Managing Marketing: The rapid evolution of marketing procurement?

Managing Marketing is a podcast hosted by TrinityP3 Founder and Global CEO, Darren Woolley. Each podcast is a conversation with a thought-leader, professional or practitioner of marketing and communications on the issues, insights and opportunities in the marketing management category. Ideal for marketers, advertisers, media and commercial communications professionals.

Brett Colbert, Chief Procurement Officer at MDC Partners discusses with Darren the exciting state of marketing procurement in the US, the need to move beyond savings and create a greater level of collaboration between brand and agencies to deliver increased effectiveness while focusing on opportunities for efficiency and the need to have mutually agreed measures of success and performance.

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Transcription:

Darren:

Welcome to Managing Marketing and today I’m here in New York City with Brett Colbert, Chief Procurement Officer at MDC Partners. He’s also I’d say the rock star of marketing procurement with the Twitter handle @rockprocurement. Hi Brett.

Brett:

Darren how are you? Welcome to New York. Let’s talk about marketing.

Darren:

Well, I love marketing.

Brett:

I love marketing as well!

Darren:

Starting off taking the piss.

Brett:

The bad boy of procurement.

The current state of marketing procurement

Darren:

What can I say? So what do you think is the state of marketing procurement because I have to say, coming out of the ANA Advertising Financial Management, it was pretty uninspiring.

Brett:

Unfortunately, I agree with you. Listen, I think we’ve been missing the mark these days, everyone is claiming that they’ve moved beyond savings when in fact we actually heard from Coke who say they’re focusing on different initiatives and then a whole notion of savings, reduction avoidance has been removed from the vocabulary.

So if everyone wants to focus on value, let’s have real conversations in terms of how do you quantify value? How do you measure value? And what is the success of value? Because that then is going to be sustainable.

Focusing on saying that we’re not going to cut, we’re only going to invest and quantify that value, that’s not going to keep the conversation going to be quite honest.

Darren:

Well I have to say I’m highly sceptical of that, only because in Asia, and I’m not sure whether it’s because it’s still an emerging or developing market, but almost every conversation is about price.

In fact, I had the same company that were talking about value at the conference, phone me up not six months ago and ask me how much I could reduce their media agency fees for in Asia and offering me half the savings.

Brett:

Which is amazing to me.

Darren:

Which we refused by the way because we never work on savings. So I’m sitting there going, is this disconnection or are they just pulling my leg?

Brett:

I think oftentimes people want to tell people what they want to hear and then they’ll go ahead and go against what’s best for the business. Some of these businesses with very low margins, yes, it is focused about cost but the reality is with procurement or even with the marketing procurement, let’s be specific, if you need cost reduction, cut the budget. That’s the thing.

Just cut the budget because let’s not continue with this dance. It’s that the agencies can’t continue to sustain at the rate at which the cuts are being asked for and frankly, they’re not incentivised or motivated to want to continue to work on that business.

So what we really never talk about is the cost to transition the business or transition a manager within marketing who’s not getting what he or she needs because an agency agreed to do something for less versus investing to get more.

That’s the problem that we continue to have and unfortunately it’s not going to go away any time soon until someone truly takes a stand and says, “This is what happened when I invested more, this is what I got”. And I’m okay with doing that because that was then delivering “value” to the business.

Darren:

So it’s interesting because Jeff Jones from Target spoke and I thought he did a terrific presentation but he was talking about investing and measuring success and he’s using data, data, data, I don’t mind, to actually measure the impact that it’s having and retail business is great because when you do something, you see it at the register or you see it online in your checkout.

Brett:

Absolutely, optimised in realtime.

Darren:

But then when someone asked the question does he use performance or incentives to bonus the agency for when he’s getting these great results, he used the old line, “Oh, I don’t think that’s fair because the agency can’t control everything”, but what about thinking of it as a contribution they make and giving them the “reward”, for that contribution?

Brett:

Sure, a lot of times clients these days are using these incentives as hold back metrics, that is, do what you say you’re going to do and then we’ll pay you the compensation based off of that.

So I’m a big fan of Jeff, full disclosure is that one of our agencies works on Target so I love the stories that they tell on behalf of that brand. The biggest challenge with any type of value based or performance based metrics is that first and foremost, many of the agency partners don’t actually see the data or they don’t see it as frequently as they need to to optimise in realtime especially for a retail business.

