Feature

Counting the cost of ads

They're accused of knowing the price of everything and the value of nothing, but procurement specialists are here and here to stay ... and they won't let agencies run rings around them any longer.

Compag is ten years old. Whether or not adlanders will want to wish it happy birthday may depend on how many still regard its members as instruments of cynical clients relentlessly trying to hammer down agency margins.

Oscar Wilde defined a cynic as somebody who knows the price of everything and the value of nothing. And there's no doubt that those who sit on Compag - or the ISBA Communications Procurement Action Group, to give it its full moniker - have attracted similar opprobrium down the years.

Today, procurement specialists find themselves tolerated by agencies, if not universally loved. "The relationship between agencies and procurement is still very much 'us' and 'them'," an industry source says. "We've got used to them because we've had to. They're a fact of life."

Indeed, an agency boss puts the rise of the procurement specialist alongside the advent of the media independent, the demise of the commission system and the digital explosion as the most significant events to impact on the industry in modern times.

"You can't fool us and we won't go away," Richard Woodford, Compag's straight-talking chairman, tells agencies. "We're becoming more closely aligned to the marketing function than ever before."

Their arrival on the ad scene can be dated back to the late 90s, when, as marketing grew in importance, clients began signalling a desire to make marcoms as financially accountable as all of their other supplier services.

As a result, ISBA found itself flooded with calls from people charged with ensuring their companies got value for money from an industry whose practices were alien to them.

"I'd always been used to dealing with marketing people and helping them find agencies," Debbie Morrison, ISBA's director of consultancy and best practice, recalls. "Suddenly, I was getting calls from people in procurement having to look at the last bastion of company spend in which they'd never been involved."

To describe procurement's view of agencies as restricted puts it mildly. "They knew the brief went in and the work came out," Morrison says. "But they had no idea what happened in between."

Not surprisingly, agencies were able to cash in on procurement's shortcomings. "Agency finance directors would run rings around them during negotiations," Morrison adds. "The procurement people had no idea what they were talking about."

This is hardly surprising given the haphazard way business between agencies and clients was conducted. Morrison estimates that when she joined ISBA 20 years ago, about half the membership had no formal contracts with their agencies. Many agreements were concluded with just a handshake.

Transforming such a laid-back approach has been slow. It's only in the past six years that marketing procurement has had real shape and structure. Some major companies still have nobody occupying the role. The arrival of Woodford, 36, at News International last month to oversee advertising and marketing procurement, marked the first time the media giant had ever appointed anybody to do the job.

So, has the pendulum now swung too far procurement's way? It's a moot point. However, Compag points to its "softly, softly" approach to improving agencies' understanding of procurement. Sir Frank Lowe, who famously derided procurement people as "car bumper buyers", was invited to meet Compag members to discuss his assertion.

Meanwhile, there have been discussions between Compag and the IPA about what can be done to make agency account people better equipped to deal with procurement managers. The initiative foundered when recession struck, but Woodford says it remains an objective.

"Procurement is a very process- orientated skill," he suggests. "It's actually easier to learn many of the procurement skills than it is to learn the marketing process."

Agencies agree about a lack of understanding - but claim it isn't they who need educating. Agency bosses still complain about being expected to sign "widget contracts", which contain either irrelevant clauses or make unrealistic demands. Woodford agrees it has been a problem. "We've seen a lot of it," he admits. "Clients need to be more aware that there is an agreed standard contract that's suitable for both parties."

For her part, Morrison believes the procurement issue has settled down and that relationships between procurement people and agencies are generally good. "There was a time when agencies refused even to talk to them, but I've not heard of that happening in the last five years," she says.

"There's a very black-and-white perception of us," Woodford acknowledges. "People who understand what we do perceive us very well. Those who don't understand perceive us poorly."

Morrison goes so far as to claim that procurement people have become agencies' unlikely allies, chasing overdue payments, offering guidance through the complex TUPE regulatory minefield and warning marketing directors that they can't just shift their business elsewhere if they can't get credit insurance. "They're actually quite protective about their agencies," she declares.

