Time for ad world to meet the real world

Procurement is a fact of life; instead of whining, agencies must learn to appreciate its value

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There is a rising amount of wailing among marketing-services companies about the involvement of the client purchasing function in their relationship. The international media agencies talk of 70% of business pitches being "run" by the procurement department. Senior executives at many creative agencies are quite depressed about this trend and see it as "yet another sign" of their fading relationship with the marketing client.

The short response to all this is, "Welcome to the real world," as most of the agencies' clients have had to deal with a purchasing department or hard-nosed buyers almost from the day they started work.

But is there a difference (apart from the one of getting procurement executives to buy "ideas")? Are the standards applied to the purchasing process between agencies and marketers too often of a lower standard than that applied in other sectors?

A common starting point to the debate is that, despite all the advice agencies give their clients, they themselves are too frequently insufficiently differentiated. And in an over-supplied market, that is dangerous.

Most buyers try to convince the seller that he is only offering a commodity, therefore the decision is based entirely on price and not quality. To wobble the sellers' confidence is an instinct for the buyer; I remember practicing it myself in the media-agency sector. In an ideal world, what you are looking to do is buy the highest quality at the lowest price. That's fine, but who is deciding on "the highest quality"? Initially, when I worked in advertising-agency media departments, I was a planner/buyer and performed both functions-starting as a thoughtful planner interacting with the agency departments and the client, but morphing into a snarling buyer when I met the media owner. This is quite a challenge for most people, and perhaps it's not surprising that the process is now nearly always split. This is by no means a perfect solution, but usually there has been a quality input at the start in the interests of producing the most effective plan, even if the media owner doesn't appreciate this process (more on this later). It goes wrong-and has always gone wrong-if the buyer has the power and the planner is insufficiently strong or interested to influence the quality of what's being bought.

'Good cop, bad cop'

And isn't that exactly what's happening too often when clients are buying agency services? A typical example was the Kellogg media-buying review last autumn with Ad Age reporting that the review was being handled by the procurement department. I don't know the details of that pitch, but on both sides of the Atlantic too many CMOs are walking away from their responsibility and leaving everything to procurement. I certainly understand the "good cop, bad cop" approach to negotiation where the CMO protects the relationship, gets the agency what he/she wants and leaves procurement to drive down the price. But too often it doesn't work that way.

There can be no issue with the procurement process being applied in all areas of business, and marketing certainly shouldn't be regarded as a "no go" area.

There is a range of approaches to purchasing, and the one the marketing sector doesn't need is the purchasing animal that is unleashed to brutally drive down costs regardless of anything else. Many retail buyers would fill this bill. This is the man who "knows the price of everything and the value of nothing." Well, when these guys are around and left to themselves they are lethal-to their own company as well as to the suppliers.

But let's concentrate on how things should be-and sometimes are.

It may be a million miles away from the marketing world, but can we learn anything from how most Councils operate in England? There the purchasing department is briefed to find "the most economically advantageous" solution. The start of the process is to sit down together, decide on all the elements that will influence the decision and then score them. Price never influences more than 50%of the decision.

Of course, this well-intentioned approach can allow decisions to be heavily influenced by ideology or political correctness. Nirmalya Kumar, professor of marketing at London Business School, has been studying purchasing practice both internationally and across many markets. It is clear that wailing about being "commoditized" is a very limp response. He points out that Holzen, the world's biggest cement company (surely the ultimate "commodity"), makes the same return on sales as Procter &Gamble.

He is unequivocal in his advice: "Don't talk or focus on your costs and how/if you're going to reduce them, concentrate on their costs and how to reduce them." This is all about helping to make clients more productive-finding out how they work and helping them to work better (i.e. P&G helping Wal-Mart with its systems). This means becoming fully involved in understanding their process, and it takes considerable time and application to achieve this, and precious few marketing-services companies would dream of doing that.

How to miss something big

This is the agencies' Achilles' heel-if they can't produce the data and demonstrate a difference or aren't able or willing to really understand all aspects of how their clients' marketing department really works, then maybe it's their fault they're reduced to negotiating solely on their price.

Although a large part of the blame for this state of affairs rests with the marketing-services sector, experience suggests that a significant proportion of purchasing executives still dismiss any effort at a more rounded conversation concerning improvements in process: "I don't know about all that; it's got nothing to do with me. I'm here to negotiate reductions on last year's costs!" If the agency feels it has the answers, it must have the relationship to get to the CMO (and higher if he or she won't listen).

However, the fault may anyway lie with the senior management of the company rather than the purchasing department. It is interesting that the Chartered Institute of Purchasing and Supplies has a checklist for CEOs, and one question is: "Do you direct your purchasing people to reduce prices by X% each year, or do you direct them to achieve cost-effective, risk-controlled added value?"

With CMOs under increasing pressure on both sides of the Atlantic for short-term results with fewer staff, it must be tempting to leave everything to the procurement department. Well, that's when you miss something.

The best example of this is staring us all in the face. The popular practice of having buying departments handle all media buying has produced cheap rates, but in an era when the challenge of really engaging your audience is becoming more important than the price you pay for "spots and space," it has badly backfired.

Media owners have the content, the shows, the formats, the promotions and the ideas. The source of new ideas for cutting through the clutter is overwhelmingly coming from the media. So whom do they go to with those ideas? Not to the guys who screw them on price all the time-the media buyers. They go to the clients directly.

Currently, the client seems to let the media agency take its commission on such "events," but if ever there was a danger of disintermediation, this is it. And ironically, it's been brought by the agencies' own ability to distinguish between quality and price.

It helps to remember how we got here.

Out in the real world we are faced with this issue many times a day. We look at the price and we look-or feel-the quality and decide on the right balance for us at that time in terms of value. And thanks to the internet, the amount of data to help (or confuse) us increases exponentially.

But we do it, often instinctively, and find what is the right value for us individually. We usually get it right and if we don't, we know straight away and learn from it.

That's the magic; Joe Doe does it almost perfectly, and all the debate about procurement in industry and government is an effort-or ought to be-to replace this simplicity in big, complex organizations.

So what can we learn?

Someone has to be responsible for deciding value, the blend of quality and price.

That person must have "real-world" experience of their market. (CMOs cannot avoid that responsibility: Their team is the best one to decide the value of ideas, not the purchasing department.)

The purchasing process should include evaluation of improvements in marketing department/process efficiency. The purchasing department should be empowered to help achieve this.

Agencies need to step outside their specialized world and invest more time in fully understanding the client's marketing process.

Given the above, agencies can stop wailing about "purchasing" and see that good procurement can make the process of being appointed by, and working with, clients much more professional and efficient.

Chris Ingram ... is founding partner of The Ingram Partnership, a strategic consultancy specializing in brand-building for senior management, and a writer and speaker on branding, communications and entrepreneurialism.
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