Then second, most of the incentive criteria aren’t formalised within a contract to say that the marketer has to budget for it. And the marketer has to accrue for that because let’s be honest here, if you’re talking retail business or you’re talking consumer packaged goods or fast-moving consumer goods, come fourth quarter, they have to cut the budget, they have to hit their numbers.

That’s irrespective if the agency is incentivised or compensated based off a retainer for that fiscal end or calendar year or whether it’s just project based. So as we talked about the benefits of aligning metrics to the brand to your client, agencies wanting to take skin in the game to demonstrate value, created value delivered, the reality is that many have not been actually provided the criteria or the stimuli for them to measure how well they did.

Therefore, oftentimes they’re finding that they’re under-valued or under-compensated based on missing some of that criteria. And as you know, one of the largest incentive criteria is, how’s the relationship?

Objective and subjective metrics

Darren:

Oh no!

Brett:

It’s always a tough one because obviously the most subjective of let’s say the three, you have a business metric, an advertising metric, both pretty objective and then you have the marriage metric.

Darren:

The subjective one.

Brett:

The subjective one.

Darren:

How do I feel this week?

Brett:

Absolutely! It’s all tied to recency. Whether he or she who’s on the brand side is getting that promotion they’re hoping the agency is going to get them to get and what happens in most cases, this is unfortunate because again, I’ve sat on both sides of the table, a 360 evaluation is very much about a 180 evaluation, taking the hour that is allotted to have that review and 50 minutes of that hour is the brand telling the agency how they are and the remaining 5 minutes for the agency to agree to everything the brand just said.

Bias to the brand side

Darren:

Now, I’ve noticed that particularly in the U.S. right, that it’s very biased to the supplier, right? That the brands are happy to tell the agency but they don’t like hearing about how they could be better or where they’re falling short.

Brett:

Absolutely.

Darren:

Whereas I’ve found in other markets it’s not as obvious, that people understand the co-creation, you know? Garbage in, garbage out or the agency can only be as good as the client allows them to be or stimulates them to be? Like encourages them and challenges them to be.

Brett:

Absolutely.

Darren:

The other thing is that underneath any performance thing is there has to be a high level of trust.

Brett:

Without a doubt.

Darren:

Right? And the other thing I’ve seen completely disappear is trust but particularly the trust that the agency has of the client because too many times we’ve been called in because the client’s put a big performance metric in place and ended up hitting the numbers but then not paying the agency because one, it wasn’t in the contract and two, they then suddenly go, “Oh yeah but the agency didn’t really drive the success, it was something else”.

Brett:

Sure. Well Darren the question I have for you in today’s world, who’s the client? Because the thing is historically it was the brand.

Darren:

Yep.

Brett:

And it was probably either the CMO or the VP of brand or what have you. Now you’ve got many different layers within the marketing realm but then you also have procurements with conflicting KPIs and very little accountability to shared metrics.

So an agency has to deliver to a procurement metric and also has to deliver to a brand metric and I think that we could have a whole different podcast just on the differences of those, the differing metrics of those two constituencies.

So who is the client these days? And that’s always the biggest challenge. I think that would be most eye-opening during these 360 evaluations and there’s always a section that talks about financial stewardship. Is agency, whatever agency, and let’s just speak in this case to an integrated agency that’s actually concepting film, they estimate based off of now, let’s say three to four rounds of revisions, historically it was two to three.

Darren:

Yep.

Brett:

But actually we’re finding, and this is when I was on the brand side as well now being back on agency side, that we are now seeing double digit revisions.

Darren:

Wow.

Brett:

That’s never talked about during these 360 quarterly business updates or if you’re doing it biannually or what have you and no one really talks about what happens to the efficiency of the business as a result of that.

Darren:

That’s why when we’re called in to do a remuneration or compensation benchmark, one of the things that stands out is the increased levels of creative and production time and account management. In fact, we had a client where the average number of iterations of creative idea, not even revisions in production, was twenty-seven. Now that’s the average.

Brett:

What does that do to somebody’s motivation when you ask them to go back twenty-seven times?

Darren:

But it was also costing them, we could show it cost them 2 million dollars, 2 million dollars in extra work.

Brett:

Easy. That was a cheap agency!

Darren:

Yeah.

Brett:

In that case. But when you think about it and estimate it in terms of…

Darren:

On a small scope of work.

