Buying marketing: making it work
In March, CPO Agenda, Supply Management and The Marketer magazines hosted a webinar, ‘Marketing services: how to ensure both marketing and procurement win’ in association with ProProcure. 1,000+ buyers and marketers heard from a panel of leading procurement marketing professionals and a Q&A session chaired by CPO Agenda and Supply Management editor, Steve Bagshaw. Here, we summarise the presentations, the polling questions and the Q&A.
By Adam Leach
Barry Mellor, head of marketing procurement at Telefónica UK (O2)
The Telefonica procurement model is in place in 143 companies in 22 countries. Within Telefonica UK (02), marketing procurement is one of four main category teams and I have a group of four category managers who work with me to cover every aspect of 02’s UK marketing spend. Take a leaf out of Sherlock Holmes’ book
Our world starts with an awful lot of what I call high level planning and analysis – the ‘Sherlock Holmes’ stage. It’s really about understanding who our stakeholders are across the business, really getting closer to their requirements, what their current suppliers are spending, what industry landscapes they play in and how these suppliers are positioned. Out of that analysis, we can start to create value- adding projects.
Stakeholders defining what they want to buy
We work with our stakeholders to get on the front foot from the start with agencies by supporting them to define clearly what they want to buy and to encourage them to really take ownership of that specification, rather than allowing a supplier to ‘sell’ a particular service to them. So it’s about taking that ownership from the very beginning and working with our stakeholders to make sure that we’ve really grabbed hold of what it is we want to buy, and ensuring we’ve articulated that in a really clear way. Two procurement heads are better than one
Once we get to a competitive sourcing exercise, we actually hand that over to a group of category agnostic sourcing specialists in our procurement team who manage all of our RFPs with our marketing stakeholders through the process of competitive tender, negotiation and contract award. Our marketing category managers continue to play a supporting and advisory role, but the key message is that we subject our marketing pitch processes to the same selection rigour and process discipline that we would use in any other category of spend.
Capabilities are very clearly assessed, differences in value articulated and final commercial negotiations are conducted with the most capable and appropriate vendors. Once the contracts are signed they are handed back to category managers to manage the ‘in life’ relationship.
Get suppliers to buy like you
We aim through our supplier relationship management activity with key vendors to augment the value and improve the costs within the life of those relationships. One practical manifestation of this in the marketing field is our ‘Tier 2’ programme with our key vendors. This encourages the agencies to create and execute procurement strategies for their client production spend.
We observe that agencies have a lot of technical production expertise, but don’t always have a strategic procurement plan for the client monies under their management. So we ask them to analyse and categorise the spend and devise sub categories to form a coherent overall strategy – and we set targets for the benefits we want to see. Eradicate negative clichés
If we can demonstrate to our marketing stakeholders – that category managers offer added value opportunities through data driven insight; that we can really help our colleagues articulate and measure cost and value; that we have very solid negotiation preparation and planning skills – then we can start to eradicate those well-worn and hackneyed phrases that have been too often used in the past to describe us.
Peter Kirk, head of TV licensing sales and marketing at the BBC
Build a good relationship
To deliver licence fee collection, we work with a number of strategic suppliers. The way we’re structured means that managing licence collection requires a lot of really strong contract management and procurement expertise. I think the starting point of the good relationship we have is that we have very clear roles and responsibilities. Often when teams don’t get on well in a business, it’s because they aren’t clear about their respective roles. We’ve managed to avoid that problem.
In our case, I have responsibility for being the business owner of our marketing contracts and budget. During a pitch, my team will generally project-manage the process.
Assign roles clearly
I don’t particularly subscribe to the view that there’s only one way that procurement and marketing can allocate roles. But what I do think is essential is that whatever way you decide to cut up the roles and responsibilities, it has to be absolutely crystal clear to everyone involved what they are there to do and I think it needs to be equally clear – although it is sometimes overlooked – which way you are going to work together. If I came across a company where there was a problem in the relationship, the first question I would ask is whether everyone is clear about their role and responsibilities because a lack of clarity can often be at the root of a lot of problems between teams – any teams, but including marketing and procurement.
Confine the debate
What can happen is you kick off a pitch and then half way through the process it becomes clear that the two teams that are meant to be working together are actually working to differing objectives. If you find yourself in that situation, you are probably going to get a bad outcome. You absolutely need to have that debate about your objectives, about understanding what procurement is trying to get out of it and what marketing is trying to get out of it.
What we try to do is set aside a slot early in the process where we confine that debate. We sit down together and we’re clear about what we need from the process and then, once we’ve come to a shared agreement, that becomes the shared objective for both teams throughout the life of that project.
Work out what you need, and don’t need
We try to be really clear about what we’re after from our supplier. That scoping out and identification of what you don’t need is often as important as identifying what you do need. You don’t want to be in the situation where you’re paying for something you don’t need in your business. Scoping out and writing down what you need is a crucial part of the process and that is an area I think our procurement team’s expertise adds value to me as a marketer.
Gill East, senior director for global marketing agency and procurement at drinks company BEAM Work to fit your organisational structure
In terms of structure, Beam has a global footprint. There is a complicated combination of wholly owned subsidiaries, joint-venture markets and distributors. Importantly, there are fragmented marketing budgets, which can be challenging.
