Marketing Math Blog

What is it About Procurement That Ad Agencies Dislike?

By Advertisers, Advertising Agencies, Marketing Procurement No Comments

agency client procurement relationshipBriefly, it appeared as though Strategic Sourcing, client-side Marketing and Agency professionals were engaged in constructive dialogue regarding procurement’s role in the marketing services arena.  That is until representatives from the ad agency community took to their soap boxes and railed against corporate procurement’s role.

Why do certain agency community representatives continue to wage a public battle to minimize or eliminate the influence of procurement in the agency sourcing process?  Perhaps one has to move beyond the seemingly endless diatribe about procurement’s “lack of understanding” of how to value an agency’s contribution or the intangible nature of agency deliverables on brand health or procurement’s role in driving agency margins down to get to the root cause of their concern.

After all, forging strong alliances with Strategic Sourcing professionals represents an opportunity for agencies and should be a cornerstone of their business development and client retention strategies.  Could it be that some within the agency community are fearful of the financial scrutiny and performance benchmarking that are part of the process?  Perhaps they are not comfortable justifying fees and or offering demonstrable proof that their stewardship of their clients’ advertising investments generated a positive economic impact.

If their concerns are grounded in the former line of thinking that ship has left the pier and those arguments no longer hold water. Company Boards of Directors and Senior Management teams have both mandated Strategic Sourcing’s involvement on an enterprise-wide basis and expanded their near-term charter to include marketing services.  If the concern is related to the difficulty in valuing their contributions there are two economic analyses that are required.

The first is certainly well within an agency’s ability to catalog, monetize and communicate… their investment of resources into stewarding their clients advertising investments.  The second may require more work, particularly if the client-side marketing team and the agency have not implemented a sound return-on-marketing-investment monitoring system to accurately track and attribute their in-market results back to each facet of the client’s marketing investment.  Difficult as that may be, a fact-based, rational construct is the best bet for engaging all parties in a productive discussion regarding agency performance and contributions and for positively impacting the procurement process.

For many organizations the investment in marketing and advertising is one of their largest indirect expenses… it will continue to be scrutinized. Interested in reading more? Attached is a fascinating exchange between individuals with slightly different perspectives … Read More.

How Will Madison Avenue Fair in the Future?

By Advertising Agencies No Comments

how will madison ave fare?For an industry that has long prided itself on its ability to adapt to change the future will prove interesting for the advertising industry.  Technology driven trends ranging from dynamically generated behavioral driven ad generation to media fragmentation and dramatic changes in consumer media consumption have ushered in a number of changes that must be dealt with during this time of marketing convergence.

Perhaps the most fundamental change is that the industry’s “old” communications model of intrusive media talking at consumers is waning in relevancy in a world where user generated, user shared content forms the basis of a dialogue among consumers’ and between consumers and brands.

How will agency holding companies and individual agencies structure themselves to deliver services? What services will they offer?  Will there be room for specialist marketing services providers or will we see the re-emergence of the full-service agency (or agency holding company)?  How will compensation practices evolve to reflect the structural changes that are occurring within this market?

While change creates challenges, it also generates opportunities for advertisers and agencies alike. Those that grasp the strategic relevance of the rapidly evolving landscape will emerge as thought leaders and will have an opportunity to establish distinguished positions for their firms. As George Bernard Shaw the Irish playwright and co-founder of the London School of Economics once said:

“Reasonable men adapt themselves to their environment; unreasonable men try to adapt their environment to themselves. Thus all progress is the result of the efforts of unreasonable men.”

Where will your firm fall on the progress continuum? The following Fast Company series on “The Future of Advertising” provides a thought provoking look at what’s next for the advertising industry Read More.

 

Progressive Move by the ANA on Agency Procurement

By Advertisers, Advertising Agencies, Marketing Procurement No Comments

The ANA recently announced an initiative to combat the negative perceptions that many advertising agencies have regarding client-side procurement professionals and their understanding of the marketing services sector. Hats off to the ANA and the “Procurement Task Force” members who have agreed to donate their time and insights as part of this initiative and the proposed mentoring program.

This is a very positive step on the part of advertisers to assist in expanding the knowledge base among the organization’s members with less experience in the area of marketing services procurement .  In addition, the move further dispels the often held belief that strategic sourcing departments “don’t understand” and “don’t care” about the differences between professional services procurement relative to other facets of their corporate charters.  Real or imagined, discussing those differences within their association and providing consultative support to ANA members seeking to augment their knowledge base is a sound approach to what has become a divisive topic.

Perhaps the 4A’s can reciprocate and work to educate its enrollment on best practices to be considered when engaging with corporate procurement professionals.  The complimentary approach would further enhance the industry’s mutual understanding of procurement’s role in the process and by adding clarity, perhaps reduce the anxiety on the part of client-side marketers and agencies alike.