“Do you know how your agency makes money?”

Brett:

Concepting the thirty second spot or film could be you know, a quarter of a million dollars, times twenty-seven, again, it’s not going to be fully equivalised at that, but nonetheless, that is a lot of money.

What would be more interesting for me to participate and hear when they have a 360 is simply asking the brand, “Do you know how your agency makes money?”

Darren:

No, they don’t.

Brett:

And sadly they don’t.

Darren:

No.

Brett:

And, do you understand how an agency runs their business?

Darren:

They don’t understand how they make money, but they also believe that the agency is making an excess of money.

Brett:

Excess of money, correct.

Darren:

It’s like they’re living thirty years ago.

Brett:

Absolutely.

Darren:

Maybe shows like Mad Men are doing a disservice to the industry because you know, that was set in the 1960s, we’re like fifty years ahead from there.

Brett:

Absolutely. And not only do the brands not necessarily know how the agencies make money, listen we’ll take some accountability/responsibility on the agency’s side, many agency resources, certainly sans management, but agency resources don’t quite understand how their business makes money.

I think it would be very eye-opening to a lot of the resources within the team, specifically creative; creative wants to put out a creative product that they’re happy with and that’s going to deliver to the business results.

No matter how many times it may take to actually hit that, oftentimes agencys on their own accord, they will invest to make sure that it delivers exactly what it is that both parties have agreed to, to deliver against that business result.

But too often, twenty-seven revisions you spoke to, not only does an agency not know that after let’s say, four, you have to put pens down and say, “No”, but what’s that doing to the relationship? If anyone ever told me professionally to go back and revise something twenty-seven times, that would be cause immediately to say goodbye.

Darren:

Now look, it was interesting because we went into the marketing department and it was a four-layered marketing department from the brand manager to the CMO and what was happening, because even I was gobsmacked that the average was twenty-seven, there were some up at around forty, fifty and some down at around five, six at the minimum.

It was because the brand manager would do four or five and then hand it up to their boss who would scrap everything and start again and he’d do four or five and then it would go and then it would finally get to the CMO who was looking at twenty ideas.

Brett:

Easy.

Darren:

“I don’t like any of them, you’re all idiots, this is what you need to do”, and I said to him, “Well why don’t you brief the agency?” and he goes, “I haven’t got time” and I said, “So you’ve got time to say no but you don’t have time to actually get it right in the first place and it is costing you an extra two million dollars”, and he goes, “Money is cheap”.

Brett:

That, oh God!

Darren:

Mind you.

Brett:

That’s so not in line with procurement practice.

Darren:

Eighteen months later he got fired!

Brett:

Yeah well, wow. In today’s world, what we always suggest to both parties is define working rules of engagement and make sure that both have full visibility on each other’s cultures.

Darren:

Yes.

The opportunity for marketing procurement

Brett:

I’m hoping that as marketing procurement continues to integrate itself into this wonderful world, they’ll understand that there’s a lot of opportunities for them to close the gap between the three parties, three parties being brand, procurement and marketing and excuse me the agency .

Understand that they can learn from agencies what works well with other clients to apply that perhaps what could be working better in their own houses and vice versa so there’s a lot of room for them to have a true “Come to Jesus” moment with each other.

“Okay, what is causing these rounds of revisions? What is causing this decay? What is causing unnecessary utilisation of time and resources? Is it because from the onset we didn’t have an understanding of who the true decision makers were on both ends?”

And that’s the problem and that will continue to be the problem.

Darren:

That is a great role for procurement within an organisation. At the moment, it’s heavily laden with this agenda of cost reduction and savings.

Brett:

That’s the problem, if the second somebody can quantify what productivity truly is and being this resource, not to say that this resource is going to fall, actually I tweeted this, the old agency relations role, because there is a financial responsibility that comes along with this role.

But these change agents need to understand what could be working better internally to fix the foundation of their house and then truly be the champion for the agency partner as well as marketing to say you know, “We have some shit to fix together”, and let’s then determine what it used to look like and how much that cost and then what does it look like today.

The difference between the two then take that to your CPO and still claim that as cost avoidance because the reality is that finance is not going to validate that saving. Finance will continue to say, “I don’t trust the savings”, and at the end of the day, finance is going to take the money anyway.

