Agencies deserve a fair profit. Marketers need to scrutinize every dollar spent. That's the ongoing battle being fought in the trenches.
Clients -- and not only the biggest corporations but smaller companies, too -- are increasingly turning to their procurement specialists when purchasing a myriad of marketing services. The trend has prompted consternation in some circles that what's valued by marketers and their procurement departments in agency relationships is sometimes not creativity as much as it is (low) cost.
Still, some agencies are perpetuating the problem as they continue to haggle for every last dollar: This is especially an issue when it comes to media-buying, production and other services that tend to be viewed by clients as "commodities," which can be secured for lower fees, as opposed to creative ideas and management skills, which some clients recognize are harder to duplicate. For these skills, an agency is likely to be appropriately compensated.
Amazingly, even when it means cutting fees to unreasonable levels, some agencies seem like they're willing to do anything to prevent marketers from taking their business elsewhere or launching a review. So they gradually, and painfully, lose the battle of acceptable profitability.
When marketers and agencies haggle over fees and then split the difference, both often walk away unhappy. A better way is to focus on what's most important for each side: a reasonable profit for the agency and concrete results for the client.
This approach is not unlike the art of Judo, which is defined as "turning an opponent's force and energy to one's own advantage rather than opposing it directly." When you use the Judo approach, you can give the other party what it wants on your terms, getting something you value as much as what the other party wants in return.
Here are four key recommendations that could help improve agency-marketer negotiations:
- Agencies and clients should share more information, including which terms are flexible, earlier on in the negotiation process. This helps avoid erroneous assumptions, failed persuasion and wasted time. Plus, the longer it takes for an area of inflexibility to be revealed, the more likely it is perceived as "gamesmanship," which can stifle the negotiations.
- Clients' procurement professionals should continually strive to better understand their companies' marketing objectives, needs and constraints, to prevent focus diverting to merely securing the lowest price. Again, they should use the Judo approach. Otherwise, each focuses on a diametrically opposed objective: the right deliverable vs. the lowest cost. Whichever side wins this battle can lose the war -- wasted funds, inadequate profitability, unmet expectations or sub-par service (when agencies assign junior people to earn some level of profit).
- Key individuals from both parties should be involved early in the process. These include procurement specialists, finance professionals and authorized budget holders on the marketer's side; and the account team, internal support teams and finance management for the agency's side. Individuals on the marketer's team should proactively engage their procurement specialists early on to create a collaborative atmosphere, and not be afraid that procurement will derail the process or cause unacceptable delays. Sometimes the marketer's representatives wait until the scope of work has been decided -- or even will begin work -- and then ask procurement to "sign off" on a purchase order. This creates an adversarial relationship and minimizes procurement's effectiveness, often leading to unproductive price haggling or persuasion.
- An agency that enjoys a good working relationship with a client should recognize its power when dealing with the marketer's procurement people -- especially when recent campaigns have met or exceeded expectations. Without this level of performance, procurement is more likely to initiate an agency change, where the opportunity to save money is large and the risk of diminished performance is small. When an agency meets or exceeds expectations, procurement may still "negotiate," but the chance of the agency losing business if it doesn't give into demands is much less likely.
Despite our new norm of an economy, agencies and marketers can get along. Their negotiation shouldn't turn into endless sessions of haggling over fees. It should be a productive process requiring extensive preparation on fees, profit levels, limit positions and other variables. And if done right, both parties win.
|ABOUT THE AUTHOR|
Sandy Sbarra is VP at Parsippany, N.J.-based Scotwork NA, the North American division of Scotwork Negotiating Skills.