Advertising agencies have to grow up. And quick.

Posted on Wednesday, November 18 by
David Rae in Marketing Services Procurement, Services Procurement, Strategic Sourcing, Supplier Relationship Management |
A guest post earlier this week, written by Ralph Daniel of Third i Marketing, points to a recent study conducted by Advertising Age magazine and how it discovered that fewer than one in ten marketing procurers have experience in marketing.

It wasn’t particularly scientific work, comprising of looking through the LinkedIn profiles of marketing procurement folk. Neither did it satisfactorily address the more important question of whether marketing experience is actually something that those who buy marketing services should have. I would argue not, Advertising Age would no doubt disagree.
Take this comment by Miriam Frawley, a principal of e-Diner Design & Marketing, New York, who claims she was there at the beginning of aggressive sourcing. “What’s happening now is that it’s all data based,” she told Advertising Age.
Good. Spending huge amounts of money on one of the largest categories of indirect spend (for many, the largest) without recourse to solid data is irresponsible at best and, at worst, directly conflicts the ultimate goal of maximising shareholder value.
Neither can these agency folk argue that the process is solely a penny-pinching exercise, where procurement is making huge corporate-wide marketing decisions on their own. The uncomfortable truth for agencies is that the chief marketing officer is in on this development. The squeeze in fees that the advertising industry is experiencing is as a result of better communication between marketing and procurement, not worse. The end result, as far as the CMO is concerned, is that their marketing dollar goes further – without a drop in quality.
It’s an uncomfortable truth.
But there is something of a gathering of momentum. At the Advertising Age Awards, procurement was in the limelight again as various agency folk complained of its influence. And the magazine’s editor Jonah Bloom delivered a critique of procurement at a recent conference where he complained of the dwindling margins of the agency industry.
In his speech, Bloom mentions an “obsession with ROI” as if it’s a bad thing and noted that the margins of the world’s top-100 advertisers had dropped by just 0.1% to 11.5% while that of agencies had dropped by 1.7% to 10.5%.
Now, time to take a breath. Have we not just navigated one of the most challenging economic crashes in the best part of a century? Are companies the world over not continuing to go bankrupt? Or did I dream all of that?
I find the whole debate a bit disturbing – as if creative talent (of which I believe in and stand behind – writers are, after all, creatives, as are the photographers and illustrators we use) believes it lives in a different world where something as crazy as return on investment doesn’t exist.
Matthias Gutzmann, the vice president of international operations of the Procurement Leaders Network, recently joined a group of procurement executives in meeting with senior representatives of the advertising agency industry. He reported back on a productive and informative session.
It’s through this type of communication that agencies will understand better how procurement works, and vice versa – not by throwing rattles out of the pram and complaining that buyers are making multi-million pound investment decisions based on good data and return on investment calculations.

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Reader Comments (5)

If you'd listened to my speech in its entirety, or read Ad Age with any regularity over the last 10 years, you'd know that we are not critics of the notion of measurement, ROI or even procurement. Indeed for decades (and particularly in the last decade) we've championed anything and everything that will enable marketers to better understand the data available to them and make more informed decisions. We've also repeatedly, probably to the point of being extremely boring at times, stressed the need for accountability and an ROI based on business metrics -- not fluffy brand metrics. Few in the marketing world would disagree that a clear determination of expected ROI and real-time monitoring of ROI, must be built into to any work done to connect product or service with consumer.
However, it is our feeling based on a great deal of reporting and research, that there's been a shift this year that goes well beyond good practice/extracting value and into the realm of bullying. There were at least half a dozen times this year when multiple sources reported that a procurement-led review had resulted in an agency essentially doing business on an account at cost, even at a loss. You could argue that this is about supply and demand -- there is clearly an oversupply of agency services, giving all the leverage to the buyer of those services and enabling them to drive down the price.
But my central point - as I was addressing the buyers, not the sellers - was that at some point you drive the price down to such a degree that you get considerably worse service (regardless of what you're lead to expect during the buying and negotiating process), and you prevent your agency partner re-investing in the talent and technology that they will need. In other words, procurement stops being about what it should be about - ensuring value, clear grounds for measuring performance and some incentive for good performance - and starts being about diminishing returns for both sides.
It's tough to evaluate, and if you've done the reporting too and find our reporting inaccurate, I think people should hear about it--indeed, I'd be happy to publish it. But the above is an over-simplification of the case that Ad Age and some marketing industry leaders are making. No one that I know is saying procurement practices shouldn't exist; everyone of any caliber in the marketing business strongly espouses the notion of ROI; what we're critical of is bad procurement practice. I would expect procurement leaders to be similarly critical of what's happened in many cases this year.

November 18, 2009 |
Jonah Bloom

As one of the apparently rare Marketing Procurement guys with a blue chip Marketing pedigree, I have to say that the issue of agencies whingeing about nasty Procurement guys threatening their margins is not a new one. That said, bad practice is bad practice, whether Marketing Procurement or otherwise. If Procurement guys are simply focussing on reducing input costs across the board, then shame on them. All they'll do is wind up the agencies and upset their Marketing stakeholders because their needs will not be being met.
The keys to effective Marketing Procurement are frankly no different to any other category.
1. Really understand the stakeholders' business needs
2. Really understand your marketplace
3. Use commercial insight to develop the right strategy to deliver business benefits that reflect the business needs and value sought. This needs to focus on driving value in for those sub categories where the upside of success is proportionately so much higher than the cost benefit of shaving a couple of quid off an agency planner's day rate! On the other hand, there are sub categories where (assuming certain levels of quality, service, consistency etc) one should be ruthlessly aggressive around cost - think about Marketing Production, and Promotional Materials and Merchandise.
4. Work hand in hand with business stakeholders to deliver the strategy
Until Marketing Procurement guys apply simple segmentation of the category and recognise that different areas of marketing spend will require different commercial strategies, then the accusations levelled about bad practice will, unfortunately, continue to hold true.

November 24, 2009 |
Simon Soothill

What may accelerate this process, is the possibility to buy marketing services as if they were commodities, and that as a purchase2pay process: The German buyers alliance "BME e. V." just awarded such a system (by the way: last year the award also went to a project concerning service procurement).
The "problem" for advertising agencies is, that this way their services will be made comparable. Something, no advertiser really thought to happen ever.

November 25, 2009 |
Andreas Knepper

The issue is not the experience of the procurement professional it is their methodology and approach to the category.
Read "Beware the hit and run Procurement Professional" on my blog http://www.trinityp3.com/blog/2009/10/beware-of-the-hitandrun-procur.php
In a category traditionally poor in providing value metrics, it is easy for procurement to become cost driven at the expense of value.
This is why increasingly marketing and their suppliers can think of procurement as knowing the cost of everything and the value of nothing.
But are the marketers and their suppliers providing the relevant metrics and information which allows procurement to account for value in the category?

December 4, 2009 |
Darren Woolley

Let's not even begin to talk about bad practice on the side of marketing...! Of course there's good and bad practice on both sides.
What's at the heart of this debate is who's qualified to judge cost and value. And I think the answer is neither party on their own. I've found that when marketing and procurement work closely together generally you have a well run, thorough and balanced selection process that achieves the goals for the business and that most suppliers are satisfied with.
Some suppliers (usually the unsuccessful ones) will always find a reason to grumble. When it's a procurement-led process you hear the 'cost of everything, value of nothing' stuff, yet when it's a marketing-led process you hear 'there were no rational measures in place'.
Greater collaboration between marketing and procurement can mitigate some of this but regardless of how robust the process is it's simply easier to blame someone else for failure.

December 10, 2009 |
Steve Antoniewicz