Survey Reinforces Need for Independent Auditing

By Advertising Agency Audits, Contract Compliance Auditing, Internal Audit No Comments

calculator and cashIt is widely understood that a coordinated audit program, leveraging the resources of Internal Audit and the strategic use of 3rd party auditors is a smart business practice and represents good corporate governance.  The audit process results in improved transparency and solid control testing, both important elements when attempting to ensure that an organization is securing maximum value for the money spent while incurring the least amount of risk.

Adding fuel to the “pro” audit argument is a global study of 550 accounts payable departments conducted by software provider Basware. The eye-opening results certainly reinforce the need for organizations to periodically review procurement and AP processes and controls and to monitor the performance of both the organization’s own AP department and that of its vendor network.  Perhaps most alarming, the Basware study found that just 40% of invoices generated were based upon purchase orders and where a valid P.O. did exist, many financial departments had trouble reconciling against them.  Further, among the survey respondents, which processed on average 93,000 invoices per year, 7% contained errors.  These errors led delays in paying suppliers among 35% of the respondents and delays in being paid among 24% of the respondents.

In spite of the fact that many vendor agreements contain AP guidelines and even spell out accounts payable criteria related to prompt pay discounts, late fee avoidance, days payable targets, fiscal period reconciliation parameters, etc… too often performance in this area goes unchecked. A parting thought, inspired by the words of Sir Edward Coke, the noted seventeenth-century English jurist;  “Precaution is better than cure.”  Read More.

Marketers Reassessing Use of Digital Agencies

By Advertisers, Advertising Agencies, Digital Media No Comments

online mediaInvestments in digital marketing have grown significantly over the last several years.  In addition, there have been unprecedented improvements in technology platforms and applications to support the effective and efficient distribution of messaging via digital channels, fuel an expansion in data analytics and targeting capabilities, speed the deployment of web-based tools to enhance B2B and B2C marketing efforts, etc… As a result of these trends and CMOs desire to drive value within their marketing vendor networks, they are evaluating the potential to shore up their internal resources and capabilities in preparation for transitioning portions of their digital activities to in-house teams.

And why not?  Client organizations drive strategy, manage integrated go-to-market strategies, own the databases that fuel targeting and resource allocation decision making and are highly sensitized to their businesses needs and opportunities.  CMOs clearly sense that they have the potential to streamline their marketing vendor networks, drive costs down and build their in-house competencies as a means of delivering enterprise value and in-market success.

This does not signal the end for digital agencies. Quite the contrary, many digital agencies recognize the economic and market forces driving these decisions and are working hand in hand with their clients to facilitate the transition of select tasks to in-house environments, assisting in the sourcing and training of client personnel and helping to redefine their roles in the digital value chain … Read More.

Time for Marketers to “Take Charge” of Their Agency Networks

By Marketing Agency Network No Comments

time for marketers to take controlGreat article.  In particular, the recommendations for laying the foundation for your “agency house” were very thought provoking.

The examples cited of Honda and HSBC Bank reinforce the need for client side CMO’s to own the strategy and execution oversight for developing, implementing and assessing the performance of integrated marketing campaigns.  Further, the trend cited by Forrester of agencies trying to “re-bundle” their services is fraught with risks to the advertiser.

In a fast moving market, with emerging technologies and the explosion in social media, the case could be made for companies to consider specialized “Best in Class” providers, rather than generalist shops. Of course this type of model will likely require an investment in internal resources to help shore up Marketing resources and capabilities.

In light of the risks associated with waiting on solutions to emanate from within the “agency house,” perhaps this is an investment worth making … Read More

Value-Based Agency Compensation Models; Viable or Not?

By Agency Compensation No Comments

moneyIt wasn’t until the mid-to-late ’80’s that the advertising industry’s century old reliance on commission based agency compensation systems began to evolve. The reasons for this evolution are not as important to the discussion surrounding agency remuneration as is the fact that multiple compensation approaches were spawned to replace the traditional commission-based approach.

One coveted, yet highly elusive approach, value-based compensation, provides a base fee sufficient to cover the agency’s costs of servicing a client and links their ability to generate a profit to the advertiser’s in-market performance.

The notion of an agency “having skin in the game” has long been discussed. Generally speaking, both advertisers and agencies have agreed that this type of approach could drive positive results for the advertisers business and for the agencies bottom lines.

