ISBA: ‘Don’t blame procurement for ad budget cuts’

Procurement’s growing influence on advertising budgets is not solely to blame for the tougher cost-controls many marketers now face in an industry straining to generate greater value from their investments, according to a report by advertising trade body ISBA.

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Procurement’s impact on advertising budgets was called into question last week (14 November) by WPP chief executive Sir Martin Sorrell. He argued,  “procurement has too much power” and cited it as one of the key reasons for falling ad budgets in 2014.

The accusation is brought into sharp focus by an ISBA study of 93 marketing and procurement professionals, conducted by the Advertising Research Consortium, that highlights the advertiser and agency disconnect when it comes to cost control and value creation.

The “most disappointing result” in the whole study, according to researchers was in response to this statement: “Our agency is cost-conscious and genuinely seeks greater value for us, the client”. More clients (35%) actually disagreed with the question than agreed (26%), although the researchers failed to determine what constitutes value in this context.

The perceived lack of value from agencies also ties back to the confidence  brands place in the way are being billed. Only 37% of respondents said agencies are transparent over costs and margins billed to the client, while 23% have “mixed” views on the process.

It all points to brands being less likely to be satisfied with agency performance. Compared to 15 years ago fewer clients now find agency management proactive and believe creative to be on strategy, a perception the ISBA study finds is devaluing the value of agencies.

The rift between advertisers and agencies has pushed the former to smaller, consultancies they feel are better equipped to handle media fragmentation and the subsequent re-allocation advertising budgets across new channels.

Publicis chief executive Maurice Levy referenced the change in attitude from brands earlier this month (10 Novemner) when he said it was one of the main reasons behind its $3.7bn capture of Sapient. The agency group said consultancies such as Accenture and Deloitte are moving into its space with respectable offerings that meet their cost-focused objectives.

Debbie Morrison, director of consultancy and best practice at ISBA, says it is clear that “tight management of costs” is still an issue for the industry but warns it cannot be laid “solely at the feet of procurement”. There is evidence to suggest that marketing and procurement are starting to get along, she adds.

Around half (52%) of respondents to ISBA’s survey said that their agency understands the client’s need to maximise their investment in marketing through the procurement function in comparison to the 20% yet to be convinced.

Morrison says: “What is true is that advertisers are seeking greater value from their investment and that may mean asking ‘Why’, why are we spending in these areas, is there a better way of growing our market, challenging the traditional methods of working, questioning the way things have always been done, shifting budgets into different channels, testing and learning, bringing activities in house, developing their own demand-side-platforms, creating in-house agencies, bringing in creative directors to help them navigate the new world.”

The warning comes as companies including Mondelez and Coca-Cola introduce new measures designed to breed a more sustainable culture of cost cutting. The cost-cuts are being ushered in through zero-based-budgeting, whereby marketers to pull funds from costs that have no direct impact on sales to feed into areas such as packaging and innovation. Both companies have assured that budgets will not suffer as a result with the aim being to free up more funds to invest in cheaper, more targeted channels such as digital and point-of-sale.

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