Is Marketing A Procurement Blind Spot?
If your marketing expertise is a little below par, don’t despair! Marketers need your help and luckily there’s a lot procurement can do…
How much do you know about ATL, BTL and TTL? Learning marketing speak is the first step in gaining support of your colleagues over the fence and establishing your credibility.
The marketing services category has always been complex one and a bit of a blind spot for procurement. The learning curve is not only steep, it’s also a moving target. We have to invest considerable time in understanding their issues and concerns before we can provide any meaningful assistance. Category managers need to continuously build and refresh internal relationships at all levels; this requires perseverance, patience and stamina. Procurement veterans are fully aware of stakeholder expectations and the importance of having rock-solid relationships with marketing professionals before launching any sourcing projects.
Problems in sourcing marketing services
- The decision makers may have entrenched relationships with advertising agencies and media houses, with or without formal contracts
- There are often too many suppliers for the same or similar services and purchasing outside contracts is commonplace.
- There may be little focus on achieving value for money or measuring effectiveness of the use of their limited budget.
- Negotiation skills may be in short supply
- Pricing models are less than transparent. Traditional agencies have pricing structures that would test the analytical skills of the best procurement professional.
Some good news
On the upside, there is increased pressure on marketing departments to do more with less budget and they need procurement’s help, especially getting better value for money and formalising supply arrangements.
CMOs are becoming increasingly aware of the need to competitively source suppliers periodically, even if their main objective is to generate new and innovative ideas, rather than make cost savings.
Advertising agencies in their traditional form are disappearing; integrated marketing agencies are offering full-service solutions for all marketing requirements including strategy, brand management, advertising, media buying and the full range of digital and social media services. This is a real opportunity for procurement.
Where procurement can add value
Procurement is advised to pick its battles carefully, working from a firm factual base. The basic principles of spend analysis apply: collect and analyse all the data and know the landscape before tackling your target areas
- Develop a skills benchmark for each type of service. Establish what sets of skills are needed and determine fair rates for each
- Apply supply market intelligence to determine the financial competitiveness of existing suppliers. Evaluate their rate cards and pricing against the market. Are they competitive?
Review existing supplier relationships
- Identify incentives to improve relationships with incumbent marketing suppliers, and consolidate the supply base
- Negotiate and improve unsuitable contractual terms and conditions, adjust pricing models and rates in line with benchmarks
Pricing of services
Many agencies use the tried-and-tested approach of consultants: billing is based on time-plus-expenses also erroneously called cost-plus. This is an open-ended billing system based on rate cards that apply hourly or daily rates per each skill level. Problems occur when lower skills are applied to the job while higher rates are billed. Where the scope of work is unclear or subject to change it can work but a cap should be set with only a small percentage overrun of the budget allowed. Beware scope creep.
It is crucial to gain an understanding of other fees and mark-ups such as media commissions, margins on production costs and printing costs. Where do rebates end up?
Measuring supplier performance
Managing supplier relationships with marketing firms needs to be focused on minimising bad behaviours and rewarding and incentivising those who deliver as per pre-defined requirements. Marketing departments may not necessarily have targets for upholding quality, reducing costs and measuring process improvements, procurement teams certainly do.
5 Top tips for getting along with marketing
- Understand important marketing concepts and terminology and recognize how marketing decisions support the company’s objectives.
- Invest time in building relationships and understanding the day-to-day challenges. Category managers should reassure marketing teams that they understand the value of strong relationships with creative agencies.
- Pick your battles. Identify areas that procurement can really influence
- Know your stuff – drill down into the data and understand the detail so that you can discuss issues intelligently
- Procurement should share stories of how they helped other functions in the business in ways that Marketing can relate to. Find ways to translate sourcing ideas into their language.
The ability to tactfully handle supplier/marketing/procurement relationships is the key to success. There are no secret tricks, just applying sourcing and contracting best practices will pay off provided that you prioritise service and performance standards over cost savings.
Do you want to be embraced warmly by marketing? Know your numbers, respect their skills and ideas and work together to develop solutions that will work for both functions. Many marketing functions trundle along with little or no support from procurement.
Whose fault is that?