Procurement has always been a bugbear for both marketers and agencies. Brands need to buy a huge array of marketing services, but the processes by which they choose and pay for them are a frequent source of friction, as procurement departments – whose priorities and reporting lines vary from company to company – seek to balance marketing objectives with value for money.
These pressures look set to increase, following the UK’s vote to leave the European Union, with economic uncertainty pushing cost-cutting back up the agenda for many businesses. Following Brexit, the IPA’s Bellwether advertising spend forecasts have been vastly downgraded, with declines of -0.2% predicted in 2016 and -1.3% in 2017. Bellwether had previously predicted 3.3% and 2.7% growth for 2016 and 2017 respectively.
Before the vote, WPP’s media investment business GroupM also predicted there would be a £220m drop in ad spend this year in the event of a Leave vote. Brands are now looking to their procurement departments to help find crucial savings in the months and years ahead.
Yet this challenge is made all the more difficult by uncertainties about the role of procurement and its relationship with marketing. Consumer goods giant PepsiCo threw this relationship into doubt last year after opting to scrap its marketing procurement department and handing over purchasing responsibility to its brand teams. It said the move would enable them to work with greater speed and efficiency.
Clear reporting lines needed
There has been little evidence of other major brands following PepsiCo’s lead, but the decision served to portray procurement as a slow, cumbersome process that prevents marketers from acting with the agility needed in today’s fast-moving digital world. It also raises the question of whether other brands require a dedicated team of marketing procurement specialists, or whether marketers can handle the responsibility of negotiating agency fees and contracts themselves.
Many organisations appear unsure about how to structure their marketing procurement teams. Speaking at the ProcureCon Marketing conference last month, Oxfam’s purchasing manager Glenda McBride explained how, after several moves, her team of seven people had ended up as a central, separate department. This separation requires her to communicate with the marketing team as much as possible, she said, sometimes on an informal basis.
“In the six years I’ve been at Oxfam, we have been part of central procurement, we have been implanted in [specific teams] and now we have gone back to being central procurement,” she said. “People forget who you are very quickly and they’re busy, but you don’t need to have that physical presence there all the time. It can literally mean taking a five-minute walk through the marketing department – they just need to see you for that trigger to happen and for them to start asking you questions about projects they’re working on.”
Other companies are developing skill sets within dedicated marketing procurement teams. Myriam Benichou, global purchasing director of marketing services at L’Oréal, increasingly hires staff from specialist marketing backgrounds and digital agencies to make up her team of over 40 people. She says that her role is to work closely with marketing to support not just procurement, but wider strategic aims. “Our role is more and more becoming a kind of contributor to business challenges,” she explains.
At the event ‘The Future of Pitching’, held earlier this month by marketing consultancy Oystercatchers, Expedia senior marketing director Andrew Cocker argued that procurement models differ according to different business cultures and that marketers should debate decisions openly with procurement directors. “The reality is that every company is vastly different in terms of the decision-making process,” he said.
“In any international business there are multiple stakeholders and if that business is structured in a matrix way, it can make it very difficult. You could be the lead marketer in the company but you know it’s not just your decision because that’s not how the culture of the business works.”
Although certain brands are building the specialist capabilities of their marketing procurement teams, there is a sense that ultimate responsibility for decision making still rests with marketers. Around 70 marketers in the room at Oystercatchers’ event were surveyed about who they believe influences the final decision the most when purchasing. The overwhelming majority (72%) said the CMO, while only 9% said procurement and 19% said the CEO.
Media buying not aligned with strategy
Pressure was heaped on procurement departments this summer following the publication of an explosive report by the Association of National Advertisers (ANA) in the US, which found widespread evidence of media owners paying rebates to agencies based on the amount they spend on media.
The report suggests many agencies are buying media that does not align with their clients’ strategies, and follows warnings by UK trade body ISBA about a lack of transparency in online media buying. All of these issues compel procurement departments to improve communication with their agencies and ensure they are getting a better deal on behalf of their brands.
However, at the Oystercatchers’ event it was clear that agencies also have their own grievances about the way brands procure their services. The debate between 11 client marketers and 13 agency executives raised several complaints about the role of client-side procurement, including long delays in deciding pitches, unfair contract terms and an aggressive focus on costs that undermines the client-agency relationship.
As brands look to boost their purchasing power in an uncertain economy while the UK negotiates its exit from the EU, it is important that marketers understand the different structures underpinning procurement across organisations, the problems that these systems present and the possible solutions.
Following PepsiCo’s move to scrap its marketing procurement function last year, ISBA wrote a blog post that called into question the wisdom behind the decision. It noted that marketing procurement is still a relatively new concept that has been around for just 20 years. Before the adoption of procurement, “marketers were left to organise their own commercial terms (in a much simpler marcoms landscape) where many deals were sealed over a handshake or lunch”.
ISBA argued that this level of informality is no longer appropriate and that procurement is needed to help marketers negotiate an increasingly fragmented media sector. “Now that the marcoms marketplace is much more complex and advertisers have many more agencies to manage with smaller marketing teams, is removing the only commercial support marketers have to manage agency relationships really the best route forward?” the trade body asked.
Complex structures cause confusion
The question of where procurement should sit is far from settled, but when suppliers have to deal with different client stakeholders and complicated company structures, it frequently causes troublesome delays. Scott Wilson, UK CEO of communications agency Cohn & Wolfe, suggests that slow contract negotiations at the procurement stage can prevent clients and agencies from forging strong relationships.