Within the marketing objectives, as with any global brand, consistency is key, but also local flexibility is essential to be able to activate in market and maximise those local budgets.
From a procurement point of view, as with any initiative on the procurement side, how can we obtain that spend visibility, how can we ensure our marketing budgets stretch as far as possible and what are the efficient working practices?
Most importantly, how can we measure any cost savings? So procurement needs to support marketing as a business partner to improve our results, grow our brands and maximise those marketing funds as far as we can.
Share opportunities between procurement and marketing
The shared opportunities we have between marketing and procurement are a common platform for all business units, ensuring visibility and transparency, faster innovation and speed to market, and sustainable cost savings of at least 20 per cent is targeted where possible. So we need to make sure we have visibility and that transparency so we can make effective decisions. We need to be smart and innovative, especially in the drinks sector that we’re in – we’re looking at new innovations all the time and how we can get those quickly into the market for competitive advantage.
Think globally and locally
We endeavour to ensure we can leverage our volumes through local buying cycles, so we agree twice a year to aggregate demand and pull those requirements in. That gives us the best value from suppliers and we can then tender out as much as we can to the suppliers to get those requirements.
From a global point of view, we need to make sure that the local markets understand what we’re trying to achieve and how we can get the consistency across the brands and activate locally. We need to raise awareness for any global initiatives and we need a platform to be able to communicate that and use that as our vehicle, and we need to deliver global core ranges.
Move to strategic purchasing
We’ve stepped up in procurement, especially in the past year. Procurement is not a service function within Beam, it’s a business partner and, together with sales and marketing, we all work together on the strategic direction of the business. We’ve very much moved to strategic procurement rather than tactical purchasing, but we realise that tactical is still required.
Q&A Session Q: Does the saving you generate go back to the marketing budget of your organisation or does it go to the bottom line?
Gill East (GE): Ultimately it’s decided by the senior management team – our job is to identify it, extract it and capture it. From a marketing point of view, the preference is typically to reinvest, but we’ll make a decision as a senior team on where any savings are deployed.
Peter Kirk (PK): At the BBC, it goes into programmes and services. The less money we can spend on licence fee collection, the more money we can spend on brilliant content that audiences love.
Barry Mellor (BM): Our view is that procurement can create these opportunities and we give senior management the opportunity to decide how that extra value is best re-allocated.
Q: Most of our agencies work on the basis of an agreed rate card with an agreed scope of work, agreed team structure and hours and, on top of that there’s an agreement on overhead recovery and profit margin. We’re comfortable with the appropriate deal on the first point, but unsure how to determine overhead recovery and profit margins other than a formal RFD. What would you advise?
BM: The short answer is if you are running an RFD process and you’ve locked down your specification tightly, which involves locking down the people who are working on the business and time that they’re going to spend on that business, then in a market-driven process I’d argue that you will get the best available price for your specification, quality and capability you are looking for. Only when you are working in isolation with a single vendor – there may be a long-standing relationship with little short-term intention to move – would you want to drill more forensically into all of the component cost drivers.
In this instance, you’ve got to benchmark activity and industry bodies to support you to determine where your component costs sit versus the marketplace.
Q: How long has it taken each of your organisations to go from marketing and procurement first working together to where they are now? What were the key factors in making that step-change?
GE: We started off with the marketing procurement team being part of marketing. I reported to the CMO [Chief Marketing Officer] and that kicked the step change. Then once the relationship was established, we moved to sit within procurement with a dotted line to marketing.
BM: Well, O2 is only 10 years old, but I’d say over the past eight or nine years, we’ve been building this relationship and I’d just re-emphasise that if you present your data, your findings and your insight to your stakeholders with confidence, then the rest follows naturally. It doesn’t always play out in an even pattern as all organisations and people are obviously not the same, but with that bedrock you can always build.
Q: How has the stable cost saving of 20 per cent been achieved?
GE: We recognise that we can’t achieve 20 per cent on everything, but what we’re looking to do is have that as an average. The key for us is to understand the amount of money we’re tracking against and we’ve had a lot of discussions to monitor and identify that. So if we bought it in the past year, we know how much we paid for it and then we can challenge that against volume as well. So 20 per cent is the average we’re looking to achieve across the whole programme.
Q: With different internal businesses, each with their own requirements and budgets, it must be difficult to manage overall marketing spend. Any advice or strategies to manage this effectively?
BM: I think this is where that Sherlock Holmes piece comes in – where all that up-front effort to understand respective requirements and budgets pays off. You’re then in a position to draw stakeholders together to get agreement to harmonise more of their work and leverage the benefits of that either through a single vendor re-negotiation or taking it all through competition.
PK: How the different suppliers work together is one of the key problems that most marketing directors face and I think bringing those teams together and making sure that they focus on the right things is an absolutely essential part of the job. Often it can be the case that rationalising into a smaller number of agencies gets a better marketing outcome as well as a lower cost.
Q: Do BEAM and the BBC have specific marketing procurement personnel or do they buy other commodities?
PK: At the BBC, yes, we have a team specifically dedicated to marketing.
GE: Yes, marketing is the priority, but particularly in Spain – there are some markets where once we’ve delivered the strategic priorities we needed to, then we start to bring in different categories.