Did you hear the one about the agency exec told to fly from Seattle to a hotel outside of Washington, D.C., to await a next-morning phone call telling him whether he'd been selected to negotiate for the account he was pitching -- oh, and on the return trip to New York, the client was on the same flight with him?
How about the client who demanded its agency lower by 20% not its fees, but the baseline pricing for the time it bought on the client's behalf? Or the client who was seated in the back of a plane when his agency's executives waved to him on their way to first class, only to later receive a bill for the shop's first-class fare?
These are true stories that were told by Mark O' Brien, president-North America, DDB Worldwide; Bill Koenigsberg, president-CEO of Horizon Media; and Pablo Carreno, global category group procurement manager, marketing, Nokia, respectively, at an Advertising Week panel today on procurement.
"One of the most important relationships in the marketing community is between the advertiser and the agency, and over the years we have consistently screwed that up through various conflicts," said Bob Liodice, president-CEO of the ANA, who moderated with Group Exec VP Bill Duggan. "One recent screw-ups has been the mismanagement of the relationship between procurement, marketing and agencies."
Throughout the 90-minute panel, the group talked about better ways to manage that relationship. The upshot was that clearer collaboration, communication and transparency is needed among three constituencies: internal marketing departments, agencies and internal procurement departments. But what seemed like the clearest solution was the most common-sense one: All parties must have reasonable expectations, of both themselves and their partners.
Melissa Sassi, director-marketing sourcing and vendor management at Blackrock, spoke of an instance when a PR agency won an account with a cost "dramatically lower" than what she expected. Soon after, the shop came back to her asking to renegotiate, admitting that it was losing massive amounts of money. "Didn't you know the fee was ridiculously low?" questioned Mr. Koeningsberg. "Why should it be procurement's goal to say 'You don't know your costs and should raise them?'" answered back Mr. Carreno.
"We have to learn to say 'No,'" said Mr. Koeningsberg. "We are an independent and we can say no," he said, because there is no public holding company to answer to at Horizon. But as an industry, he added, "sometimes we are our own worst enemies."
Rob Guenette, CEO of Taxi, said that his shop recently won an account and in pre-negotiation was told by the client that it was not factoring in enough headcount. "They said 'Build it into your fee because we are going to kill you'" with time and talent demands much higher than average, he said.
Sometimes we hire an agency to do X," said Mr. Carreno, "and now we need them to do three times X. And they don't want to say no."
DDB's Mr. O' Brien mentioned a long-time client that asked the agency every year, "How much more can we save?" He noted that after a certain number of years of cutting every corner, there may simply be no more savings to wring.
Even within one organization, the marketing department and the procurement department can be out of sync, with the former being defensive about savings extracted from the marketing budget going to the bottom line. The overall goal should be adding value rather than strictly savings, said Ms. Sassi and Tara Ennis, marketing-services procurement director at Johnson & Johnson.
One big mistake marketers make is reviewing to cut costs. "The RFP is not a blunt instrument," said Mr. Carreo, decrying marketers who use it as weapon to bring costs down. "Let's not go for that first. Maybe once every four or five years [you might consider an RFP]. Not because you need to take 10% of costs out."
Making it tougher is the complexity of new media, said Taxi's Mr. Guenette. "We have to explain to our client it doesn't scale. In the digital world you need a lot more people," including high-salaried specialists. "What keeps me awake at night is serious downward pressure on our gross margins" when it comes to digital, he said.
One solution is to leverage agencies' existing strength as procurers of media time. Mr. O' Brien said DDB is considering setting up its own procurement group on behalf of its clients as an in-house capability. Agencies are also increasingly hiring procurement executives from marketers: AB InBev's global manager of procurement, Brett Colbert, for example, is now chief procurement officer at MDC.
What can be done on the client side to make procurement work more closely with marketing? Well, the department could be dismantled as a separate entity and embedded into the marketing team, suggested Mr. Guenette. Or the name "procurement" itself could be changed to something more uplifting, he joked. "Right now, it's about as motivating as a vegetarian haggis."
