When Neil Christie, MD of Wieden and Kennedy, was asked to speak at ProcureCon Marketing, a conference aimed at procurement professionals, our Finance Director Bronwen Hemming thought it was a great opportunity to go and listen to what those Procurement types were really saying about our Industry and Agency compensation models.
It got off to a shaky start when the first speaker, talking about “Developing open relationships with creative agencies for a win-win mindset”, recounted a story in which he was extremely pleased to report that the incumbent global agency had won a re-pitch. My instant thought was, why put an agency through that if you have an open relationship? To drive the price down by the threat of losing the business is the reason that came to mind. Not exactly win-win.
But then something startling happened. It began gently with a great working example where a procurement team, in a large retail business, deployed a new asset management system that focused on reducing POS wastage. Now that’s a sensible way to save costs. Do less and maximise its potential. Nice one.
Then talk by talk, it started gaining momentum - measuring and maximising value. This is where you, the budding procurement professional need to step up and up-skill. Stop focusing on cost reduction and work out how to improve Marketing ROI. The speech by Gerry Preece, former P&G Global Procurement Director, was really quite inspiring and echoed what we agency folk have been thinking for many years. Your spend with us is an Investment, not a cost. You need to work with us as a partner, not a supplier. Basing your procurement KPIs cost savings is not going to get you to the best work. Your KPI metrics should be based on measuring and maximising value. Gerry was so passionate about this, he even had a new job title for everyone in the room. Stop calling yourself Marketing Procurement Manager and start calling yourself Marketing Investment Manager. I almost stood up and applauded at that point.
It felt like a sea change. Is this really where procurement is now finally headed? Will I be engaged in conversations now about the value of outputs, instead of continually justifying rate cards and being asked to knock off a few bob, so procurement can hit their savings KPIs?
But how do you measure “value”? This is where things became a little unclear.
Payment By Results (PBR) mechanisms were the keen favourite remuneration mechanic, dividing into subjective (evaluation of agency performance) and objective (sales, share, tracking) measures. It definitely helps to define success and have a clear sense of shared accountability for activity. However, from my experience, it is often hard to isolate the effect of advertising on sales and commercial goals, leading to protracted negotiations and excessively complex schemes. It can actually end up being demotivating for agencies – PFA showed that only 1/3 of agencies on PBR schemes earned even 50% of their maximum PBR entitlement. As Neil Christie mentioned in his speech “I’ve had a client openly tell me, in a year where he agreed we had smashed the targets, “We can’t pay you 100% or you’ll have no incentive to improve next year.” If large sums of money are at stake, there can be an incentive for marketers to ‘save’ by marking down agency performance. From an agency viewpoint, it often feels like agencies are the only ones carrying the risk in these remuneration models, especially when we have agreed to risk some of our margin to the PBR scheme. If they are truly developed with a framework based on treating the Agency as a partner, to be able to share in rewards (above our normal margins), then let’s work harder together, Agencies, Marketing and Procurement to find fair and rewarding measurements on Value.
So what else can procurement, or the newly appointed “Marketing Investment Manager” do to maximise the return on marketing spend? There were some frank suggestions from the Agency speakers: have a clear scope of work, come to us already aligned with your marketing department on strategy, look internally at your own processes in addition to focusing on agency efficiency/price reductions, be up front about what money you have to spend, have an understanding that cheap will not get you the best talent/value and lastly, let us work collaboratively to solve your business problems.
After two days of procurement talks, it felt positive that there was a change from a pure cost reduction focus to investment and managing that investment. But, the reality is though, in that room of procurement professionals who all genuinely seemed to be supportive of this new focus, when a hands up poll was done of, “Are your KPIs based on savings targets?” the overwhelming response was still, “Yes”.