Agencies are less convinced the relationship is quite so cuddly and are alarmed about the extent to which procurement specialists are sidelining their marketing counterparts. And they despair at what they claim has been procurement's failure to cut out wasteful pitch practices by clients.

"They're rarely in the room when the tough discussions take place and it's making life very difficult for us," an agency insider says. "We think procurement people are trying to micro-manage agencies rather than thinking of genuine partnerships."

"They talk about being on the same side as us," another complains. "But when the serious talk begins, another side of them emerges."

Moreover, agencies believe the pressures on them from procurement people are disproportionate. Even the biggest shops struggle to hit the numbers and marcoms represent only a small part of procurement people's responsibilities within most companies, they argue.

Woodford disputes that assumption. "Advertising and marketing costs are a huge expenditure on the balance sheet of many companies," he says. "It can account for anything between 4 per cent and 16 per cent of transactions."

Morrison claims procurement specialists aren't the insensitive souls they're made out to be: "They understand that agencies are small businesses compared to their own companies and that relationships have to reflect that."

Agencies are not convinced. They believe procurement people's atti-tude is symbolised by what they see as Compag's less-than-enthusiastic backing of the Magic And Logic document, an updated version of which is published today (21 May).

A three-way initiative by the IPA, ISBA and the Chartered Institute of Purchasing and Supply, Magic And Logic seeks to identify how the parties can work better together for their mutual benefit. Agencies sense a fear among Compag members that too much support for Magic And Logic will weaken their negotiating position.

However, their over-riding worry is that the procurement issue has become a running sore that won't heal. "Each new generation of procurement people is going to think buying advertising is like buying widgets," a leading agency figure warns. "But it isn't."

According to one network boss, the answer - hard as it seems - is to make procurement people feel wanted. "Be nice to them because they're important people," he advises. "In fact, they're becoming the most important people on the client side that we have to deal with. The best thing we can do is draw them in, buy them a pizza, show them what we do and how we do it."

Woodford welcomes such sentiments. "We really do want it to be win-win," he says.

KEITH RAEBURN - Senior purchasing manager, T-Mobile

Keith Raeburn led the team that many would say laid down procurement's marker in adland. That was four years ago when Abbey, then his employer, caused consternation by using an auction to determine which agency would handle its media planning and buying business.

It was a highly controversial development, causing some agencies to withdraw from the contest and provoking allegations that Abbey was abusing its power.

"It was being suggested that media was being commoditised, but our marketing people were happy to work with all of the shortlisted agencies and we took a view that media was different to creative," Raeburn says.

He has extensive experience of purchasing and procurement and spent a couple of years chairing Compag's remuneration group. During that time, he helped develop a guide to understanding and negotiating agency overhead.

His career, which began at Barclays, was followed by stints at Kodak and Abbey. He joined T-Mobile in 2006, initially focusing on the joint venture campaigns with the company's key handset partners - Nokia, Samsung and Sony Ericsson.

Does he ever feel limited by his lack of marketing experience? Not really, he says. "I work on a daily basis with our campaign managers. So much so that my role is almost a hybrid one. I'm having to become much more astute in terms of marketing."

RICHARD WOODFORD - Category manager (advertising and marketing), News International; chairman, Compag

Richard Woodford, the red-haired, rugby-playing and blunt-speaking Compag chairman, isn't afraid of a bit of rough-and-tumble with agencies. But he insists there's no reason why both procurement and agency managers can't both emerge as winners.

"Both of us are looking to maximise our budgets and make them go further," he says. "But we shouldn't be asking our creative agencies what's impossible for them to deliver. Do that and quality suffers."

Woodford can fairly claim to have a well-rounded view of the issues, having worked in global marketing before moving into procurement ten years ago. "I was getting married and wanted a family. That didn't fit with all the travelling I was doing," he says.

A business studies and marketing graduate from Newcastle University, Woodford's career spans periods at Compass Granada, the catering, hotels and restaurants group, Cadbury Schweppes and the pharmaceuticals giant Merck Sharp & Dohme.