Unfortunately, the industry has failed to settle on a workable methodology for constructing a value-based agency remuneration system that is considered fair and balanced to both parties. Why? There are several trends that impact advertiser/ agency relationships that have made this a difficult proposition:

  • The length of client/ agency relationships has continued to decline, as perhaps have both parties commitment to those relationships.
  • A typical Chief Marketing Officer’s average tenure with an organization is less than two years, creating a number of “continuity” impediments to forming and maintaining a productive relationship with their agency partners (CEO tenure is not much better).
  • The move away from full-service agencies, driven largely by the advertising agency move to unbundle their services has resulted in most advertisers having a fragmented, diverse agency network making it difficult to clearly attribute responsibility for in-market results.
  • The Marketing function is not as highly regarded by many organizations today as it once was, which has negatively impacted the view of marketing services providers in general and advertising agencies in particular.

Perhaps, advertisers and agencies can take a positive step in the right direction by first linking compensation to agency performance. Linking an agency’s remuneration to their ability to effectively satisfy the deliverables identified within a contractual statement of work and to deliver a level of service commensurate with the staffing plan has many benefits.  Primarily, this approach aligns agency compensation with advertiser expectations and allows for a clear, fair assessment of performance, eliminating the ambiguity that is often associated with attributing credit for success or failure within a value-based compensation system.

Structured properly, agency delivery against the client’s expectations will drive in-market results while satisfying client-side Financial and Procurement Teams desirous of performance based vendor remuneration. It can also serve to strengthen the relationship between the client and the agency.

Collaboration Enhances Marketing Procurement Process

By Marketing Procurement No Comments

marketing collaborationMuch has been made regarding the expanding role of the Strategic Sourcing Group in the selection and or negotiations with Marketing Service vendors and the strain it places on both the process and the relationships between the Marketing Team and their resources. This scenario can easily be avoided if Marketing and Strategic Sourcing work collaboratively.

The following tips will enhance the level of cooperation and increase the chances for a successful process:

Overall

  • Both the Marketing Team and their vendors must recognize and respect the Strategic Sourcing Group and their assigned role in helping the enterprise manage their sourcing initiative.
  • All parties (including the vendors) must move beyond the notion regarding the “uniqueness” of Marketing Services and the fact that because these relationships often create intangibles that cannot easily be valued, they should somehow be exempt from the procurement process.
  • Clearly define roles, responsibilities, timelines and desired outcomes and communicate these to everyone involved in the process.

Procurement

  • If you do not have Marketing Services subject matter expertise on your Team, consider the use of an outside procurement consultant or independent contractor with experience in this area to assist your group.
  • Provide a clear process overview to the Marketing Team and their resources prior to the onset of the review and or negotiation activities:
    • Timeline
    • Desired Outcomes
    • Scoring/ Valuation Criteria
    • Roles & Responsibilities
  • Establish compensation methodology guidelines upfront (i.e. value based, project based, fee based, etc…) and the benchmarks that will be used to assist in setting compensation levels.
  • Lead the contract and compensation negotiation process, relying on the Marketing Team for feedback and insight into the impact of the negotiation outcomes on their deliverables.
  • Work diligently to ensure that there is a level playing field for all participants.

Marketing

  • Remember, you have been charged with managing your organization’s Marketing Service vendor network. As such you should work diligently to support the efforts of your partners in Strategic Sourcing throughout the entire process… whether you lobbied for their involvement in the process or not.
  • Clearly communicate your expectations of the process:
    • Desired Outcomes
    • Capabilities/ resources required of the vendor or prospective vendor
    • Clear and concise scope of services
    • Method and criteria that you will employ for evaluating the performance of the vendor
  • Quantify the potential risks/ costs to the organization in the event that a change in vendors occurs and the impact on the roles and responsibilities of the other firms in your Marketing Services network.

Optimizing Client & Marketing Agency Relationships

By Client Agency Relationship Management No Comments

relationship managementThe pressure to drive revenue, reduce costs and increase transparency has never been higher for marketers and their suppliers. How can success be achieved on each of these fronts?

Below are ten suggestions that will help you to in your quest, while optimizing your Marketing supplier relationships:

1. Drive alignment between the organization’s business objectives and the resource  allocation decisions of each of your suppliers.

2. Clearly define the roles and responsibilities of each one or your marketing suppliers to eliminate redundancies and focus efforts.

3. Communicate expected deliverables and establish the criteria to be used to evaluate performance against each deliverable.

4. Maintain honest, two way communications across every facet of your supplier relationships, encouraging feedback at every turn.

5. Build consensus among your internal stakeholders to help gain momentum for your key marketing initiatives.

6. Invite peer review of Marketing’s performance and socialize the feedback across your supplier network.

7. Assess the breadth of your supplier network, focus on fewer, higher quality supplier relationships.

8. Structure supplier compensation to incent and reward extraordinary performance.

9. Drive complexity out of your supplier network… step # 1 in driving costs down.

10. Ask good questions of your suppliers (and yourself), while repeatedly pushing for better results.