How to Attack Marketing Spend (Part 1)

A couple weeks ago, Thomas wrote a piece around his experience at ProcureCon's inaugural meeting around Digital and Marketing Services. Judging from the traffic it received, it appears that the procurement/marketing relationship is a hot topic. And why wouldn't it be? Baffling marketing spend works procurement into a spend analysis PPR tizzy, and marketing responds with a despondent, teenage-whine-level "but we're creaaaaative. You just don't understaaaaand."

So Thomas decided to write up what turned into quite a lengthy series on Spend Matters PRO. We'll feature Part 1 today: How to Attack Marketing Spend (Part 1)

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Like MRO, packaging, and logistics, the marketing category straddles the boundary between direct and indirect spend. And we all know (or so marketing folks claim) that it has a substantial impact on sales – allegedly, at least! The direct commercial impact is notoriously difficult to assess, although a new breed of analytical-driven spend analysis tools targeted specifically at marketing spend (e.g. cross-channel, competitive insights, etc.) and campaign performance can help. But put these in the agency parking lot for a minute. We'll get into them later in this analysis and series. For now, let's focus on the marketing category as one among many – what makes it unique, what makes it similar, and what are current trends.

The most fundamental question: is there a need? Let's ask ourselves: do we even need to look at how the marketing budget is spent, and the performance and results our CMO's dollars buy? Even if the marketing budgets were smaller and less impressive, in Spend Matters' opinion, the execution side of marketing is nowhere nearly as well managed as the average procurement category. So yes, we need to look at this category, understand what is going on, and introduce a healthy dose of bright sunshine. Note that procurement doesn't typically own this budget, nor will they ever. It's typically tied to brands, aka products.

Given this context, procurement should primarily focus on bringing some order into the transactional parts of the process (and evangelizing that there is a process), not to mention that that there is sufficient visibility into spend to understand it. As procurement organizations get more advanced, they can drive more effective sourcing and supplier management outcomes as well, getting more from supplier management/partner-type marketing areas (e.g., agency of record) and driving rapid hard-dollar savings from sourcing-oriented marketing spend areas (print, conferences, etc.).

Close the loop – Specifically, there is little understanding among marketing professionals of the need to close the loop between what was created and produced with what was delivered and paid for – the term "spend analytics" has made little inroads into this area. As in some areas of procurement, where the suppliers hold the spend data cards, in marketing, the agencies are at the top of the information hill with a clear advantage when it comes to understanding exactly what is agreed to, created, and delivered.

In fact, in the case of a number of Publicis firms (to single out just one example) the technology that the agencies of record deliver to report on cross-channel performance and competitive intelligence is hugely powerful stuff. Yet one could argue that this is truly the fox watching the marketing spend hen house. Ironically, marketing is as adept at running sophisticated numbers on the demand side as they prefer to avoid itemizing what they buy and how it correlates with what was negotiated and what was delivered.

Spend detail – This is an area where the ongoing rocky relations between marketing and procurement should reach a truce. Regardless of type of marketing buy (offline or digital, creative or production), the first item on the agenda has to be creating visibility. The best practice in this area is segmenting everything by coming up with a high level of granularity – e.g. length of commercial, time slot, geographical distribution, and so on for the various subsets acquired. Even if it is difficult, attaching detailed specifications to what is being bought enables spend analytics in a broad sense, as well as links what is bought and delivered (assuming a proper contracting and PO process), and finally benchmarking across products, business units, managers, agencies and so forth. If this leads to greater procurement control over marketing, the added visibility is bound to spur discussions that lead to improvements.

Education – The marketing team is proud of what they do, and they are not likely to admit shortcomings, especially not in an area that shows weakness toward the much-maligned procurement people. But they do need to brush up on the crass side of procurement. As a generalization, they are less knowledgeable about many current procurement and procurement concepts than many other buyers. Just as marketing is deathly afraid of falling behind the relevance curve when it comes to being involved with digital content, they should also be brought up to speed with the rest of procurement around best practices in sourcing, SLM/SIM, CLM, P2P, and similar initiatives.
Similarly, the procurement team should be humble enough to admit that they do need to learn more about the details around what marketing actually does, their interaction with agencies and production houses. Words are far more important to marketing than to procurement in general – even seemingly small things like using the term "supplier" or "vendor" instead of "agency" sets ruffles the feathers in both marketing and agencies, and in a major way. The focus of this article is on marketing rather than procurement, but there are likely similar terminology faux pas made by marketing that sets procurement's teeth on edge.

Agencies – Think of them as truly strategic partners, because they have to be. Not only should the agency be vetted carefully, but the individuals assigned to the engagement will make or break the activity. The marketing people I have spoken with and listened to are uniformly in agreement; it is not about the agency, it is about the individuals that support your activity. If a critical individual leaves for another agency, clients follow. That said, other than the spend detail mentioned above, there are areas within broader agency agreements that can be treated as fairly transactional – e.g. reprints, basic production post creative signoff, tchotchkes, and fulfillment of other branded sales materials. Additionally, there is a new approach to managing agencies that is quite promising. Meet decoupling...

Decoupling – This is a truly hot topic. Decoupling is the term that refers to separating creative and production. Decoupling by another name has been used in the software development industry for years; a proven model reminiscent of BPO in general procurement. It's particularly useful for organizations with sufficient complexity to have numerous product lines, brands, business units, and geographical regions to serve.
In essence, it involves either creating an internal production shared services production house or finding a suitable provider that can take on this role. Any number of agencies would work with this single production house. Especially in the digital field this delivers substantial economies of scale.

To clarify, this involves the agencies themselves separate creative work from the more mundane production work – so the approach isn't earthshattering. But it does require careful SLAs as well as socialization between the creative and production houses. Yet the benefits are substantial. Compared to creative work, the production side uses far lower wage (low cost country even) resources that can reduce overall costs considerably. Some Fortune 100 firm estimates suggest that upward of 50% reductions are possible in this model – without loss of quality or cycle time.

Among caveats is the socialization of agencies and the production house – case experience suggests it can take 4 to 8 weeks of "dating" before they mesh. Spend Matters also recommends embedding at least one resource from the shared production house inside each agency. This resource ensures that someone from the production side is always in client and agency meetings to avoid gaps and misunderstandings.

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- Thomas Kase

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