The environment for most brands is changing fast. A stream of new opportunities keeps flowing – social media, word-of-mouth & location – based mobile marketing right now – and the means to take advantage of them comes increasingly from start-ups. In this universe being entrepreneurial is key to Marketing success and a well-intentioned but misguided Procurement department can be as great a threat to brands as the competition.
Differentiation is Both Quantitative and Qualitative.
Companies have to differentiate what they produce in a relevant way. That makes them stand out against competitors and makes their brands valuable. Ad agencies often do this through distinctive creative output. When they resort to scam ads it suggests they haven’t grasped the ‘relevance’ issue. What marketing service providers must do is to price the value they add, or the savings they generate, for clients. If they don’t their service may seem generic, inviting client Procurement departments to squeeze them on price.
Most procurement methods originated to reduce production costs by managing how standardized commodities and homogeneous goods and services are bought. They are fundamentally quantitative, which leaves qualitative, ideas-based or creative services particularly vulnerable to being under-priced. Recent trends toward quantitative RFPs submitted online with no Marketing department participation and no qualitative performance measures, are clearly misguided and a cause for grave concern.
Don’t get me wrong, Procurement management is critical for all forms of production. However, marketing services contain creative problem-solving elements – not just ad ideas – which are not homogeneous, and which even their producers struggle to value accurately. I went into this earlier in the post on Creative Services and the Vicious Cycle of Procurement.
Wisely applied, Procurement is Good.
The thing is, successful supply chain cost management is vital to business success. If a company can produce consistent, sustainable, marketable quality at a lower price than its competitors it will tend to gain market share and benefit from economies of scale, all increasing ROI. Marketing services companies need to become just as savvy about Procurement as their clients and must apply it in their own businesses too. That TBWA recently appointed a global head of Procurement makes an interesting statement. That their competitors responded with a deafening silence does too.
Where problems arise is with the “consistent” and “sustainable” aspects in that previous paragraph, especially producing the specialty services provided in marketing communications. For example, media agencies slicing income to win business volume for larger buying discounts, a process rampant for a decade, is an unsustainable “Race To The Bottom”. I wrote on this in ’03 working at Carat (Media, 23 March).
What happens is this: after winning a new piece of business with a low bid, a media agency can only afford to staff it with cheap, lower quality staff, overseen by an overstretched senior if they’re lucky. Procurement is happy but Marketing soon complain of weak advice, errors and unresponsiveness. When it comes to a head they put the media account up for pitch again. Procurement lends a hand and the account goes to the lowest bidder. Work into a lather. Rinse. Repeat. Soon nobody in Marketing has much hair left and all the media agencies are producing poor service and making no money.
What Happens When It’s A Race To The Top?
Procurement departments not used to valuing and buying marketing services often have unrealistic expectations. Network media and ad agencies with big holding company parents have helped those develop. As a result many believe that if you lean on a marketing services supplier they’ll find a way to drop their price and keep providing the service. The near sweat-shop conditions in some major agencies probably prove their point.
However, real trouble strikes when Procurement meets Entrepreneurs. The company best positioned to offer cutting edge social media and other innovative services needed for a brand, is increasingly a relatively new start-up. These new firms are staffed with very focused people with little knowledge of procurement methods, nor time to learn them while pulling 18 hour days. Critically, they have limited funds. To survive and prosper they must build their business up to long term health as fast as possible. In pioneering fields, for start-up founders, and their angel investors, it’s really a Race To The Top.
Start-ups need business, but not on destructive terms. They realise that quickly, or die. However, as any entrepreneurial 21st Century marketer knows, you need these specialists and their new services to differentiate, defend and build your brands in these exciting but complex new arenas. Currently it’s social media, search, and location-based mobile marketing. There’ll be something more within a year.
The Procurement Curse/Benefit Analysis For Marketers.
Whether it all ends in success or tears for any given marketer depends on three main drivers:
1. the marketing company’s culture – exploratory & innovative Vs scared & defensive;
2. that company’s senior leadership & vision – supportive Vs punitive and;
3. how well their Procurement department is trained and for what purpose – pure cost saving Vs helping brands be as competitive as possible.
In the bigger picture this applies to dealing with long established ad and media agencies just as much as to social media engagement experts and branded app developers.
If Marketing gets only what Procurement lets them pay for, the question facing marketers has to be: “Does our Procurement department have the skills to help us buy these services successfully?”
If they do not, they will compel you to use and become, second best.