So it’s not a procurement decision ever to apply any of those savings, whether it’s going to be hard or soft, to the bottom line. So it still baffles me on why we have this notion of a savings goal or target that we have to hit. By the way, I don’t think that I told you that on my team I removed all notions of savings targets.

Darren:

Really? Great!

Procurement as investment managers

Brett:

They’re going to deliver savings, that’s what procurement does because they’re resourceful brand builders. Let’s talk about that. Resourceful brand builders, they are investment managers. They’re going to make sure that the money is invested to the best of its ability to deliver the best return.

Darren:

Maximise the return on that investment.

Brett:

It’s no different than in marketing because we all talk about that. The marketing results can be applied to the top line of the balance sheet. So therefore, if you’re managing that investment of marketing versus being the ambulance chaser looking for low hanging fruit and continuing to do that year over year, there’s no value delivered there.

Darren:

No.

Brett:

So the second that a procurement organisation has better alignment with the marketing organisation’s goal, actually just the business goals because if the business…

Darren:

Well marketing should be aligned to the business goals.

Brett:

Both should show the same accountabilities because the reality is that if the business doesn’t deliver its goals, nobody gets their incentive. And frankly, not just an incentive, they may not have a job.

So maybe what we do is we put the agendas aside and just say, “How can we invest better to get a better result?” And let’s be realistic about what those results are. Let’s take a look at the budget holistically, not just the marketing budget per se but where’s the IT budget because we talk about the ongoing needs for more tech and ad tech, the insights and analytics budgets, I mean let’s be real, marketing budgets are reducing.

IT and insights and analytics budgets are increasing because those are tied to sales. People want to invest more to get a better realtime result.

Darren:

It’s interesting you should say that because actually about 30% of my business now is restructuring marketing departments within organisations and one of the things that we do is pull together tech, digital tech, analytics and data analytics, customer analytics, and then have an insights and brand team because any insights have to come through a brand filter…

Brett:

Absolutely!

Darren:

And then the comms team and we call that the central diamond, there’s four diamonds that lock into each other. Now, physically, they actually exist in different parts of the organisation but by bringing them together in responsibility, they become almost like this virtuous diamond.

Brett:

That’s your holy trinity right there. Literally all of them have to be working together in real-time, really all pulling from each other’s budgets on one budget that then has to be optimised.

So we’re not talking about media optimisation, we’re talking about holistic marketing optimisation, taking into consideration all of the dollars that are going to touch a consumer.

It’s a very cool time to be in marketing. It’s a cooler time to be in marketing procurement. So, the opportunities are right there in front of them, they need to literally grab themselves by the balls, jump in and determine how they can add value in this new world. And sustain in this new world.

Darren:

Procurement are in a great position to be able to build the business case for doing that.

Brett:

Without a doubt.

Darren:

Because they have the business understanding, the commercial context. Most procurement marketing people have terrific analytics and understanding of finance.

Brett:

Absolutely, absolutely.

Darren:

So to actually work with the marketers and the other key stakeholders within the organisation they can build the case to take to the board or take to the C-suite as to why it should be working this way.

A conduit for business

Brett:

I attended a CPO roundtable yesterday and that’s exactly what we just said is that procurement serves as the conduit for the business, is that you’re moving from a function to a service and that is truly a strategic service. We talked about…

Darren:

A commercial service.

Brett:

Not just a commercial service but…

Darren:

A strategic and business strategy.

Brett:

Overall. And we talked about the entire notion of killing the word ‘procurements’. You know, a couple of years ago people said, “We’re no longer procuring, we’re sourcing”. They said, “You know what? Same thing!”

Sadly, within the last year, I went to a meeting with a client and one of the procurement colleagues handed me their business card and it said, “Commodity buyer” and there’s nothing sexier to a creative agency or creative talent to receive a business card from someone that they just met and it just says, “Hello I’m a commodity buyer, I’m going to be buying you Darren”.

That immediately ends your conversation right then and there because you’re a commodity. You are human capital.

Darren:

Well after all, you’re reduced to an FTE.

Brett:

You’re pretty much reduced to an FTE, it’s not about the total output or the value of that, it’s just look at the percentage of your utilisation and how much your inputs cost.

Benchmarking: different ways to approach it

Darren:

So a lot of people talked about benchmarking at the conference and we do benchmarking but one of the things we do is all of our benchmarks have low, medium and high and we set those statistically and then check it against the marketplace for the perception of the different types of either people or agencies or services.