Today, he is seen as one of the most experienced executives in what is still the relatively recent discipline of marketing procurement. At both Compass and MSD, he was the first person to be appointed to a marketing procurement role.

"Previously, it had always been an add-on," he says. "But that's all changed now that advertising and marketing has become a massive corporate expenditure."

MARK GOMEZ - Procurement manager, Visa Europe

Time was when people like Mark Gomez were something of a rarity - a procurement professional who had actually cut their teeth in marketing. Today, it's a lot more common for those negotiating the best price for their advertising to have more than a passing knowledge of how it's created.

Gomez spent several years as a marketing executive at the pharmaceutical giant Bristol-Myers Squibb and reckons the experience has stood him in good stead for what he now does.

As marketing has risen up company agendas to become one of the most closely scrutinised spends, so the influence of managers such as Gomez has grown along with it. He is representative of a growing number of senior marketers whose interest in the commercial side of agency deals became more than merely passing.

Compag has helped close the knowledge gap for many of those involved in it, he says. "If you're just working in a procurement function in a large company, it's easy to feel you've nobody to share your experiences with because you're buying outside the norm of your experience. You need a hub where you can share your experiences. Exposure to different models is invaluable and Compag has fostered that."

Because of his background, Gomez is clear where the demarcation lines with marketing lie. "Our agency arrangements are quite complex and it's not my job to tell people which one they should be using," he insists. "I have to make sure we're getting the best possible value from those relationships."

Q&A

- What's more important to you: quantity or quality?

Richard Woodford "They're both important because we're looking to maximise our budgets. We want the best quality at the best price so that our budgets go further in driving our business. But it's important to strike a balance between the two. We won't ask our agencies for something they can't deliver. Do that and quality will suffer."

Mark Gomez "Quality is vital if you're looking for return on investment. We need to buy the best on the most economically favourable terms. We understand agency cost drivers and what their business models are. There's no point in pushing things so far that an agency can't make money. That's not a sustainable business model."

Keith Raeburn "It would be easy to say that anything that comes in on time and on budget is OK. But that's not true. What really matters is delivering the right creative idea at the right price."

- How do you define quality?

RW: "Quality results when client and agency reach an agreement in which both feel happy: the agency because it's been properly remunerated, the client because he feels he's getting value for money."

MG: "Getting the right company in place to give us the marketing communication we need is my priority. It's not for me to judge quality."

KR: "Quality springs out of a sound business relationship between agency and client and a shared desire to keep costs under control."

- Is advertising a cost or an investment?

RW: "It's an investment. However, it's become a cost because of the high spending in the area - and we have to manage our cost base. Things that were once an integral part of any company - such as human resources and IT - have now been outsourced. Marketing budgets are becoming more scrutinised than ever and we need to understand what we are spending our money on."

MG: "It's an investment. ISBA certainly believes this to be the case and is helping to drive the notion. This is particularly true in times of recession, when you have to make sure that every pound you spend is working hard for you."

KR: "An investment. There's no question about it."

- Do you negotiate differently depending on whether you're dealing with a creative or a media agency?

RW: "Creative, media buying and media planning are all negotiated in different ways and none of them are necessarily right. Compag and the IPA have been trying to find better ways, but, so far, without success. Creative is based very much on the hourly fee while media buying has become more commoditised. Media strategy is something of a hybrid because it's a relatively new discipline."

MG: "The basic principles are the same no matter who you're dealing with. We're not buying commodities. It's all about people and resource. That particularly applies to media agencies as they expand their planning capabilities and become much more strategic."

KR: "I certainly have negotiated differently, having been the lead at Abbey on one of the first media pitches to use the auction method. We took the view that this could be done because media was different to creative."

- What advice would you give to agencies when dealing with procurement people?

RW: "Be transparent and open. Agencies must understand that they can't fool us and we won't go away. As the procurement discipline gets more experienced, we'll become more closely aligned to the marketing function than ever before. But agencies should also use their procurement contacts to help them smooth over conflicts."

