the wider aspect of performance management and not just be brought in to talk price.

They need to be involved before a review even takes place, so they understand the current performance. Too frequently, they are brought in late in the day, often being kept at arm’s length. How are they ever going to learn if they are kept outside the process? For example, how many of them are involved in client/agency reviews? The good companies have procurement actively involved, and so when they arrive at an agency review, they contribute valuable insight.

Marketing procurement professionals are in an almost unique position to play an objective role inside the client, enabling them to provide a vital MOT certificate on a regular basis, which means that any agency, new or existing, has the best possible opportunity to make that all-important difference.

For far too long, there has been too much negativity around the whole subject of procurement. We should be focusing on sharing best practice, because that is all about performance, not price.

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viewpoint marketer
Ciara Dilley, marketing director, Premier Foods

I have concerns that the general perception is that it is the role of procurement to cut costs. Whereas a good marketing team should see that as their role.

My marketing team tightly manage their budgets and strive to make them go further. Thanks to training they have undergone to better understand marketing costs and negotiation skills, they are fully empowered to have conversations directly with their agency partners on project costings.

We should not forget that, while procurement can be a valuable ally, it is the marketing teams who understand the services they are buying better than anyone else. Once they are armed with the correct knowledge, marketers should be well placed to negotiate effectively.

Training is essential. I think that applies for all levels of marketer. A junior brand manager will feel very nervous about challenging an agency. Then what happens in some companies is that people get to marketing director level lacking training, the know-how and confidence to negotiate, and they think: “I’m a marketing director, I should know this,” but they are worried they don’t have the right questions to ask.

I have seen the power that training gives my team. I have seen the difference in the quality of the conversations they have with our agencies. It’s not that they have become more aggressive; actually there is a new level of respect.

If you foster a good relationship with your agency teams, and pay them fairly, then you will get the best from them. The last thing I want to do is squeeze someone so tight they can’t make any money, because you won’t get the best people or good work.

What marketers need to focus on is “what is a fair price” to get the job done, to the standard that is required, within the prevailing market conditions. We need to move away from the notion that cutting costs means a reduction in quality. To be quite frank, this is a worrying theme, sometimes perpetuated by certain agencies to scare clients who dare to question project quotes put forward.

A reduction in budget should not automatically result in a reduction in quality. And in today’s climate with decreasing costs across all services, it is less likely to be the case.

There also seems to be this myth that marketing and marketing procurement can’t get on because all procurement wants to do is cut budgets. What we try to do is foster the idea that we are all working towards the one goal. Procurement tends to have more than enough to do and if they feel the brand teams are doing their best to recognise cost savings and excessive budgets, then they are happy to provide the support that the marketing teams need to get on with it.

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Another concern that marketing teams often have is that if they negotiate lower prices, then their future budgets will come down accordingly. Some are reluctant to let this happen and will continue paying a high amount.

What we as marketers must understand is that we are part of a bigger business, which needs to deliver its profit targets in a very difficult climate. And if cost-cutting is necessary, then we should all be able to demonstrate where we have contributed.

Furthermore, if marketing teams save money through effective negotiation with agencies, any marketing director worth their salt will ensure the savings are reinvested in opportunity areas.

Wouldn’t we all prefer it if we could invest in all those key opportunities if the funds were available? Remember, strong negotiation can often deliver the additional budget to make that happen.

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viewpoint agency
Drew Thomson, chairman, Iris Worldwide

As an agency whose existence is centred around creating competitive advantage for our clients, the holy grail is an environment where your reward is fully aligned to the effectiveness and success of the work you deliver.

To achieve this, though, we must first recognise that our industry has, for 100 years, been measured on inputs, not outputs. Changing this requires an open mind from both clients and agencies alike. Pushing the boundaries of what’s possible requires an openness about new ways of working and an acceptance of true partnership. The role of marketing procurement in this is critical.

One of the risks that marketing procurement faces is the temptation to reap revenge on many years of perceived abuse by agencies in how they charge their clients, thereby swinging the pendulum too far the other way.

Many people feel that marketing activity, with its intangible, creative needs, has resisted the march of procurement for far too long.

To avoid this, agencies and clients need to agree clear partnership frameworks, rather than have one party telling the other what the parameters of any deal are.

Today, there are too many examples where a client tells an agency it wants a partnership but then proceeds to dictate what the terms are, and what the success criteria are and how they will be measured. This is not a partnership.

Additionally, there are too many examples where clients want to cap the amount of profit an agency can receive if the work delivered ends up being “too successful”. Again, this is not a partnership.

As an agency, we don’t mind risking all of our profit margin, but we must be fully involved in setting the objectives or targets and have clear visibility of measurement. Where we jointly agree these priorities with procurement, we find that this alignment drives real commitment from both sides and a clear set of expectations from both parties. We also believe that when you are agreeing to put all of your profit margin at risk, this needs to be recognised by the client as a significant commitment that needs to be reciprocated.

The most effective way to achieve this is to commit to a meaningful contractual term (at least two years) that is aligned to the agreed objectives. This allows the agency to invest accordingly behind the client, safe in the knowledge that the client is not going to change its mind after a few months.

Where could this all end up? Well, with progressive clients and agencies, the possibilities are endless. We would love to see a future where the norm is output-based commercial structures that are tailored to both the clients’ objectives and their commercial targets. Joint targets will become commonplace and closer relationships between procurement, marketing and agencies will drive a more integrated approach to relationships.

This will result in agencies becoming more strategically important again and the impact of marketing communications will be even more significant than it is today.

The creation of brands through closer collaboration will encourage clients and agencies to throw away former concerns and embrace the world of competitive advantage. Agencies will need to become more agile and responsive; and clients will need to become more trusting of their agencies.

And the future? As agencies’ and clients’ objectives become more aligned and intertwined, why not look to the ultimate long-term partnership: ownership in each other’s businesses.

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