Have you heard of many other benchmarking services that actually use that because most of the ones I see have benchmarks that are average?

Brett:

Sure. Benchmarking is a good starting point and not only are there good benchmarks that could be purchased by a brand directly but also there’s creative organisations that provide benchmarks for the agencies themselves.

What they don’t take into consideration is a good client that’s leading to those actuals of what those benchmarks are. So a good behaviour that’s driving the best work. Nor does it talk about a bad behaviour that’s driving really shitty work and perhaps a lower currency of a blended hourly rate. I wish we would completely get rid of the notion of blended hourly rates.

Darren:

Oh I hate them.

Brett:

Well what’s amazing to me is we talk about the influx of IT moving into the marketing space and you have SAS vendors and you know, what I’ve coined and what very much I want to bring into the future is that agencies are just purely human capital SAS when you think about it.

But when you’re buying a SAS solution, everything is based on time and material. Why do you think that is? Because it is literally just a piggy bank or a cash register. You continue to just throw money into that because nothing truly off the shelf is going to deliver what it is that you hope to receive.

So everything is going to be a change order in that sense or a customisation. People still continue to invest, continue to invest, continue to invest and it is a brilliant business model.

When we handover what our blended hourly rate is though, then we get antagonised and attacked on the agencies that, “You smell too high”. Based on what do we smell too high? Based on benchmarks that we’ve received.

And the very first question that the agency will say to a brand is, “Where did you get those benchmarks? What’s the foundation or basis of those benchmarks?” And 90% of the time, marketing procurement will respond, “Well we can’t tell you that”.

Darren:

So you know where the term benchmarking came from, don’t you?

Brett:

Sure, sure.

Darren:

It was actually English surveyors who would go into a village and find the church because it was usually the only thing built out of stone and they would mark the elevation above sea level and then everything else was measured for the height against that benchmark. It was actually a line with an arrowhead to say, “This is the benchmark for 100 feet above sea level or 200 feet above sea level”.

Now, in a modern interpretation of that it would mean that you would then walk into the village and chop every building off at a 100 feet above sea level, even if it needed to be 300 or 50.

Brett:

Absolutely, absolutely. But I mean, those that had more money to invest got to live higher and therefore, they got to look down on all those that couldn’t deliver it.

Darren:

So why do people think, if you’ve got an average benchmark, and this is why we created low, medium and high because there’s no point telling you what average is because average is average.

Brett:

Average is average. Everyone says, “What’s the mean and what’s the mean?”.

Darren:

Having low, medium and high, we get fascinating conversations around well where do you want to invest more to get better quality?

Brett:

I’d actually love to kill the world benchmark as well because the reality is you’re only looking for the baseline. It’s that those that are buying…

Darren:

Or the average.

Brett:

Those that are buying are only looking for the baseline and the reason why they’re looking for the baseline is so they can set up below the baseline and the second that a partner and agency agrees to go below baseline, you’re never going to go back up. Ever.

And too often, I was guilty of this as well to say, well, you know, my previous baseline was ‘x’ or I paid my previous agency ‘y’ and the question then came back as, “Then why are you talking to me?”

Darren:

Yeah.

Brett:

Always. That always happens.

Darren:

Yeah, because you left them because you weren’t happy with it but now you want something better for less.

Brett:

Yeah, yeah.

Darren:

Or the same.

Brett:

Sure. You’re not going to source anything that is going to be less-better than what you currently have and isn’t that what everybody in procurement wants to do? They want to strategically source? They want to source partnerships that are going to deliver better business results.

Well just the pure notion of better business results to me is that I want to invest more to get more, and I don’t want to overstate that but oftentimes if I’m going to get more then I can tie that to the new metric of revenue generation. Procurement led innovation tied to revenue generation.

ZBB

Darren:

Okay so the big thing around the marketplace is ZBB.

Brett:

ZBB.

Darren:

Though of course, I call it zed-BB.

Brett:

Zed-BB. Well I came from that culture actually at AB InBev.

Darren:

Oh of course. So one of the things that I’ve actually challenged a few people on is well, why have a marketing business? Why don’t you, if you’re going to go ZBB, why don’t you actually fund marketing out of COGS?

Brett:

You know what, I don’t disagree with you? I had a CMO who would ask the question, “What is the perfect amount of money to spend on marketing? How much are marketers budget to market?” And the response was zero dollars.

