Marketing, procurement and
advertising professionals know there is a reservoir of untapped value in their
relationships. Indeed, they have recognised this for some years. An attempt by their
respective trade bodies – CIPS, ISBA and the IPA – in 2006 to find more
productive ways of working produced a book on best practice by Marilyn Baxter
called Magic and Logic. But the move appears to have inspired little change.
Why is this?
Marketers don’t feel they
are getting optimal value from their agencies – they don’t want to buy by the
hour, but in the absence of an acceptable alternative, they feel they have
little choice. Meanwhile, procurement still hasn’t achieved the grasp on
marketing that it would like. When procurement teams do get involved, they
adopt aggressive buying strategies with agencies, because saving money can be
their only means by which to add value to their business. And lastly, agencies
are struggling for profits on a par with other professional service industries
– a process that is stifling investment and growth.
The solution that all these
functions seek is a new way of working that provides greater value to the
marketer, savings for procurement, and more profit for the agency. How can this
be achieved? There is a way forward for all parties, but they need to do the
following:
1. Acknowledge complexity
The situation is intricate, so the three functions
need to embrace complexity. Over the past 20 years, as agency remuneration has
shifted from commission to hourly fees, the power base of this transactional
relationship has moved from seller to buyer. This shift has been strengthened
by the arrival of procurement departments.
Marketing,
procurement and advertising each have their own talents, skill-sets, needs and
motivations. Many of these are not aligned with each other. Because the three
groups have conflicting objectives – greater value for the marketer, savings
for procurement, and increased profit for the agency – they should acknowledge
that any solution will be complex. They must choose whether to embrace
complexity and change by design, or continue to resist in the belief that
things will improve by default.
2. Review and change
behaviours
The deadlock that has been
created, and that is blocking untapped value, results from the behaviours of
all three groups. In his book On Organizational Learning, Chris Argyris
describes two different kinds of learning – “single-loop” and “double-loop”.
These categories may help in examining the problems of the three-way relationship.
Argyris defines single-loop learning as outward-looking problem-solving. He
suggests that for a potential solution to a problem, people also need the
capacity to look inward and reflect critically on their own behaviour – double-loop
learning.
All three of our stakeholder
groups need to adopt some double-loop learning. Best value is not achieved by
the way procurement negotiates prices, or the way marketers use agency resources,
or the way agencies trade in time and make money from inefficient development
processes. To find a mutually satisfactory way forward, the groups need to
review all these behaviours.
However, even undertaking just
one of these changes will not achieve results. Agency proposals are almost
universally met with suspicion, procurement people are still the pariahs of
most agencies and marketing departments alike, and marketers appear not to
trust either of the other two. To broker a way forward, a multilateral solution
is required – one that satisfies the needs of all groups.
3. Put in place genuine “win-win”
deals
Although two of these
parties’ objectives – making savings and improving profits – might appear
diametrically opposed, they are reconcilable if there is a willingness to
change.
The latest ISBA Paying for
Advertising report revealed record levels of client dissatisfaction with
agencies over costs and transparency, and a belief that agencies are making too
great a profit from their business. Strangely, this sits alongside a downward
trend in the average rates paid to agencies. Had the report said that clients
were up in arms about the diminished value they were getting from agencies, it
would be a different story.
If marketers want to forge
win-win relationships, they need to stop looking at costs and start looking at
value. Engaging strategic or creative services is about buying services to
solve problems that have infinite solutions. As such, a client driving down
price might be given less priority in their agency’s portfolio – thereby being allocated
just mediocre talent, and not benefiting from as much discretionary effort. Most
advertisers ask their agencies for campaigns on a par with the Cadbury Gorilla
or comparethemeerkat.com – yet these rarely emerge from leverage-buying
behaviours.
When clients get it right
and buy hugely effective campaigns, they spend more time managing their growth
and calculating market share increase than poring over their agencies’
timesheets and overhead calculations. When you’re buying services that can
bring about unlimited value, outputs are far more important than inputs. And if
the outputs aren’t up to scratch, there are other options.
4. Address stakeholders’
motivation
Paying agencies well – or,
perhaps, just paying less attention to their profits –satisfies only one of the
three stakeholders’ objectives. To effect lasting change, each party has to be
sufficiently motivated. But the motivation and urgency to change is not the
same for each group.
Advertising agencies urgently
need to change the way they are remunerated, not just because of marketers’
protests but also to survive. Procurement has at least a strong desire to get
further involved in the complexities of marketing. Marketers have the least
compulsion to change – the profession may be feeling the effects of the
recession, but not enough to spark widespread, or even small-scale, measurable
change.
So agencies, which are the
suppliers in the transaction, have the least power and the greatest need for
change; procurement has a desire for change but with no credibility with the
other groups can’t get support; and marketers, which have the greatest power,
seem to have the least motivation of all (see diagram).
To break this cycle, the
industry needs change-agents with the self-awareness and humility to embrace a
solution to a problem in which they themselves are complicit. Such
change-agents will be on the buyer-side of the transaction.
So marketers should motivate
themselves to find new ways of working with their agencies – and new ways of
working themselves – that will involve much more efficient use of agency
resources; a willingness to see their agencies’ businesses succeed; and a
willingness to open their doors and minds to the discipline of procurement.
Procurement could take the
initiative to lead this change. Because of the usually limited role that marketing
concedes to procurement, most agencies have experienced only a leverage-buying
strategy. Yet, as a business discipline, procurement uses many buying
strategies, is familiar with complexity, and manages multi-faceted and difficult
supplier relationships in plenty of other categories. With greater support,
procurement may soon be able to buy marketing services better than its
marketing departments, particularly if it is procurement itself that forms and
leads truly symbiotic relationships with its marketing services supplier base.
Any advertiser and its
marketing services suppliers can establish a way of working that is more
productive for marketers, less expensive for procurement and more profitable
for agencies. But, the question remains: “Which stakeholder has the
self-awareness, the willingness and the power to be the necessary
change-agent?” My money is on procurement.
David Meikle
(dmeikle@saltpartners.co.uk) is founder of Salt Value Management, a marketing
communication procurement consultancy
