Comment & Analysis: "Harnessing marketing procurement's ability to do more with less"

Date: 30/01/2009

A quarterly article from WFA Managing Director Stephan Loerke (.doc file available at bottom of page).

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"Harnessing marketing procurement's ability to do more with less"

Industry confidence has taken a dive with news of recession dominating the front pages. Almost without exception, ad spend forecasts have been revised downwards. Amidst the gloom, profit warnings are sounding with greater frequency. As consumers rein in spending, businesses follow suit. Anticipating falling sales, the money men are battening down the hatches.

But short-term savings can undermine long-term strategic interests. More so now than in recessions past, strong brands built on effective marketing are seen as key drivers of growth. Recent surveys of CMOs suggest marketing is more important than ever during tough economic times: Continued investment will be key to maintaining share of voice, market share, and riding the current downturn.

Doing More with Less

Marketers will need to do more with less, and be savvy in managing the costs associated with their campaigns. As such, brand stewards would do well to turn to their procurement colleagues as those ideally placed to help them maximize the resources at their disposal.

Marketing procurement has an important role to play in optimizing marketing spend by deploying traditional procurement processes to manage investment in marketing services suppliers across multiple brands. Procurement is more common in above-the-line, strategic areas of marketing services such as media space and creative, but increasingly is being used in below-the-line tactical communications, including direct mail, branded and promotional merchandise, and printed materials.           

There is still a misperception in some industry circles that procurement is just about cost cutting, reflecting a lack of understanding that strategic marketing sourcing specialists are trying to help marketing use their budgets to best effect.

Of course, this can only be achieved in conjunction with marketing support, and here lies the crux: To deliver win-wins in the current economic context, more than ever both sides need to rally around projects that can deliver the most mutual benefit.

Delivering Win-Wins

So, how can this be done?

1. When budgets are being slashed, large costs such as media spend stand out above all others. Procurement experts have long been using tools to measure price and volume relationships in other spending categories, and these can easily be applied to media, enabling informed decisions based on firm analysis that can potentially result in budget redeployment rather than cuts.

2. Businesses need marketers to work with agencies to deliver great creative campaigns, focusing on the core brand strategy. This is their role. But they also need the processes and efficiencies that are used in dealing with these creative partners to be rigorous and transparent. Procurement can help identify the easy wins and cost savings that can be made through streamlining processes or supplier rosters, run supplier relationship management programmes, request for information/quotation (RFI/RFQ) execution, and more. In short, they can work alongside marketing and agencies and help both sides do their jobs more effectively - freeing time to develop even better creative.

3. Hard data on actual commercial production expenses provide the best foundation for driving production decisions and negotiating costs. It is an area that many marketing sourcing specialists are now developing benchmarks on, given the rise of competent third-party publishing companies and production houses. Advertising production is one spend area where there are clear ways for procurement to pick off the easy wins that curry favor with senior marketing stakeholders - selling the case for further involvement.

These approaches demonstrate how procurement can reduce the burden of cost pressure around marketing, freeing resources to concentrate on brand strategy and campaign execution. Strategic sourcing should be an enabler for marketing. Perhaps the best example of how this can work is through supply chain de-coupling.

Meaningful Cost Savings

"De-coupling" is a term most frequently associated with economics. It describes the briefly fashionable theory that the emergent economies of Asia would thrive independently from the troubles of more mature Western economies. The theory has largely been discredited by current financial market events - unsurprisingly, perhaps, given that Asian economies depend heavily on Western export markets, Western technology, and Western investment.

De-coupling, or "unbundling," the marketing services supply chain involves breaking out individual campaign elements to understand the various cost components. Significant cost savings can be realized by moving post-creative production management responsibilities into specialist companies, which manage anything from artwork production and asset management to print production and fulfilment. According to World Federation of Advertisers (WFA) research, procurement scrutiny of production spend areas can routinely deliver 17-25 percent real savings, across TV and print in particular. Individual case studies have shown savings far higher than that in other areas.