Darren:

Then what is he doing there?

Brett:

Correct. That’s a good question too. It’s that if it’s done well then consumers and advocates will talk about it.

Darren:

It should be about protecting the current revenue stream because you need to market to your existing customers to keep them buying with you, plus growth.

Brett:

Yep.

Darren:

I mean most people make the mistake of thinking the marketing investment’s only on growth.

Brett:

Yes.

Darren:

There’s actually a huge amount of revenue that your competitors are trying to erode from you…

Brett:

Without a doubt.

Darren:

That you need to protect and marketing is part of protecting that revenue.

Brett:

Absolutely. The people were saying that about Coke.

COGS as a useful measure

Darren:

Yeah so COGS is a great measure because it’s the cost of the goods sold so it’s already protecting the existing and it grows when you grow the total volume or value of goods sold.

Brett:

I completely agree. McDonalds spends most of their time doing reactive communications and advertising. When you think about that, yes, absolutely agree! I’ll tell you this about ZBB though, it keeps the relationship between procurement and brand honest, it really does.

Darren:

Yeah? In what way?

Brett:

Well, the thing is that if done well, budgets are built into the savings.

Darren:

Yeah, true.

Brett:

So there’s no conversation needed about, “Did we achieve the savings? Did we achieve the target?” If you spent a dollar above and beyond what was approved by finance, not even procurement, then guess what? Nobody hit their targets.

And that makes it very difficult for marketers to do because 90% of the time, marketers are going to go out to the market to understand how much they should budget to produce x, y and z or create x, y and z. And there isn’t a lot of certainty in terms of that so a marketer would say, “I’m thinking of doing this. How much will that cost me?” Independent of a conversation with procurement.

Well procurement again being the value critters that they are should know the cost of everything because that’s what they do. They should also be able to determine if they’re going to increase that because the value is worth x higher.

So if you are building the savings into the budgets, guess what? Now we’re just going to be strategic partners. And measure the results against the agreed upon brief and the outputs within the statement of work or whatever relationships they have. And if that’s not working, then they can optimise in realtime based on where technology is today.

Darren:

Yeah, Mark Ritson who is the Professor at Melbourne Business School for Marketing, says that ZBB is the best thing ever for marketers because it makes you focus on every single activity you do, drives short, medium and long-term value…

Brett:

Absolutely.

Darren:

That is measurable. And he said, “That’s the discipline that most of the marketing industry has lost or the profession has lost is that they’ve got so used to spending the budget without a focus on what is the short, medium and long-term”, and he says that this is something that people, marketers should be embracing because it actually helps you justify and promote the value of marketing.

Brett:

What happens though with ZBB is that it’s not a collaborative process between vendor and client and that’s where it needs to be so for instance, going back to the example of the marketer questioning their agency partner how much something should cost, agency said, “Okay this is what it is that we want to do together and we agree that this is going to deliver that result that we need. It’s going to be an estimated million dollars”, let’s say.

The million dollars gets carried and then taken to finance by the marketer. Finance immediately say, “Cut 30%. Get it done for 30%”. Marketer may or may not share that discussion with procurement who come back and say, “Okay we know you can do the same for 40% less”, nor does the marketer tell the agency who actually did the budget estimate for the marketer, that finance is going to cut 30% so let’s right size the deliverables to make sure that’s going to be a $700,000 versus a million”.

The importance of managing and adjusting expectations

Darren:

Yeah, set the expectation up front.

Brett:

This is why we get into these unnecessary triangular discussions. An agency is always going to be then on the receiving end to say, “Okay, so what did you get? What did they agree to?” Well a marketer wants to be able to do more with less. So they’re never going to come back and truly say, “It was 700,000”.

Darren:

Yep.

Brett:

So that’s the dance that we’re continually in. Versus agency maybe sitting at the table to defend that investment right next to their partner who happens to be the marketer. Speaking to finance because Darren, right now we’re not Mad Men, we’re math men so that finance person is defining how much that value is worth.

If we would sit together and say, “Okay, if you only have 700,000 then let’s figure out what are the ‘must-haves’ right now? Let’s then optimise because technology allows us to reinvest by the way, can we reinvest?” Because too often an agency doesn’t even know where the “savings” are being applied and that’s the problem.

Darren:

Yeah.

Brett:

So if we can all just get to the table together sooner, we’d have less of these back and forths.