MG: "Be open. Work with us because we're both after the same thing - delivering the best possible work. Win-win has to be the aim - and it can be achieved through openness and transparency."

- What are you looking for from your agencies?

RW: "To work in the most efficient way possible to deliver what we need and to spend client money as if it was their own. They need to focus more on the creative work and less on client management."

- Do you think you've overcome the animosity agencies felt towards you? Do they still think you're there just to drive down margins?

RW: "There is an underlying friction because of a difference between what we and agencies want to advance. I think it's healthy that agencies focus on creative and for us to focus on making sound commercial judgments. Agencies should put commercially savvy people in front of us, not account management people. That just leads to friction and frustration."

MG: "I've never experienced animosity. If you go into agencies determined to drive down costs, they will not be open and that can cause friction. If you make it clear that you and the agency are after the same thing, it's much easier."

KR: "We've taken strides to improve the relationship with agencies, but there has always been an element of mistrust and a feeling that we're only there to drive down costs. But I think people are becoming more enlightened."

- What's your relationship with your marketing director?

RW: "I'll always try to work closely with my marketing colleagues. It helps that I understand their issues, the value of doing great ads and the value they add to our business. Our relationship with marketing has to be solid. We can't do it in isolation."

MG: "I've always had a very good relationship with our marketing people and am considered part of the team. But there is a very clearly defined division of responsibility. You have to know where your role stops."

KR: "The relationship with our marketing department is very strong and everybody is clear what their roles are."

- Would you welcome a return to full service?

MG: "I'm less concerned about that than I am about having the most appropriate relationship. It's not about one size fitting all."

KR: "I can't remember full service. My closest experience of it is Bartle Bogle Hegarty, which is almost like a full-service agency in the way it directly oversees things like TV production and print. It might be more advantageous from a procurement point of view, but our current arrangements work well for us."

- Agencies claim procurement people still ask them to sign contracts that are irrelevant or make unrealistic demands. Do they have a point?

RW: "There's still too much of it happening. Clients and agencies need to be aware that there is an industry-agreed standard contract. However, agencies shouldn't be frightened about coming forward if they are concerned."

MG: "I've not encountered any problems. From its earliest days, Compag has worked on establishing a standard contract and work is now taking place to develop a new one that will cover digital."

KR: "If I'm honest, I have to say I've seen contracts with information that doesn't need to be there. Agencies should have the confidence to challenge procurement people if necessary. The last thing we want is for agencies to work unprofitably."

- Will procurement managers continue to push decoupling, where clients bypass their agencies and take direct control of pre-print and press activities as well as TV production?

RW: "I'm on the fence about this. There are elements of decoupling that can provide benefits for clients. However, agencies need to be a lot more transparent. Clients shouldn't be able to buy these things more cheaply than their agencies."

MG: "There's an argument that decoupling is here to stay. However, it should not be about taking work from agencies. It's really about understanding what the costs are and how they are spent so our budgets work most effectively."

KR: "Decoupling can be right in certain circumstances. At T-Mobile, we've decoupled our print work. Nevertheless, as agencies become more financially astute, decoupling becomes less necessary."

A DECADE OF COMPAG

- Compag was limited to 30 members when it began. It now has 50 including representatives of some of the UK's biggest advertisers. Among them are Tesco, Coca-Cola, Nokia, Barclays, Mars and British Airways.

- There are also about 160 associate members who are kept abreast of the issues Compag is discussing.

- Compag is regarded as the most active group within ISBA. So eager are companies to be represented on it that there's a strict rule dumping any member who fails to attend three consecutive meetings.

- Compag members earn up to £90,000 a year plus bonuses. An estimated 40 per cent of them have marketing experience.

- Compag's success led to the World Federation of Advertisers establishing a global group of its own three years ago.

- Over the next two years, Compag members expect to focus on digital's impact on what they do, on new ways of buying media and on recession planning. The impact of social networking and green issues - particularly procurement's role in reducing companies' "carbon footprints" - will also be high on the agenda. As will finding more innovative remuneration ideas not based on the "hourly fee".

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