Marketing procurement – buying blind?

Procurement is now more actively involved than ever in sourcing and buying marketing and communication services. But, research released this week by marketing services procurement and performance specialists, The Observatory, has found a lack of knowledge of what they are buying could be leading to simplistic, cost-driven decisions that damage the long-term quality of a brand’s communications output.

Gathering the views of senior marketing decision-makers (of which nearly a third work for companies listed in the Global Fortune 500 – overseeing annual budgets of over £50million), The Observatory found that, while procurement’s involvement is yielding short-term cost reductions, it is not necessarily addressing the real needs of its marketing colleagues in terms of driving value.

Nearly three-quarters (73 per cent) of marketing decision-makers see procurement getting more closely involved in buying marketing, advertising and PR services – the rationale for most (65 per cent) being to ensure best value for services or in order to introduce more financial rigour into the buying process (for 35 per cent).

Yet the main benefits of this involvement are purely financial – in improved contract negotiation (82 per cent) or reducing the price of services (52 per cent). While 81 percent said procurement had reduced average costs – achieving savings of, in some cases, between five and 10 percent – very few contributed to more strategic buying activity, such as agency shortlisting, scoping of deliverables or assessing creative and strategic capabilities of agencies.

Lucinda Peniston-Baines, co-founder of The Observatory International said: “The problem is, these responses suggest procurement is ‘buying blind’. Almost anyone can negotiate price cuts. But there’s a danger of procurement ‘knowing the price of everything but the value of nothing’.

There are mid-to long-term implications of simply pushing down prices, with potential damage to the quality of communications campaigns and ultimately, your brand.”

Is procurement’s involvement improving campaign effectiveness?
The Observatory highlights that moving from buying products to services is notoriously difficult – particularly if those services involve creative processes and people. The research supports this concern: 71 per cent of respondents disagreed that procurement’s involvement was improving the effectiveness of marketing campaigns, while 8 per cent felt it was having a negative effect.

Lucinda Peniston-Baines continues: “Many procurement professionals don’t yet fully understand the deeper process involved in employing marketing services – the allocation of resources, how agencies work with marketers, the dangers of removing people based on cost. It’s not like buying widgets.

Using marketing services is highly specialised and requires a deep and current understanding of the way marketers and agencies work,”

Other key findings included:

CEOs and the growing importance of brand
– Over a third (36 per cent) of CEOs are getting more involved in the selection process for agencies, but views on whether their input was beneficial varied, with 56 per cent saying it was a positive and 44 per cent negative.
– Overall, marketing felt the CEO’s involvement acted as an endorsement and was recognition of its importance to the brand.

Taking a risk
– A small majority (51 per cent) are using Payment By Results or Risk and Reward contracts. However, over three-quarters of those senior marketing decision-makers using PBR, felt it is resulting in more effective marketing campaigns – making it even more vital that procurement understand just what constitutes a successful result.

Lucinda Peniston-Baines concluded: “The best procurement departments often employ ex-agency professionals, and are not shy about employing outside specialists to support specific project requirements. It’s important to recognise that pulling a lever on agency cost generally requires a corresponding improvement to the effectiveness of the marketer/agency way of working. If that’s not addressed, tighter costs will constrict the quality of agency staffer deployed to a brand.”