Darren:

Well that’s one of the things is setting expectations.

Brett:

Without a doubt.

Darren:

And you’ve mentioned it earlier about the ways of working together and putting you know, a framework and guidance around that and budgeting now.

Brett:

Yeah.

Contracts

Darren:

But people are inclined to avoid contracts.

Brett:

Yes!

Darren:

And yet first of all, contracts are the best way of defining how you work together.

Brett:

Oh and they’re the most fun things to execute ever.

Darren:

Yeah, especially when they get to about 200 pages with links, and in fact I had a…

Brett:

And a one size fits all service agreement, probably my favourite!

Darren:

Well you know, the master service agreement with the, what was my favourite? The KPI that said, “The agency will respond within four hours of any communication”, and it needed a 99.9% success rate. And I asked the procurement person, “Who’s actually measuring that?” Because what’s the point of having a KPI if you’re not measuring it?

Brett:

Or ask them the question, “Who is receiving the financial reconciliations that you’re asking for us to do monthly that’s not tied to actual seasonality of what it is that we’re doing?” So if we’re frontloading the activity, why are we being questioned that we’re too heavy on our hours then, versus on the backend? It’s just amazing to me, amazing to me.

Darren:

So the contract gets signed, it gets put into a filing cabinet. No one ever looks at it again. Somewhere down the track you know…

Brett:

That’s if it gets signed actually.

Darren:

Yes, true, you could have a three-year agreement that’s never signed.

Brett:

Easy. Well a lot of times people say a scope of work, that’s a legal document.

Darren:

Yeah. So then the other thing that happens is no one ever actually sits down and takes the time to talk about and agree what their expectations of each other are, the document was signed, but there was no actual conversation around expectations of working together, expectations of service, suitable behaviours, the ways of collaborating or coordinating.

Brett:

Where do you think a contract goes on both ends? So let’s talk about on the brand side. So a contract is negotiated by a legal, process is managed by a procurement, do you think a brand actually reads a contract?

Darren:

Never.

Brett:

Never, okay. And they’re the ones that arguably own the relationship.

Darren:

And actually have to abide by what was agreed in the contract in the first place.

Brett:

On behalf of their companies, yes. On the agency’s side, 90% of the time, the contract is negotiated by who?

Darren:

Usually the finance director.

Brett:

Finance director or maybe even outside counsel and once the contract is agreed to or even the scope of work and fee, how is that then cascaded amongst an agency?

Darren:

Well it’s not, it usually sits in the finance director’s filing cabinet under the client’s name.

Brett:

So that’s interesting. So the people that are supposed to actually work together and have the relationship with each other, neither one of them has seen what was agreed upon. And they’ll continue down that path and frankly, they’ll argue throughout the course of their marriage about certain things that were clearly pointed out in the contract but yet, neither one of them has a contract, a copy of it, seen it, or revisit it to see if it’s still relevant based on where they’re at in their current relationship.

Simple things like that, it blows your mind that there is no process necessarily. Some agencies absolutely do this, some brands absolutely do this, but once you have an agreement and you shake hands, neither one of them has seen what was agreed upon.

Darren:

Then it’s game on.

Brett:

It’s game on and it’s not only game on, the game already started. Now in the third quarter and the game is about to end and we haven’t agreed to fees and we haven’t agreed to scope. Sadly.

Darren:

Well, that’s why I will be in business ‘til the day I die.

Brett:

I know right? Absolutely.

Darren:

I get called in to actually try and sort out the mess when it all turns to shit, that’s when I get called in.

Brett:

Listen, we thought we were being a services consultancy, at the end of the day, we’re just therapists, that’s what we are is that we’re marriage therapists and that will continue to have a nice return on investment because they need us to come in and just fix the marital problems that they have and it doesn’t have to be like that.

The agencies of the future and the brands of the future, they’re not going to work that way. They’re really not going to be like that. They’re going to do things collaboratively in realtime and they’re truly going to focus on any technology that’s going to get things better, faster and if it can be, cheaper.

But if it can’t be, that’s okay. Oftentimes, we teach brands on how to work with procurement. We teach procurement on how to work with brands and one of the most polarising statements that I said at procurement is that, “Would you ever want a cheaper version of yourself?”

They certainly don’t like that but it resonates because I’d rather pay for a more expensive version of you because you’ll probably get it done in less time and arguably better.

