Procurement and Marketing Alignment with Agencies Through Return on Review

For several years now the ANA and several forward-thinking advertisers have made great strides in aligning the interests of Marketing and Procurement. It’s not that both parties have to speak with one voice, but they should be in harmony with the same goals and objectives.

While the process is improving, it is far from perfect.  According to a recent ANA study, across an array of criteria related to their interactions with agencies (such as contract negotiations, agency resources and compensation, production, media pricing, etc) there is some disparity in how Procurement’s role is viewed within the company and by the agency. Studies indicate that, on average, Marketing is 30% less likely to see Procurement as the same positive force in these matters as Procurement sees themselves.

Recently, the ANA has created a Marketing Procurement Task Force and mentoring program, including the 4A’s, to advance the alignment of Marketing and Procurement interests. Drexler/Fajen & Partners offers this commentary to provide further thought.

Four Cornerstone Questions

Alignment between Marketing and Procurement begins by asking four basic questions about each step in the process:

  1. How much financial waste can be avoided?
  2. How much money can be saved directly out-of-pocket?
  3. How can the advertiser and agency operate more efficiently?
  4. How can the process increase marketing ROI?

The Agency Review as a Monetized Metaphor

 

Using well-established industry findings it is possible to monetize most of the processes jointly undertaken by Marketing and Procurement. By focusing on agency reviews to demonstrate how value can be identified from both savings and ROI at the outset, we will outline ways to reduce waste and enhance agency productivity.

In order to quantify a measure of both savings (Procurement) and return on investment (Marketing) related to agency media reviews the right kind of process and benchmarking must guide the review and monitor the results.

The estimates we make here emanate from industry evidence and our own consulting experience from which three things are clear…

  • Estimated projections on savings and return on investment are necessary to set appropriate goals for measuring agency performance.
  • Each incremental line item for savings or ROI is substantial when aggregated over a period of time.
  • Estimates should be conservative so as not to overstate investment return.

A primary reason for conducting a review is to receive more value and accountability from the newly hired agency. When we conduct our review process we attempt to quantify the combined potential of savings and return on investment, thereby addressing both Marketing and Procurement interests to reduce waste and protect revenue growth.  Some of our processes described below are unique to Drexler/Fajen & Partners, while others are commonly used industry practices.

Quantifying the Value of a Well Run Review

Diligence:
“On average, 30% of an agency’s effort is wasted due to poor briefing” – quote from Association of National Advertisers in the preface to the 2011 ANA Financial Management Conference May 2011.

Most reviews begin with an understanding of the client’s business, marketing and media goals.  These are then presented to contending agencies so they can decide how to align their resources with the prospective client’s objectives. This diligence has a positive effect on the power of the media spend.

Another diligence step pertains to developing a clear and granular scope of work so the agency can build an effective and efficient staffing plan.  We have developed a five-dimensional SOW, which clearly identifies the priority, complexity, re-work, talent requirements and deadlines associated with every line item in the scope.  This avoids any misunderstanding and leads to a more cost effective and productive staffing plan. (During a recent assignment, our SOW analysis reduced agency staffing appropriately and saved the client approximately $200,000 including salary, overhead and profit. While that result was unusual, some savings can always be anticipated.)

Contenders:
Because we have spent our entire careers managing media agencies, departments, research, recruiting and consulting firms we are very familiar with how agencies work with clients. This allows us to quickly screen to a list of finalists, saving significant time, energy and money.

Agency Economics:
63% of clients say incentives improve agency performance” – quote from Association of National Advertisers & Jones, Lundin, Beals.

That same understanding allows us to assess agency staffing plans in terms of experience, seniority and strategic talent vis-a-vis client requirements. This increases the chances of media effectiveness (less waste) and marketplace success (ROI).

We benchmark the salaries, overhead and profit of each contender against industry norms and our proprietary database from both our media recruiting and consulting experience. This often leads to substantial savings and more accurate standards of compensation.

The third economic issue relates to incentive plans. Some clients want to consider an agency incentive to produce better results and share the risk on the downside.  Our incentive models always contain the inherent element of marketplace results.  If the payout of the client’s media spends is not positive, there was little reason to advertise in the first place.  Our incentive programs reward agencies in proportion to positive marketplace results and balance risk on the downside.

Strategy:
“The biggest cost of advertising is paying for ineffective campaigns. My estimate is that’s 35% of advertising dollars is wasted due to mis-targeted, mis-scheduled commercials.” – quote from Erwin Ephron: lifetime achievement award winner from Advertising Research Foundation.

We spend a lot of time with the client and agency on the subject of accountability and how the proper strategic talent and investment management at the agency can help build brand growth and minimize waste.  Winning agencies need to demonstrate how they can deliver and measure what is expected.

Tactics:
Right selection could save up to 15% on traditional media and 30% on digital  – MIQ and Double Verify

When we assess the buying prowess of contending agencies they are carefully audited not just in terms of target key performance indicators (KPI’s) delivered against benchmarks, but also program and vehicle context and commercial positioning.

Agency Selection:
Today, the average client/agency relationship lasts less than four years, causing much disruption and wasting enormous amounts of time and money – Association of National Advertisers/American Association of Advertising Agencies statistic.

Every time an agency review is mounted, attention is diverted from concentrating on marketing the client’s product. The goal of every agency review should be focused those criteria that produce the best result for delivering the client’s objectives, operating as efficiently as possible and to engender a long-term client/agency relationship.

Follow-up:
“78% of major advertisers monitor their agency’s performance” – quote from ANA Survey 2010. With an aggregated investment of over $1 billion: “37% of advertising budgets are wasted.” – What Sticks by Rex Briggs and Greg Stuart

Once a new agency is selected Drexler/Fajen & Partners offers to assist during the transition. Too often elements of the existing media buys can slip through the cracks wasting money that has already been committed.

Finally, we offer to periodically monitor the progress of the new agency.  This diligence ensures that over time goals are met and the process is continuously improved.

Summing Up

To illustrate we offer the table below which monetizes an example of how a well-run agency review can increase efficiencies, avoid waste and improve ROI.  Because of overlapping efficiencies and specific client requirements the value points (savings, efficiencies, ROI) are not additive to the maximum amount saved as indicated in the example below.  However, it is intended to demonstrate that substantial value can be derived from a thorough and professionally run agency review.  Clients should anticipate at least a return of 1% of the gross value and should expect considerably more.

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