Tag Archives: marketing services

Insightful Approach to Marketing Services Procurement

30 Aug

marketing services procurementIt was with great interest that I read a blog post on Procurement Leaders from Danny Ertel dealing with the topic of strategic sourcing’s role in the procurement of complex services. 

The article provides an insightful approach to dealing with the services business owners within the organization to gain their confidence and importantly, their buy-in to an active collaboration with the procurement team.  In our experience working with marketers, the chief fear cited by Mr. Ertel when it comes to marketing leaders hesitation to actively engaging with procurement is the fear that their “trusted advisor” will be abandoned in favor of a lower-cost provider that is not as capable of supporting the branding and demand generation needs of the organization.  From a marketer’s perspective this potential outcome carries an inherent level of risk that can be difficult to overcome when attempting to forge a productive relationship between marketing and procurement.

There has been a significant shift of late in assessing the procurement team’s “value proposition” to their internal marketing clients due in large to the recognition that the sourcing of complex services is different than that of direct procurement categories.  It is generally agreed that the former carries more risk and in turn can yield greater strategic value to the organization when a productive, long-term relationship can be forged or enhanced with a marketing partner such as an advertising agency, public relations firm or marketing insights provider.  In the words of M. Kathleen Casey:

“Do not free the camel from the burden of his hump; you may be freeing him from being a camel.”

So how should procurement fashion their appeal to professional services owners?  According to Mr. Ertel, “procurement needs to consider ways to help address what such stakeholders might actually consider to be in need of fixing.”  While simple in nature, this is an incredibly straight forward approach which too often is not followed.  The primary reason for this is a lack of a basic understanding of the marketing services value chain and the role which suppliers play in assisting the organization in achieving its sales and profitability goals.  Further, it requires procurement and marketing professionals to work in tandem to map out those areas where the marketing services team’s needs align with procurement’s resource and capability offering to find “win-win” opportunities. 

While the end result of such collaboration could be savings, in all likelihood the rewards will be much greater and encompass future cost avoidance, process improvements, the mitigation of risk, alignment of corporate governance oversight and better resource management… for both the organization and its marketing supplier network. 

When there is a perceived risk involved in the sourcing process, such as with the procurement of complex services, careful analysis of those risks relative to the cost: benefit proposition is paramount.  This cannot be accomplished solely by the procurement team.  For strategic service providers such as an advertising agency of record, deep category knowledge is required which will necessitate the active involvement of the internal marketing stakeholders and potentially independent advisors with specific skill sets in the area of search, agency remuneration and contract compliance. 

The consequences of a poor decision in the sourcing of complex professional services are too great to be ignored. Therefore, the logical path forward necessarily requires a solid working relationship between procurement and marketing built on the notion of trust, a clear delineation of project goals and a mutually agreed upon division of roles and responsibilities over the course of the indirect procurement process. 

Marketing investment is a substantial component of an enterprise’s overall cost structure which often runs as high as 3.0% to 5.0% of gross revenues –  way too substantial to believe that this investment category can forgo the type of internal scrutiny and control rigor applied to other areas of the company.  Thus, it is imperative that procurement and marketing strive to address their differences and forge ways to collaborate that unlock the value gains which are inherent in a marketing services supplier network. 

 

 

 

Moving Toward Strategic Sourcing

17 May

Advertisers strategic sourcinghave come a long way in forging stronger ties between their marketing and procurement teams.  Yet, there is much more to be done as organizations look for ways to improve their return on marketing investment (ROMI).  After all, while important, expense reduction is only part of the ROMI equation and some would argue a secondary consideration when contrasted with marketing’s role in demand generation.

The Association of National Advertisers (ANA) released the results of a recent survey of procurement professionals fielded earlier this year.  Not surprisingly, survey participants indicated that “cost reduction” and “cost avoidance” were the top two metrics by which their efforts were judged within their respective organizations.  No problem.  These are important financial goals for any enterprise.

However, the key to evolving the collaboration between marketing and procurement is to evolve their focus to include various means of boosting supplier performance.  The potential strategic value related to improvements in; agency relationship management processes, resource allocation decision making, supplier innovation and client/ agency engagement can have a meaningful impact on the bottom line.  On this topic, the aforementioned ANA survey would suggest that marketing and procurement have made significant progress, at least philosophically.