Forget the fee, what about maximising ROI?

Darren:

Well you know, and, this idea of addressable spend, right? So the conversation I had with a procurement team only a couple of months ago, they were looking at their hundred-million-dollar media budget. They were complaining because they were paying effectively, the fee was 3% to the media agency and they saw that as the addressable part of the spend.

Brett:

Sure.

Darren:

I mean they were completely ignoring that there was actually 97 million dollars on the table that they could focus on and work with the marketers and the agency to find how to make that accountable, but no, they we’re focusing on the 3%.

Brett:

We’re still taking fee. We’re still talking in fee.

Darren:

And we’ll get that down to 2% which is 2 million dollars and look, I saved a million dollars! Yay for me! Yay for me! And I said, “Now, let’s make it your money”.

Brett:

It doesn’t mean the media was delivered any better.

Darren:

Yeah, you’ve got a hundred million dollars, you’ve given it to someone to invest on your behalf to the best of their ability and then you turn around and say, “I’m going to take a third of your fee that you’re going to get”.

You know what I’d do? I’d give them the hundred million dollars and say to them, “If you can prove that you turned that and delivered 180 million dollars in value, I’ll give you 5 million. I’ll give you 10 million”.

Brett:

Easy, easy. And then we actually subscribe to the whole notion of contingency because that makes sense, that is smart. I will pay anyone contingency based off a real strategy that’s going to demonstrate real value, slash, real savings.

We keep doing the same thing year after year after year, is that they’re focusing on negotiating the things that matter to agencies. A margin and that’s within fee, but if you take a look again, we use a million dollars. If you’re compensating an agency a million dollars in total fee, what percentage of that, and total cost, what percentage of that is fee?

We always say it’s no more than 20/40% so the 60/80% pass-through is that you’re letting it continue to go.

Darren:

Yeah.

Brett:

But you’re so concerned that the agency is proposing $150 an hour as opposed to $149 an hour and we’ll take six months to get to the difference of a dollar which an agency will turn around and say, “You know what, fuck it, I don’t mind because we’re just going to bump the hours”, and then nobody measures true TCL.

The saving is not $1 times the actual number of hours delivered, it never is. There’s still organisations that will claim savings that way. And hence, we still have conferences and conversations and content to attend and speak and tweet and all of that.

Darren:

But everyone’s standing up there saying what they want everyone to think they’re doing.

Brett:

Sure.

Darren:

But there’s not a lot of change is there?

Brett:

No.

Darren:

I mean you know, I think people are resistant to change, they’re scared of change, so they’ll pay lip service to it…

Brett:

Absolutely.

Darren:

But they’ll always go back to what they know because they don’t know what they don’t know.

Brett:

The reason why they go back to what they know is because the metrics and targets that are cascaded by procurement have not changed.

Darren:

But the number of metrics and the value of metrics for marketing and especially media, is changing exponentially.

Brett:

I completely agree, completely agree and that’s why again, there’s no shared accountability yet in the targets. The good companies have. The companies that have yet a way to go, they should learn from those good companies. But those good companies should be forthcoming because as far as I’m concerned, telling somebody that you share targets and that you are zero based or whatever that may or may not be, that is just a best practice.

That is not a competitive advantage, that’s not your IP. You didn’t come up with that. You’re just working smarter and better so let everyone else know because that’s why they come to these conferences and that’s why they share best practices so they could be more competitive with those that are the best.

Why not just do that? But they don’t, not yet.

Darren:

Brett, that’s been a great conversation. We’ve run out of time and we could have talked for hours.

Brett:

For hours.

Darren:

But thank you very much.

Brett:

My pleasure, thank you for having me.

Darren:

Maybe we do this in a year’s time and see if anything’s changed.

Brett:

Let’s hope something has changed.

Darren:

Terrific, thanks.

At TrinityP3 we recognise that maximising agency performance is not just about lowest cost. We can help you select the right path for you and your business. Learn more here

About Darren Woolley

Darren is considered a thought leader on all aspects of marketing management. A Problem Solver, Negotiator, Founder & Global CEO of TrinityP3 - Marketing Management Consultants, founding member of the Marketing FIRST Forum and Author. He is also a Past-Chair of the Australian Marketing Institute, Ex-Medical Scientist and Ex-Creative Director. And in his spare time he sleeps. Darren's Bio Here Email: darren@trinityp3.com

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