Maximizing marketing value through smarter procurement
Now
more than ever, marketing stars need a strong band behind them.
“How come you ain’t ever tried this kind of pickin’,
Luther?” asks the musician and songwriter Waylon Jennings in the 2005 Johnny
Cash biopic, Walk the Line.
“Well, Waylon,” answers guitarist Luther
Perkins, “whatever it is you’re lookin’ for, I’ve already found.”
In an environment undergoing continual
transformation, companies are searching for new ways to assess, increase, and
monitor the efficiency and effectiveness of their marketing dollars. But like
Cash’s legendary, laconic guitarist, procurement might already have found what
marketing is looking for.
These are turbulent times for marketers.
The digital revolution is transforming the consumption of media. People under
35 watch as much video content as their parents do, but less than half of it is
live television. In the United States, more than a third of all video content
is now viewed online, much of it on mobile devices. Millennials spend 15 hours
a week on their smartphones, and 89 percent check their work email outside of
normal working hours. They are likely to trust the views of their peers and
social-network connections over those of media professionals.
For marketers, the proliferation of
digital media creates exciting new opportunities to engage with consumers, but
ferocious complexity too. Marketers know they must offer an integrated brand
experience across both traditional media and the fast-changing ecosystem of
digital devices and channels that their customers use. They want to make better
use of digital resources, such as real-time feedback on customer preferences
and the ability to tailor and target messages more precisely than ever before.
And marketers want to innovate by making the most of new approaches as they
emerge—without losing sight of the proven value of established, traditional
marketing efforts.
To achieve these ambitions, marketers need
to make the right choices about what they buy, how they buy, and whom they work
with. Those choices aren’t easy. Human eyes view less than half of all digital
ads, for example, and programmatic buying through automated-bidding systems has
transformed the traditional relationship between advertisers and media owners.
Complexity and rapid change make the right agency partnerships all the more
important.
In this environment, big advertisers are
going to the market in unprecedented numbers. In 2015, an estimated $30 billion
in marketing spend was up for grabs in the so-called mediapalooza as many of
the world’s biggest advertisers reevaluated the capabilities, fit, and
economics of their agency relationships.
Where’s purchasing?
To meet today’s challenges, marketers need
new capabilities. They need sharp analytical skills to pull useful insights
from big digital data sets. They need to evaluate the potential of new channels
and new service providers. And they need new ways to measure how efficiently
and effectively they use budgets that must now stretch across far more
categories.
On the face of it, marketing needs
precisely the robust, fact-based analysis and decision-making capabilities that
a high-performing procurement function provides. And since marketing is the
largest indirect-spending category in many businesses, procurement experts
should relish the opportunity to help it find new sources of value.
In many companies, however, this kind of
mutually beneficial partnership just isn’t emerging—the relationship between
marketing and procurement is often cool if not downright antagonistic. Last
year, one major global consumer-packaged-goods (CPG) company even announced
that it was shuttering its marketing-procurement function altogether.
What’s going wrong? As with any
problematic relationship, much of the difficulty stems from mutual
misunderstandings. Marketers don’t always recognize how their colleagues in
procurement can best assist them, so they tend to relegate its input to the
final negotiating and contracting stages of the purchasing process, when
there’s less opportunity to add value. Procurement doesn’t always communicate
its capabilities clearly, so it is perceived as a barrier rather than an
enabler. Sometimes, the lack of a common language even makes it difficult for
marketing and procurement to understand each other’s aims and intentions (see
sidebar, “Singing from the same songbook”). And the two functions haven’t found
processes that allow them to work together effectively and make the most of
their individual strengths.
Time
for a new start
Companies need to reevaluate the role of
procurement in marketing. Critical strategic decisions, such as the selection
of partner agencies and the design of campaigns, must remain firmly in the
hands of the marketing function. Marketers know their customers’ preferences,
and with the right information they can identify the best partners to help them
attract their target consumers. But just as Johnny Cash’s unique sound relied
on the guitar skills of Luther Perkins, so marketers need the right support
around them.
Building that support should begin with a
clear understanding of the ways a high-performing procurement function can help
fulfill key marketing needs. We have identified six areas of focus, from
well-established purchasing capabilities that marketers already know to a few
that call for the advanced skills of a mature, high-performing procurement
function:
·
Manage suppliers.
Marketers need to verify that suppliers (agencies, in many instances) are
financially viable. They need to negotiate competitive rates and robust
contracts, to ensure that suppliers deliver what they promised, and to see that
they get paid on time. These activities are what the procurement function does
every day across all categories.
·
Monitor efficiency.
Marketers need to understand the performance of their agencies. The procurement
function knows how to track and monitor the efficiency of both the agencies
engaged and the media they place. It also knows how to lead supplier reviews.