“The pitch process may last two to three months, then there’s another month and a half [of waiting] once you’re the preferred candidate but still looking to get to terms,” he says. “By the time you actually prevail, three months after the pitch process has ended, the team is fatigued and all the magic and chemistry [the client] was hoping to get from the agency is at risk of dissipating. That is where procurement and the client need to speak as one – it’s not always the case that they do.”
These concerns about slow, laborious processes are echoed by Mindshare CEO Helen McRae, who says she is still waiting on a decision from a pitch from two years ago. “I’m assuming the answer is no,” she jokes.
Meanwhile Mark Howley, CEO of media agency ZenithOptimedia, believes that in their efforts to cut costs, procurement departments rely too heavily on agencies rather than improving the efficiency of their own processes.
“Sometimes it feels like the work is left too much to our side of the table and it’s difficult to change large organisations from the outside,” he said at the ProcureCon Marketing conference. Howley suggests it would be beneficial for both parties to have someone working on the agency’s behalf in the client organisation as they will be able to identify where agency time is being wasted or if there is duplication of effort.
“[By doing that] we might be able to bring costs down by 10%, we can be more profitable ourselves and your marketing team will be happier because they have a slicker service,” he added. “Procurement should be your quarterback in the organisation and together we can drive the costs down.”
These complaints are just the tip of the iceberg. Off the record, agency bosses have complained about clients that have charged rebates as a condition of commissioning work, the use of delayed payment terms so that agencies are not paid until 120 days after the project is completed, and the use of ‘blind auctions’ to drive costs down further.
The latter method involves asking shortlisted agencies to submit their lowest price for a pitch without knowing what competitor agencies are bidding. Ultimately, this could mean that the pitch is decided according to price rather than the quality of the work.
Given these issues, it is not surprising there was a call for a new code of practice for pitching during the Oystercatchers event. Neil Simpson, founding partner of ad agency The Corner, suggested that some clients abuse the pitching process by using it as a way of gathering ideas without intending to commission work. He also referred to research by ISBA and the IPA which finds that while it costs agencies around £178,000 to take part in a large pitch, clients believe it only costs agencies around £31,000.
The two trade bodies released a guide called ‘6 Principles’ to support both clients and agencies during pitching and procurement, but these are general pointers rather than a specific code of practice. Simpson, who also complained about the use of non-disclosure agreements (NDAs) by brands, hinted that more rigid regulation might be needed.
“We had one [NDA] that said ‘through this pitch process all [intellectual property] is owned by the client at the end of it, regardless of whether you win’,” he said. “A code of practice where agencies say no [to things like that] and clients agree they have got to clean up their house would help the process.”
Brands take new approaches
In the absence of cross-industry best practice, certain brands and agencies are negotiating new methods of procurement. Philipp Schuster, director of marketing procurement at Adidas, reveals that the sportswear giant is increasingly focused on “smaller pitches with smaller processes”, as it looks to move at greater speed with digital campaigns and experiment on new media platforms.
“We try to give as much flexibility as the project needs – I do a lot of different pitches and we have a consistent approach and aim for a consistent process, but we also adapt our process to the specific case in hand and to the agencies and brief,” he says. “Maybe we give a bit more flexibility than other clients do. We want to make sure the agency can do good work.”
Meanwhile, online parenting network Mumsnet last year appointed DigitasLBi as its partner agency for mobile using a performance-based payment scheme. The deal means the agency, which was hired to develop new apps for the brand, will be rewarded based on how successful it is at achieving Mumsnet’s strategic objectives, not just for completing the work. If effective, such a model could lead to more transparency in the procurement process, allowing pitches to be completed at greater speed.
Elsewhere, procurement directors are stepping in to help marketing departments in the wake of the ANA report and concerns over a lack of transparency in online media buying. James Arnold, brand director at energy company SSE, claims that because his head of procurement was paying close attention to the latest developments in media buying, the company was able to react quickly to the ANA report. “Within one day of that story breaking, we had met with the chief executive of our media agency, we had presented to the board, knew the actions we were taking and knew where we were at risk,” he says.
“Marketing needs to do better at opening up doors for procurement.”
brand director, SSE
This strong working relationship between procurement and marketing depends on both sides getting to know one another and finding synergies between their skills. Arnold argues that it is incumbent on marketers to make accommodations and include the procurement department in more of its discussions. “Marketing needs to do better at opening up doors for procurement,” he says.
On the procurement side, Louise Deane, category group manager for marketing at Ribena and Lucozade owner Suntory, suggests that it is important for procurement specialists to shadow marketers at certain times. This could include having a desk in the marketing department where a procurement representative can work for a certain portion of their time. “You pick up things from conversations just by being there, so having a physical presence is important,” she says.
Reflecting on her role, Deane believes one of the core duties of a marketing procurement specialist is to act as a buffer between clients and agencies and smooth over problems wherever possible. “It’s almost like the good cop, bad cop scenario where we can have the difficult conversations that [the marketing team] doesn’t want to have with their agencies, leaving them free to focus on the goal they want to achieve,” she says.
“That’s one of the key ways my marketing team likes having me involved – that focus on relationships. It works really well that way.”
Illustrations by Alec Doherty