So what are the impediments to strategic sourcing playing a more meaningful role in marketing procurement and supplier relationship management?  Many in the marketing and advertising industry would suggest that “experience” is the principal challenge facing procurement professionals when it comes to the marketing services arena.  To be fair, this is not a procurement issue, this is an organizational issue. Recruiting sourcing talent with marketing experience, educating and training procurement professionals on the nuances of professional services sourcing and creating a culture which embraces accountability and transparency across the organization are key issues to be addressed.

In our opinion, marketing has a significant opportunity to shape the organization’s efforts in building the proficiency of the procurement team.  Work begins with, but clearly is not limited to, assisting HR to identify sourcing professionals with marketing experience, assisting in the crafting of job descriptions, educating and informing their procurement peers on differences between marketing services and other direct or indirect procurement categories, and working diligently to articulate their supplier optimization initiatives as the basis for driving goal alignment between marketing and strategic sourcing.

Unfortunately, in some organizations, rather than assist in developing procurement’s skill set and resource offering, marketers take advantage of the procurement team’s lack of category experience to stave off or minimize their involvement within the marketing services realm.  Given the significant level of marketing investment advertisers are making this is clearly not a desirable outcome; either as it relates to ROMI or relates to mitigating financial and legal risks inherent across the marketing services supplier network.

Unlike George Carlin’s “seven dirty words” which were once “forbidden” by the broadcast industry; accountability, audit, collaboration, cost containment, expense reduction, risk management and transparency are not taboo.  Rather, these activities should be considered necessary ingredients in any strategic supplier management initiative.   It remains a mystery as to why this perspective has been slower to take seed in the U.S. advertising marketplace than it has in the U.K. and Western Europe, but it is an issue that will need to be addressed for any real progress to occur.

Interested in learning more about constructive marketing procurement programs? Contact Cliff Campeau, Principal at Advertising Audit & Risk Management at ccampeau@aarmusa.com for a complimentary consultation.

Global Marketer Gets Lean & Mean

18 Apr

marketing services agency networkAt the beginning of 2012 PepsiCo announced a series of strategic enterprise expense reduction initiatives.  These included the elimination of 8,700 employees representing 3% of its global workforce plus additional cost reductions of $500 million per annum over the course of the next three years and an announced streamlining of its marketing services agency roster.

It was announced that part of the savings from that initiative would be invested back into marketing PepsiCo’s beverage brands to narrow the competitive spending gap with category leader Coca Cola.  According to Jefferies & Co. in 2010 Coca Cola spent 8% of annual revenues to market its beverage brands compared to 3% for PepsiCo.

On April 13, 2012 it was reported by Advertising Age that Pepsi’s North America beverage division had completed the downsizing of its agency roster.  The result?  Pepsi eliminated sixty-five percent of its beverage division’s marketing agencies, approximately 100 agencies.  Long-time agency partner Omnicom Group was the big winner, strengthening its hold on what has been a long-term client relationship.

To PepsiCo’s credit, it had recognized that its agency roster had become bloated in recent years and took aggressive action to right size its marketing services agency network.  So what will this move yield for the beverage giant?  Well for one, the consolidation of responsibilities across fewer agencies will yield a combination of agency fee and expense reductions tied to the elimination of duplicative efforts and overlapping roles and responsibilities across its marketing agency network.  Secondly, the reduction in the size of PepsiCo’s agency roster will enhance the marketing team’s focus and ability to effectively engage its marketing partners in a meaningful collaboration to build sales, market share and brand strength.

Managing and motivating a smaller group of suppliers is certainly less complex than doing so with an agency network numbering over 150 marketing agencies.  However, post-consolidation PepsiCo’s North American beverage division will continue to work with approximately fifty agencies.  While there will continue to be challenges in aligning agency resource investment and effort with the division’s business goals, establishing performance criteria and systematically monitoring progress across its media, creative services, digital, diversity, promotion and PR agencies this is clearly a step in the right direction.

Hats off to PepsiCo for taking a measured approach to identifying a supply-chain optimization strategy that has the potential to both save money and enhance marketing ROI.  In the words of Benjamin Franklin; “Well done is better than well said.”

The Key to Improved Marketing Procurement Practices

16 Mar

marketing procurement

The topic of Marketing Services procurement practices remains a much discussed, often hotly disputed topic within the industry. There are several reasons why differences of opinion exist, however the time has never been better for marketers, procurement professionals and marketing services agencies to establish a mutually beneficial framework for constructively advancing this discussion.

