Marketing Supply Chain’s Kirchner says you can get The Same for Less with your marketing spend

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London 9th July 2009

Controlling marketing spend still remains something of a holy grail for procurement. The recent barrage of advice and conferences centred on improving the perception of procurement may have engendered a warm feel-good factor. However this has masked a lack of real progress to match the good intentions.

With the onset of wintry economic conditions it is a good time for forward-looking procurement managers to revisit the troublesome task of bringing marketing spend under better control. Done well it is possible to transform this notorious category of complex and often inefficient spend into an area of best practice.

The following hints and tips are based on many years practical experience of large and small companies. Surprisingly the similarities between these disparate organisations are more obvious than their differences. With the current downturn the ability to effectively manage marketing costs will start to separate the winners from losers.

It is constantly surprising to see even the brightest and best-intentioned procurement managers ‘round up the usual suspects’ when trying to obtain a meaningful improvement in marketing spend efficiencies. These suspects include the Creative Agency’s fee, the Media Company’s % and hourly rates related to agency provision of production services. Within the murky but complex category of marketing spend these are areas which have already been extensively investigated and brought under the spotlight.

Fortunately there is no shortage of unproductive spend in areas that contain ‘low hanging fruit’. For example most procurement teams have no reliable understanding for the often opaque area of advertising production and fulfilment, be that for the traditional media of TV, press and outdoor, let alone the growing category of digital/on-line. It is now relatively straightforward to access reliable external cost benchmarks for all these areas and the typical outcomes show savings of 25-40%.

Other ‘low hanging fruit’ are to found in the consolidation of marketing print. Whilst the centralisation of print sourcing through Print Management Companies is now recognised as an efficient option there is still plenty of scope for further centralisation not only of marketing print (point of sale materials, etc.) but also by integrating campaign adaptation, proofing and even storage and distribution. The same broad dynamic is equally applicable to other areas of marketing spend including marketing premiums and merchandising equipment.

Linked to all of the above, procurement will often find considerable upsides by exploring the whole are of agency performance-related remuneration. Achieving a well balanced relationship can result in these elements accounting for upwards of 25% of the agency remuneration and procurement are ideally placed to act as impartial negotiator and gatekeeper.

For marketers and their agencies finding the next ‘big idea’ is a constant preoccupation and in many ways their reason for being. This single-minded pursuit of the big picture may explain why inefficiency, opacity and casual third-party relationships can often be found within the marketing supply chain.

For procurement professionals the ability to segregate types of marketing spend and identify ‘non productive’ elements will be crucial to the overall objective of achieving sustainable marketing spend reductions. In this regard there is no alternative but to develop a detailed understanding of marketing processes within each major spend category. This understanding needs to be supported by a matching value chain analysis showing how the money flows through the supply chain.

It is only after the detailed process is fully understood and mapped that it is possible to benchmark key cost components. This is most usefully done against current market rates. It is only when this benchmarking is complete that it will be possible to understand the issues/opportunities and to assess a variety of strategic options.

This mastery of all the detail is also critical to the implementation of the selected strategic optimisation route, where it will be used to support the business case for change with marketing stakeholders and to overcome any objections (some of which may be emotionally charged) from agencies when they perceive their The Three Musketeers could serve as useful role models for the modern triumvirate of marketing, procurement and agencies. Whether due to the disappointing progress to date in this area or a lack of confidence, the overwhelming approach is beleaguered and pessimistic with an underlying, if unspoken, certainty that the balance of odds conspires against all concerned. In fact Marketing Procurement Managers are kept at arms length by marketers and their agencies more from a lack of understanding about their purpose and objectives than a lack of shared objectives and common ground.

The clarion call cry heard at many open forums on this topic is for procurement to become more ‘engaged’ and to ‘empathise’ more with their marketing colleagues by attending meetings, visiting agencies and understanding the creative process. Helpful as this is in the most general of ways, it is hard to see how this well intentioned, but potentially misleading advice will by itself generate more than token improvements in team cooperation.

To look beneath the surface we must understand that marketers and even more acutely agency teams are at heart problem solvers, this being a key strength and challenge which attracted them to marketing in the first place. In other words problem solving is a dominant and even subconscious part of their ‘modus operandi’. Experience has shown that when involved in addressing an interesting challenge both marketers and agencies usually engage enthusiastically. Thus sharing a common problem, such as ‘how to reduce spend by 4% without impacting activity, quality or response speeds’ is far more likely to result in positive engagement than any amount of tentative role reversal.

Even the Three Musketeers found the occasional use for extra help (step forward D’Artagnon) and the same is true for Procurement, who are perhaps less versed in working with external resources, this unfamiliarity driven by cultural legacies or a lack of budgets. But in many cases without external support the ability of Procurement to bring marketing spend under influence will be compromised; where relevant and objective external cost benchmarks are required to calculate business case savings; and where impartial advice is needed to convince sceptical marketing stakeholders ‘in their own language’ that this has been done before with great success. More prosaically, the potential savings from marketing spend optimisation are invariably attractive and are more likely to be enumerated in £millions that £’000s. For this reason it makes solid economic sense for Procurement to engage with external resources to bring the economies to bear as soon as possible

There can be little doubt that the economic downturn will have a galvanising effect on marketers who, hitherto, have proved a significant obstacle to procurement’s goal of ‘spend under influence’. However the Procurement team will have only a limited time to take advantage of this moment in time, before the economic cycle turns and old habits return. It is contingent on procurement to seize the opportunity by gaining a rapid and practical understanding of the details of operational marketing, and using this powerful knowledge to create and execute solid and rationalised plans which will deliver measurable long-term improvements in the efficiency of marketing spend.

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