Marketers losing leading role in contract negotiations with agencies

The way brands negotiate contracts with their agencies is undergoing a ‘massive change’, with marketing losing its role in finalising agreements to procurement, according to a new report.

More than half of brands use procurement, rather than marketing, to finalise agency agreements, finds report.

The survey of 43 members of the World Federation of Advertisers, which counts Coca-Cola, Unilever and McDonald’s among those, found that procurement’s involvement is up by as much as 90 per cent over the past 10 years. More than half (51 per cent) of brands questioned said procurement now leads negotiation and implementation of contracts, up from 43 per cent in 2011.

Some 11 per cent said procurement teams carry out the process alone.

By comparison, the proportion of negotiations led by marketing and supported by procurement and finance fell to 20 per cent, down from 26 per cent in 2011. The number of instances where the marketing team carried out the process alone declined to 6 per cent, from 7 per cent three years ago.

Steve Lightfoot, communications procurement manager at the WFA, says: “Marketing is losing its role [in agency negotiations] but marketing is about building brands and finding creative solutions to business challenges, not finding the right remuneration method to pay an agency. This doesn’t encroach on core marketing capabilities, it has not taken over marketing’s creative role. This is the back office stuff of marketing.”

Aligning agency interests with business performances

Lightfoot believes the involvement of procurement is a “positive thing” that is used not just to drive down costs but to improve how agencies are remunerated, including assessment of performance and the metrics used to do that. He adds it is no coincidence that advertisers are increasingly aligning agency interests with their business’ performance.

The report found that 11 per cent of those questioned already have performance-based elements in their contracts, up from 7 per cent in 2011. A further 37 per cent say they plan to implement performance-based incentives and 66 per cent that they want to link agency income more closely to how well their own business performs.

“There is a correlation between increased procurement involvement and increased performance incentives. This is about rewarding an agency for doing a job well, not penny pinching or trying to screw the agency out of extra cash,” says Lightfoot.

The need for partnership

However, Kristof Fahy, marketing director at William Hill, said that while procurement has its place in contract negotiations, it should be in partnership with marketing and in a support role, rather than as the lead.

“Ultimately, marketing should own the agency relationship for better or worse. And marketers should be involved in the hard conversations about money and service levels not just the ‘nice’ conversations around creative and strategy,” he says.

Debbie Morrison, ISBA’s director of consultancy, says she has also seen a shift over the past 10 years towards procurement’s involvement, particularly with growing numbers of brands believing they are paying more than they should for agency work. She adds that marketers and procurement must work together, particularly as there is less client budget to spend across more communications channels.

“Clients have hardened their commercial positions and moved towards what appears to be commoditisation of their creative agencies. The upshot is that although it appears marketing has ceded some of its control to procurement, the reality is it’s a team effort to control and manage costs more smartly on behalf of their organisations,” she says. 

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