Listen carefully… do you hear the faint sound of victorious agencies cheering? Around the world, Pepsi’s media and advertising agencies are probably celebrating after the news that the drinks giant is cutting procurement support for its marketing operations.
The news that Pepsi is ditching its procurement department and handing the responsibility back to marketing might sound like good news to agencies but be careful what you wish for.
Whilst a small proportion of procurement departments – we’d estimate up to a quarter that we deal with – are still heavily focused on cutting costs from marketing spends, the vast majority (at least 75%) are now more focused on supporting and partnering with marketing to deliver top line growth.
Based on our experience of dealing with some of the world’s biggest advertisers, we estimate that more than half of these now have marketing and procurement teams who recognize the need to be aligned and work together to deliver company goals. Yes they still have some tension and different approaches and technical language but the culture of collaboration now largely exists.
The truth is that procurement properly applied brings great benefits to marketing and can hold media agencies accountable to perform their very best.
Central to these gains is a good relationship between marketing and procurement—that’s vitally important. Where it works best, procurement provides invaluable skills in diligence and discipline. Marketing benefits immeasurably when procurement can rationalize agency rosters to make them more manageable and reduce resource duplication, ensuring a clear scope of work is in place and designing the right incentive payments for agencies that hold them to account for performance.
Procurement typically puts in place the processes that require agencies to apply due diligence to their accounts, while also building transparency as well as better financial management of the huge sums that flow through most media agencies today.
It’s certainly true that sometimes procurement may have focused too much on reducing cost from these activities, which in turn may have damaged the quality of work that marketing (and the agencies they worked with) were able to deliver.
Looking in from the outside it’s possible that either Pepsi simply couldn’t make this work and decided to give up on marketing procurement or the company made an interesting strategic decision that suggests that procurement had too much influence and it wants to empower marketing with more control over agency relationships.
There is certainly room for improvement in many other companies. Marketing needs procurement but it may be more appropriate in some cases for marketing procurement to report to the CMO not the CPO. As the approach required in procuring marketing services is so nuanced, so it follows that specialist skills are required of those in procurement to understand the complex value equation.
Of course, there is a problem when procurement and marketing take a very different approach and the procurement function simply sees its role as cutting costs in spend, creating a distracting tension from marketing focused on growth.
The clash of cultures between an organization focused on growth – the marketing department – and an organization focused on savings – the procurement team – will, of course, lead to direct conflict, stagnation and poor decision making.
The result of that approach is that marketers may be forced to work with poor quality talent, with fewer resources and restricted access to innovation. Only agencies that are willing to work at the cheapest possible prices while cutting resources to the bone can possibly satisfy such demands.
Media is a particularly complex landscape, not easy to navigate for most marketers. They may have gaps in their knowledge and lack the controls they need to manage their agencies productively. This is where a well skilled and disciplined procurement colleague can be invaluable to the ambitious marketer.
Marketing and procurement leaders looking to find better ways of working together should consider the following best practice media governance:
- Create a formal internal media community, which provides a forum for marketing and procurement to be better aligned. In our experience, to work well this needs a mandate and a budget to be successful.
- Make clear delineation of responsibilities, so that marketing and procurement know exactly the scope of their individual interactions with their agency roster.
- Work together to solve and align any tensions higher up in the company. Often day-to-day tensions between marketing and procurement are symptoms of a CMO and CPO who are not aligned to the same company strategy, one chasing a growth agenda with the other chasing an efficiency agenda. If this can be aligned, it may solve tensions all the way down the organization.
A procurement client of ours often says "marketers are the rock stars, procurement are the roadies" which I always thought was a nice analogy; setting everything up technically to allow the marketers to do their best work. They both need each other to produce the best result, but must have clearly defined roles.
Finally, the ANA recently polled their members in the US to ask about the impact of the Pepsi announcement , 68% suggested this was not going to be a trend of brands eliminating marketing procurement. They also cited the following reasons:
- There's value in procurement acting as a neutral third party.
- Marketing/brand teams do not have the skill sets of marketing procurement. Procurement has expertise in areas including negotiation, contracting, supplier management, and risk management.
- If marketing was required to do the work of procurement, it would be time-consuming and distracting. Procurement allows marketers to focus on marketing. If marketing teams are responsible for procurement, they risk becoming less effective.
- Procurement provides a centralized function for coordination of supplier management and the resulting efficiencies.
- Procurement can work with agencies and other key suppliers and play "tough" if need be. Meanwhile, that's harder for marketers to do given their ongoing day-to-day relationships, especially with agencies.
Download PDF report here http://www.ana.net/getfile/23120