Recently, a number of global marketers including Coca-Cola, PepsiCo, Procter & Gamble and General Motors have made announcements that directly impact marketing services procurement, albeit in different manners. In the case of Coca-Cola, the organization will utilize savings wrung from supply-chain efficiency gains to fuel its investment in marketing. PepsiCo seeks to streamline its global marketing services agency network, with CEO Indra Nooyi announcing that the organization’s beverage division has identified 100 North American agencies that will be eliminated from its agency network. Procter & Gamble will pare back its investment in traditional media to leverage the reach and efficiency of digital and social media. Dan Akerson, the CEO at General Motors, which just consolidated its global media planning and buying with Aegis Group has stated his intent to “reduce complexities and drive efficiencies.“

In addition to the actions and intentions being announced by large multi-national advertisers, there was an interesting study on marketing procurement conducted by Charterhouse at the close of 2011. Entitled; “The Marketing Maturity Index” the organization surveyed 200 procurement professionals from a cross-section of Europe’s 500 largest businesses. The findings of this study reinforce the need for constructive action in this area:

  • A vast majority (88%) of those surveyed felt that current marketing procurement practices are inefficient.
  • 4 out of 5 claimed that marketing product and services could be purchased more efficiently.
  • 4 out of 10 identified efficiency savings as a “significant opportunity” for their businesses.
  • Only 1 out of 5 felt that their organizations were as lean as possible.

The take away is clear, a well thought out marketing services procurement process can play a key role in supporting both an organization’s supply-chain managementand demand generation initiatives.

To successfully create and manage an effective, highly efficient marketing agency network a collaborative approach may be best. Why? As the breadth of marketing agency networks have expanded and the tenure of CMO’s has declined (around 24 months according to recruiting firm Spencer Stuart) a cross-functional approach to the development, management and monitoring of agency performance and contract compliance is required to safeguard the interests of each stakeholder. Further, the marketing agency network is a vital corporate asset that would benefit from the involvement of and access to senior representatives from Marketing, Procurement, Finance and Legal. Let’s face it the cost of changing agencies is expensive in terms of absolute costs, financial risks and demand generation momentum. Thus, an organization committed to a stable, high-performance agency network stands to gain significant value.

Organizations’ can improve their return-on-marketing-investment by optimizing the performance of their marketing agency network by taking the following actions:

  • Stabilize the Marketing Team and marketing agency network. Organizations lose valuable knowledge when institutional marketing memory is not transferred to others. The rate and rapidity of personnel and agency turnover creates risks in this area.
  • Truth, transparency and respect are necessary ingredients for successfully managing marketing agency networks. Implementing contractual, financial and performance oriented controls can safeguard an advertisers marketing investment and establish a sense of clarity among the supplier base as to “what is expected” and the analytics that will be used to assess performance.
  • Reality matters when its insight that you seek. Monitoring and benchmarking agency performance yields knowledge which can be utilized to drive efficiencies and to socialize “Best Practices” throughout the advertisers organization and across the network.

When it comes to marketing service procurement and the benefits to that can be realized by creating and maintaining a high performing agency network, one can take inspiration from the noted Roman poet Ovid:

“Make the workmanship surpass the materials.”

This perspective is as valid today as it was two millennia ago and it has the potential to galvanize each of the stakeholders in this important discussion around the ultimate goal of marketing services procurement. Interested in learning more? Read a summary of the “Marketing Maturity Index” survey.

Can Procurement Add Value by Focusing Solely on Cost?

26 Nov

improved agency performanceWhen it comes to Marketing Services sourcing, the short answer is no. Driving costs down is an important element of strategic sourcing but not at the expense of brand building, customer acquisition and revenue growth.

Procurement professionals must take a broader view of their role in the marketing services supply chain if they are to optimize their enterprise value in this important area. Yes, there are a plethora of opportunities for improving an advertiser’s cost basis, streamlining vendor networks and enhancing their agency stewardship controls through the application of sound procurement practices. However, these efforts must be complemented by pragmatic processes designed to leverage an organization’s marketing resource investment in driving the demand side of the business. For example, contracts which provide the organization with the requisite legal, financial and intellectual property controls, creative remuneration systems which incent extraordinary effort, vendor performance monitoring systems which provide transparent reporting on a near real-time basis and the use of an analytics based vendor network benchmarking program to gather intelligence on time and material costs at a task level across the supplier network to inform future resource allocation decisions.

