Spend Matters welcomes a guest post from Ian Cotter of GEP.
Marketing departments are constantly being challenged to maximize the ROI on their marketing spend and to demonstrate the effectiveness of their campaigns. Procurement can help our marketing colleagues achieve this goal by reducing their costs by up to 30 percent on sales promotions without compromising on the creative.
Companies spend millions of dollars every year running multi-channel sales promotional campaigns for their brands encompassing online, TV, gift with purchases, point of sale, coupons, and so on. Marketers usually enlist the help of sales promotions agencies to create and run these campaigns on their behalf. The main focus of a sales promotion is to increase awareness and drive trials of the company’s products, ultimately leading to an increase in sales. This makes the results of sales promotion campaigns much easier to quantify than with some other forms of marketing activities. Performance can be measured by the increase in sales, giving a much better idea of whether your campaigns are working or not. Sales promotion agencies typically manage all of these touch points on behalf of the client and organize everything from creating the overall concept right down to sourcing the promotional items that will be given away to consumers.
The traditional procurement approach when evaluating sales promotional agencies has been to focus on their rate cards and make sure that the right resource mix has been allocated to the project. One often-overlooked aspect is who owns the IP for the promotional items that will be created for the upcoming campaign. Procurement needs to make sure that that their company retains the IP for the promotional item so that they have the flexibility to source it themselves instead of being forced into a sole supply situation with the sales promotions agency vendor of choice.
Sales promotions agencies are filled with creative and abstract thinkers who are marketing problem solvers but not sourcing professionals. They have an expensive cost base because they’re filled with expensive talent who work in expensive offices in expensive cities. It’s a high cost business model and their focus should be on creating innovative sales promotions campaigns instead of sourcing promotional items.
Sales promotions agencies may feel threatened and hesitate to agree to this clause as the sourcing of promotional items has always been highly profitable for them and is an often overlooked factor when looking at the total cost of a promotional campaign. Promotional items can comprise up to 65 percent of the total cost of some campaigns. The sales promotions agency will normally bill the client for the promotional items as a so-called “pass through” cost when in reality a hefty mark-up of anywhere up to 100-percent per SKU can be applied.
If the company retains the IP, procurement can easily define a spec for the promotional item and competitively bid it out to the market and get the best price possible. By adopting this saving lever, Procurement can reduce the total cost of the promotional campaign by up to 30 percent. This is an example of how marketing and procurement can work hand in hand to ensure that marketing campaigns are delivered at the most cost effective price without having to compromise on the creative.
For more interesting thinking on procurement, visit the GEP Knowledge Bank.