Making the relationship between marketing and procurement work

Milan Panchmatia
12 January 2015

A challenging economic climate has seen many marketing departments put under increased pressure to optimise spend and reporting. Marketers across the globe have found themselves with little option, but to turn to procurement for support. In many companies this “mandatory” collaboration has led to a blossoming relationship.

I do not doubt many marketers were sceptical when they first began working with procurement. Historically the function has been viewed as a “bean counter” and even an “enemy of innovation”. This is understandable given the misconception that both functions have conflicting methodologies and mandates.

However, with marketing departments under increasing cost pressure and procurement specialised in delivering optimal value, the functions have evolved into natural allies. In most modern businesses, procurement and marketing teams have already achieved significant cost reductions and performance improvements. But now that the low hanging fruit has been picked, what’s next for marketing procurement?

Despite the numerous successes achieved due to marketing and procurement collaborations, there remain many areas to be tackled. Top of this list is eliminating waste.

Research carried out by Charterhouse found Europe’s largest businesses have an estimated €124 million (£96.8 million) of unmeasured marketing spend. In addition, only 27 per cent of marketing spend is currently measured in terms of return on investment. The study also highlighted 65 per cent of procurement teams are now effectively working in conjunction with their marketing counterparts. Eliminating this as a key reason behind a lack of ROI reporting. More tellingly, a survey run by Adobe, found that the majority of companies spend just 5 per cent of their budgets on optimising conversion.

The solution to this lack of visibility is implementing the right tools and processes to enable effective analysis. There are a huge variety of metrics which companies can use to measure marketing performance, including brand awareness, loyalty and market share. But developing a robust toolset to measure return on marketing investment (ROMI), to support these metrics can prove invaluable.

ROMI focuses on the impact of marketing activity on margin and revenue, while discounting other effects. Put simply, ROMI is the revenue impact of an initiative, calculated in terms of its the cost and contribution. An uplift in revenue can therefore be used to better understand the financial impact of marketing and focus on those investments which contribute to this improvement. Of course other factors, including those mentioned above, should be included, but this methodology often serves as a useful starting point.

The relationship between procurement and marketing has come a long way in a relatively short space of time. In modern businesses, both functions are able to work together and mutually benefit from the distinct skills available on each side of the partnership. There remains, however, much to be done to fully understand and track the ROI provided by marketing.

In this context, delivering marketing savings remains important, but should not be procurement’s main focus. Savings achieved by procurement should be taken and re-invested into new and innovative technology and practices, aimed at improving ROI tracking and optimising performance. After all, doing more with less is a mantra all departments have had to adopt and marketing is no exception.

Procurement is there to support marketing with this objective, just as it is doing in other categories.

☛ Milan Panchmatia is a director at 4C Associates

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