Further, as advertising agencies look to evolve their own procurement efforts, advertiser organizations can realize significant value by providing assistance to their partners in collaborating to determine how strategic sourcing can drive cost efficiencies across the strata of 3rd party vendors that represent an important element of an advertisers marketing supply chain. Remember that while an advertisers marketing services vendor network might number a few to a few dozen agency partners, those agencies represent the advertisers interest to thousands of 3rd party vendors ranging from illustration studios to talent agencies to production houses to media properties. By focusing efforts in these areas Procurement will realize their near-term cost reduction targets and build a system for driving marketing performance for many years to come.

As the old Chinese proverb goes; “Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.” Interested in reading more on this topic? Check out the article by David Rae on the Procurement Leaders Blog

How Will Madison Avenue Fair in the Future?

19 Nov

how will madison ave fare?For an industry that has long prided itself on its ability to adapt to change the future will prove interesting for the advertising industry.  Technology driven trends ranging from dynamically generated behavioral driven ad generation to media fragmentation and dramatic changes in consumer media consumption have ushered in a number of changes that must be dealt with during this time of marketing convergence.

Perhaps the most fundamental change is that the industry’s “old” communications model of intrusive media talking at consumers is waning in relevancy in a world where user generated, user shared content forms the basis of a dialogue among consumers’ and between consumers and brands.

How will agency holding companies and individual agencies structure themselves to deliver services? What services will they offer?  Will there be room for specialist marketing services providers or will we see the re-emergence of the full-service agency (or agency holding company)?  How will compensation practices evolve to reflect the structural changes that are occurring within this market?

While change creates challenges, it also generates opportunities for advertisers and agencies alike. Those that grasp the strategic relevance of the rapidly evolving landscape will emerge as thought leaders and will have an opportunity to establish distinguished positions for their firms. As George Bernard Shaw the Irish playwright and co-founder of the London School of Economics once said:

“Reasonable men adapt themselves to their environment; unreasonable men try to adapt their environment to themselves. Thus all progress is the result of the efforts of unreasonable men.”

Where will your firm fall on the progress continuum? The following Fast Company series on “The Future of Advertising” provides a thought provoking look at what’s next for the advertising industry Read More.

 

Collaboration Enhances Marketing Procurement Process

21 Jul

marketing collaborationMuch has been made regarding the expanding role of the Strategic Sourcing Group in the selection and or negotiations with Marketing Service vendors and the strain it places on both the process and the relationships between the Marketing Team and their resources. This scenario can easily be avoided if Marketing and Strategic Sourcing work collaboratively.

The following tips will enhance the level of cooperation and increase the chances for a successful process:

Overall

  • Both the Marketing Team and their vendors must recognize and respect the Strategic Sourcing Group and their assigned role in helping the enterprise manage their sourcing initiative.
  • All parties (including the vendors) must move beyond the notion regarding the “uniqueness” of Marketing Services and the fact that because these relationships often create intangibles that cannot easily be valued, they should somehow be exempt from the procurement process.
  • Clearly define roles, responsibilities, timelines and desired outcomes and communicate these to everyone involved in the process.

Procurement

  • If you do not have Marketing Services subject matter expertise on your Team, consider the use of an outside procurement consultant or independent contractor with experience in this area to assist your group.
  • Provide a clear process overview to the Marketing Team and their resources prior to the onset of the review and or negotiation activities:
    • Timeline
    • Desired Outcomes
    • Scoring/ Valuation Criteria
    • Roles & Responsibilities
  • Establish compensation methodology guidelines upfront (i.e. value based, project based, fee based, etc…) and the benchmarks that will be used to assist in setting compensation levels.
  • Lead the contract and compensation negotiation process, relying on the Marketing Team for feedback and insight into the impact of the negotiation outcomes on their deliverables.
  • Work diligently to ensure that there is a level playing field for all participants.

Marketing

  • Remember, you have been charged with managing your organization’s Marketing Service vendor network. As such you should work diligently to support the efforts of your partners in Strategic Sourcing throughout the entire process… whether you lobbied for their involvement in the process or not.
  • Clearly communicate your expectations of the process:
    • Desired Outcomes
    • Capabilities/ resources required of the vendor or prospective vendor
    • Clear and concise scope of services
    • Method and criteria that you will employ for evaluating the performance of the vendor
  • Quantify the potential risks/ costs to the organization in the event that a change in vendors occurs and the impact on the roles and responsibilities of the other firms in your Marketing Services network.
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