Supervising gross-rating-point/targeted-rating-point audits and holding
agencies accountable for the findings should be second nature.
·
Play the bad cop. When
agencies perform poorly, the procurement function can lead the tough
conversations, so that marketing teams maintain close and productive agency
relationships.
·
Find the right capabilities.
Marketers must have agencies that can meet their current and expected needs—and
bring them the best of the market by meeting needs they didn’t know they had.
For example, can an agency track if and where digital ads are viewable? What is
the extent of its programmatic-buying capabilities? The procurement function
can scan the industry for new competencies and develop processes to test the
ability of partners to meet them.
·
Create more value.
Marketing efforts must focus both on quality (capabilities and fit) and on cost
to deliver maximum value. Using marketing-return-on-investment (MROI) data, the
procurement function can do all this by creating balanced scorecards that, for
example, track both the efficiency of ad purchasing and the effectiveness of
the resulting placements.
·
Move quickly. Marketing is changing
rapidly, and the digital revolution is a key driver. Marketing teams need to
respond. Working closely with procurement allows them to develop rules of the
road that permit flexibility and responsiveness while controlling risk.
In it
together
To capture value of this kind—especially
the more advanced opportunities, in the bottom half of the list above—marketing
and procurement need a closer working relationship throughout the entire
purchasing process. To show how such a relationship can work, let’s consider
the example of a large CPG company that recently conducted a comprehensive
review of its agency ecosystem, starting with media-buying activities. As a
result, the company not only found the most capable agency with the best
cultural fit but also saved on media spend and fees. It reinvested half of the
savings in additional media, helping to drive growth. The rest went straight to
the bottom line.
The company had long-standing
relationships with multiple media agencies. It wanted to consolidate its media
purchasing and to ensure that it was getting the strongest capabilities and the
best prices for its sizable media budget. To check all this, teams from
marketing and procurement embarked on an intensely collaborative five-month
competitive-pitch process.
In preparation for the event, procurement
conducted a detailed analysis of the company’s historical media outlays. Its team
looked at more than 100,000 lines of traditional and digital media-spend
data—for example, breaking down TV-ad purchases across nine key attributes
(such as network, program, spot length, and dayparts) to create a
representative basket of around 300 future media purchases that it would ask
potential agencies to bid on. The team mapped the remaining traditional- and
digital-media purchases onto the items in the basket so it could estimate the
full media-buying cost from agency quotes.
Procurement then worked with marketing to
understand exactly what the latter required from its media agencies. Next,
procurement scanned the market for trends and for emerging capabilities to
address them. With this information, the joint team identified a handful of
potential agencies, including a mix of incumbents and new organizations. The
selected agencies were invited to participate in a rigorous multistage pitch
process, which included written assignments and multiple presentations to the
marketing team.
While marketing assessed the capabilities
and cultural fit of the agencies, procurement evaluated their detailed
media-buying quotations for the items in the representative basket. Again, this
was a multistage process, and agencies had an opportunity to adjust their pricing
when it was out of line with that of their competitors.
Once the marketing team had chosen its
preferred agencies, the two functions jointly entered into a detailed
negotiation process. Procurement used clean-sheet techniques to evaluate agency
bids for the cost of running the company’s account against the actual cost of
the personnel and resources required to do so. In this way, it encouraged the
agencies to be clear about the cost assumptions underlying their bids. The
negotiation process also included the development of a new incentive model to
reward agencies for meeting the company’s strategic objectives while
controlling overall costs.
At the end of the process, the joint
effort delivered remarkable results. Marketers from the company’s multiple brands
agreed on a single agency to consolidate their media-planning and media-buying
activities. Yet the new agreements also reduced overall media costs by over 20
percent and agency fees by more than 10 percent.
The procurement team’s initial analysis of
those thousands of individual purchases continued to pay dividends, too. The
company set price guardrails to help it ensure that the agency was achieving
the promised discounts across all categories of media spend. And by comparing
the cost of different media slots with their ability to meet strategic goals,
the company also identified further potential savings by changing the media mix
it bought. For example, it was able to shift spend to more efficient channels
or cheaper dayparts that still delivered the right audience quality, reach, and
frequency for its brands.
As the changing habits of customers force companies to
transform their approach to marketing, they are looking for new tools to help
maximize the value of those efforts. High-performing procurement functions have
already found many such tools. The challenge for CPOs is to demonstrate to
their marketing colleagues that procurement’s contribution is not only useful
but also vital and to forge new, intensely collaborative relationships capable
of delivering that contribution in a dynamic, rapidly evolving environment.
By Cody Butt
http://www.mckinsey.com/business-functions/operations/our-insights/maximizing-marketing-value-through-smarter-procurement?cid=other-eml-alt-mip-mck-oth-1608
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