Tackling Marketing Spend in the Downturn

Regardless of which side of the Atlantic (or the Pacific) you sit on, the statistics that IBX's Torbjörn Thorsen shares over on the IBX blog about marketing agency trends in Sweden are telling about the general impact the market is having on the marketing industry and how procurement organizations are using the recession to tackle market spend and cost savings initiatives in new ways. Torbjörn notes that within Sweden, "19 mid-size advertising agencies have gone out of business since September 2008 ... Marketing accounts valued at approximately 3 billion SEK have migrated from agency to agency ... [and] Marketing spend is predicted to contract by 13 percent in 2009." If we look at these trends together, a few things jump out: companies are rationalizing their agency supply base, procurement organizations appear to be extracting cost savings from suppliers (potentially getting more for their money) and supply risk is rising as firms go out of business.

But more interesting than just the observations about how the market in Sweden is changing -- which appears to be a proxy for marketing spending around the world at the moment -- is a suggestion at the end about how to balance the need for both reduction and value while weighing firm creativity and flexibility in the marketing sourcing process. To wit, companies might want to establish the price they are "willing to pay (i.e. the budget)" and allow "vendors [to] pitch their most creative solution".

This approach changes the paradigm to one that has elements which are more similar to how companies such as Honda and Toyota procure direct materials in the manufacturing world than in other areas of indirect/services procurement. Under this model, by knowing what a given service or part should cost -- in essence doing more homework before any negotiation or sourcing event -- procurement can tell suppliers what they are willing to pay versus forcing a competition on price to department the appropriate clearing number. This model basically allows suppliers to express their response to the market in ways besides just price while also preserving the need to drive cost reduction. But it also requires significantly more homework and knowledge up-front if an organization is to do it right -- in marketing and just about every other spend category.

Jason Busch

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