More often than not, clients using this approach have worked on unbundling print production from agencies, outsourcing directly to a studio or print management house (thus using their creative agency up until the master artwork stage). Some companies go further and build their own production capabilities, effectively "insourcing" certain elements of production. This has proven to be just as effective at saving costs, and enables close control of creative quality, but is a resource-intensive exercise that requires significant expertise.

De-coupling production costs can bring two related benefits: better transparency of expenditures throughout the supply chain, and better control of agency costs. However, these increased efficiencies must not put the brand at risk. Naturally, sensitivities abound. The main criticism is that creative quality must suffer if the agency does not have full control of the process. Most marketers report that their agencies are either initially not in favor or only went along with the project to keep the client's business. Despite this fear, WFA research shows that in more than half of the cases examined, the number of agencies used on a regional or global level by respondents remained the same.

While it is true that many companies choose to use de-coupling on less strategic campaigns, some markers put it at the heart of their partnerships with agencies. In the UK, the government's communications planning arm - the Central Office of Information (COI) - uses a de-coupled approach with all of its communications suppliers. The COI ranks among the top five UK TV ad spenders on a yearly basis and runs multiple national public information campaigns across all media. Despite selling a very different message to industry, the approach is much the same: To streamline and search for efficiencies in the UK Government's commercial relationships with suppliers, reflecting the current demands on procurement's involvement in marketing spend and the requirement for accountability.

Peter Buchanan, the COI's deputy chief executive, is an exponent of de-coupling, and claims that its success at COI is down to investing in appropriate in-house resources, involving the agency creative team throughout the process, accessing the latest technology, and developing specialist knowledge. Buchanan believes that this process delivers cost savings but also adds value by bringing the client closer to the creative.

Potential Pitfalls

But de-coupling is not for everyone and cannot be considered a short-term fix for a quick saving. Shared responsibility for production delivery often leads to a loss of ownership, and procurement specialists are well aware that managing this type of activity requires much more competence and category expertise within strategic sourcing. Members of the WFA's Global Communications Marketing Procurement Group (COMPAG) have set out some broad considerations for how businesses should approach de-coupling initiatives.

- Strong partnership from regional and global stakeholders and top-down initiation is important for driving uptake during the rollout period.

- Understand precisely what you are buying and define a clear scope of work with quantified volumes.

- It is crucial to engage and align the creative agency and marketing on targets in all phases so they understand what is happening and are part of the process. Otherwise, it can be difficult to overcome the misperception that de-coupling will reduce quality.

- Avoid the potential roadblock of the agency being reluctant to cede control of the final work. Closely involve agency personnel in the production pitch so that they engage fully with the newly appointed production agency and have confidence in its ability.

- Watch that incumbent agencies that are not bought into the project provide timely responses to requests for data - delays at the beginning can jeopardize uptake in marketing. Similarly, a big challenge is to identify current costs with agencies and monitor transparency continually, as costs can be loaded back into contracts elsewhere. Of course, this can also happen with production houses.

- Decide on the approach: direct buying, via agency, with or without consultant. Consider involving third-party experts throughout the process. Running a pilot across two different areas is one way to ensure the right choice of de-coupling partner. This is especially important if your internal spend/services purchased data is unclear.

Best Practices

Current economics make a strong case for strategic sourcing's involvement in the marketing category. All the more so since industry associations - like the ANA in the U.S. and the WFA globally - are helping specialists of this relatively new discipline to leverage insights to assist them in their day-to-day job of adding value to the marketing supply chain.

At a time when campaigns must resonate with a cost-conscious consumer, the ANA and the WFA must help find innovative, creative, and actionable ways for marketers to get more for less from their marketing budgets.

 

Stephan Loerke is managing director of the World Federation of Advertisers.

For more information on WFA's network of marketing procurement specialists, please contact Steve Lightfoot.

 


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Quarterly article.doc