8 May 2012 | Anna Scott
Advertisers have been known to say to clients purchasing media services of some kind: “Good, quick or cheap – which two do you want?”
“Two preclude the other, and marketing departments understand that, but procurement departments don’t,” says David Meikle, founding partner of marketing procurement consultancy Red Salt.
The idea that procurement and marketing departments are in constant conflict is not new, but last month saw research to suggest the relationship remains a problem.
Companies are significantly overspending on marketing, potentially wasting a combined €716 million (£583 million) annually due to “immature and ad hoc” marketing procurement processes, according to the senior procurement professionals surveyed by Charterhouse. Yet research from marketing procurement consultancy The Observatory suggests increased involvement of procurement in buying marketing services is saving companies money in the short term, but could be eroding the value of services in the future.
“Marketing is not a cost,” says Meikle. “It’s like part of an investment portfolio. And if you reduce your investment, you would expect to get a reduced return.”
He believes the interests of procurement and marketing are at best divergent, at worst mutually exclusive. “The problem clients have is how much they want to spend on a problem is arbitrary, it’s a value judgement,” he says.
Brett Colbert, CPO of media holding company MDC Partners, doesn’t believe there is a clash, but rather a difference in accountability. “Marketing is measured on delivering sales, brand performance and health, and procurement is measured on delivering savings,” he says. “In some cases, the treatment of such savings may impact budgets that fund what marketing and its agencies are trying to achieve. But mutual accountability will keep the partnership healthy.”
But Tina Fegent, marketing procurement consultant, believes marketing procurement professionals have long moved past the cost issue and most relationships with marketing are positive. “This is just about procurement dealing with suppliers,” she says. “And you have to know your categories. Procurement should be evaluating strategic relations with key suppliers and consider whether they are using the right mix of suppliers.”
The supplier market is complicated – particularly as agencies are going through huge changes to keep up with the consumer – meaning a varied array of products and services are on offer, without a price benchmark.
There is also a vast oversupply of agencies, competing for business and charging by the hour, rather than on a commission basis. This means they are not getting paid by the results achieved, which makes it hard to establish their value.
Furthermore, the expansion of media trading desks from buying display advertising to buying an array of mobile and social media services and other types of digital marketing has led to confusion among clients and a lack of transparency in marketing procurement and its relationship with agencies.
“Agencies have not necessarily communicated how they work,” says Steve Lightfoot, communication procurement manager at the World Federation of Advertisers (WFA), which represents some 350 client-side marketing procurement professionals. “As soon as an agency ends up not fully disclosing where a client’s money is going it obviously creates unease in the client.”
Lucinda Penistone-Baines, managing partner at The Observatory, says a cost objective is needed for the performance of the supplier. “A payment-by-results mechanism works very well, as long as you keep the terms very simple and easy to measure.”
But Kate Fryer, procurement category specialist lead at Nationwide Building Society, feels procurement can’t measure the performance of some marketing purchases and shouldn’t waste time trying to do this. “It might take 10 years for a brand to grow,” she says. “It’s not procurement’s role to have an opinion on what is worthwhile and what is not. For procurement, the best place to add value is to introduce supplier relationship management and to understand what marketing wants to achieve.”
David Fincham, business development director at Charterhouse and former purchasing manager of Renault UK, believes procurement should be leaving the creative aspects of marketing to the marketeers, which in reality is the minority of the marketing spend, but should be focusing on the vast majority of marketing spend – the production processes need to achieve the creative work. “This is the area procurement will excel in,” he says. “It’s not about going in and dictating marketing objectives. It’s about asking what spend is fixed and what is variable, or how relationships are with agencies.”
In his experience, Fincham says a simple focus on sharing objectives makes a difference, which includes speaking to marketing at the budget planning stage, rather than when that budget has been decided, when there is no leverage. “At Renault, we needed to be talking to marketing in August of the previous year.”
Lightfoot says procurement provides a fundamental role in helping marketing understand how its money is being spent. “Firms are under increased financial scrutiny. To have increased rigour and processes introduced by procurement can only be a good thing.”
Marketing procurement best practice
● Focus on areas where procurement’s skills lie: increasing speed to market, building transparency, formulating contracts, innovating cost savings and conducting audits.
● Ensure good incentives are set for agencies to achieve marketing’s needs, and measure their success if possible.
● Understand the dynamics and landscape of media agencies and establish benchmarking data as far as possible.
● Focus on the new media areas, such as the digital supply chain and web suppliers. These are the areas where clients are still experimenting with different rosters and suppliers.
● Ensure close stakeholder relations with marketing and agencies.
● If agencies are using trading desks, procurement needs to establish the agency’s business model, how it compares with previous ways of purchasing media, and how trading desks address competitor conflict.