Recently the World Federation of Advertisers (WFA) released a report that updated research from 2011 on the status of agency remuneration by marketers. Soon there were many articles written about the fact that procurement is now in many instances the lead negotiator with agencies, with marketers playing a secondary role.
Apparently this is bad — really bad. Qualifications like “marketers take back seat” and “pencil and paperclip buyers control agency remuneration” were some of the kinder descriptions.
I have to say I do not agree with how procurement is being pooh-poohed. I have dealt with marketing procurement in my last two jobs, and have frequently interacted with the WFA Sourcing Forum, the group that is dedicated to marketing procurement.
Let’s start by saying there are good and bad ways for marketing procurement to be involved in the agency selection, remuneration and evaluation process. It would indeed be bad if the procurement people had no prior marketing experience or knowledge whatsoever, but I have rarely come across such cases. It would also be bad if their only focus was cost, as in cost-reduction.
However, I have seen experienced media or creative agency managers on the client side joining the ranks of the procurement department. The fact that I am calling this functional area “marketing procurement” indicates complementary skills and responsibilities.
Once you have such people on the procurement team, they can absolutely add value. In principle, they can help if you want to convince your senior leadership that you have made a wise choice for a new agency by finding better arguments then “their pitch was great,” “we felt like we had good chemistry with their team” or “the commercial they proposed really made us laugh.”
If executed right, marketing procurement can help with structure, assessment rigor, impartiality and even role-playing (good cop/bad cop) in negotiations. I can honestly say that I have never had a bad meeting with the marketing procurement folks I have interacted with over the years. Some I even call — gasp — friends.
The far-more-worrisome issue from the WFA research, which should have captured headlines, is the fact that only 11% of all marketers have an agency pay-for-performance remuneration model in place. In our book “Z.E.R.O.,” we have dedicated a whole chapter to compensation and remuneration. It’s a topic close to my heart, as I have worked at both agencies as well as advertisers, so I have seen the good, bad and ugly from both sides.
The majority of advertisers rely on the fee-per-hour model, which I find shocking. And to add insult to injury, the majority of marketers only make 10% of their agency’s comp dependent on some form of bonus. For media agencies, the number one metric is “buying targets,” which means you’re incentivizing your media agency to chase “cheap” over anything else. Not smart.
For digital agencies, the number-one bonus metric is more diffuse (I guess we have no idea how to incentivize them), but “sales volume” and “brand equity” seem popular. The first one I understand if you sell directly to consumers online. The second one feels like a cop-out (“well, we’ve got to measure something…”).
There is clearly still a lot of room for improvement before we will do a better job of remunerating and evaluating our agency partners. Shoving marketing procurement off as “paperclip buyers in charge of agency remuneration” is not going to get us there.
Maarten Albarda is founder, MLA Consulting. The article was published first on MediaPost Online Spin on May 5, 2014.