23 September 2004 | David Arminas
Purchasers can play a major role in helping their companies to the top if they focus on building partnerships with advertising agencies and brand image.
Sir Martin Sorrell, chief executive of marketing services giant WPP, told the audience at CIPS's annual marketing and purchasing conference that the leading companies focused on differentiating themselves from the competition, not cutting costs.
In his keynote address, Sorrell told the 120 delegates: "Differentiation is the critical issue for your companies. You can't compete only on lowering your costs."
He accepted that "purchasing is here to stay" and that purchasers can help to get better value from agencies.
"No one denies the right of purchasing to exist and grow," said Sorrell, who founded WPP in 1986 and has also served as group finance director of Saatchi & Saatchi.
He praised WPP's purchasing function as integral to helping the company back onto a solid financial footing in the early 1990s.
But he warned that purchasers who pared down an agency's margins and treated it as a supplier rather than a business-critical partner would not get best value.
"If you treat an agency as a supplier, you will get a commodity. But if you treat us as a partner, then we can invest in your business," said Sorrell.
He called for greater partnerships between purchasers and agencies, adding that these relationships could not be combative.
Sorrell said an agency needs a steady income from regular fees, rather than irregular commission payments, to develop a stable partnership with clients and invest in its own creative talent to ensure client success.
Sorrell warned purchasers that they too often focus on agency fees, which typically make up only 10 per cent of a marketing contract's spend.
Most of the spend goes on advertising space in media such as newspapers, radio, TV and the Internet.
The effect of cutting margins has been that fewer marketing companies are surviving or remaining independent, which in turn reduces the choices for purchasers.
He criticised a tendency for tendering too much and too often for agency services, as well as changes to contract specifications: "Continuous pitching (for contracts) wastes so much time and activity," he said.
Purchasers often relied too heavily on measurable activities to judge the success of an agency's efforts, he added.
While many agencies are improving their use of these, he urged purchasers to understand that some things are not measurable "and they will have to just make a judgement call".