This post is by Stephan Argent, President of Agency Search and Media Management Consultancy Le Riche Argent and a member of the Marketing FIRST Forum, the global consulting collective co-founded by TrinityP3
OK, what the heck have chickens got to do with marketing and procurement teams negotiating with their agencies?
The answer is: Everything.
It goes like this: If you’d been craving some Kentucky Fried Chicken in the United Kingdom a few weeks ago you’d have been out of luck and perhaps crossing the street to Burger King instead. Why? Because at the end of last year, KFC chose to change to DHL, a lower cost distributor, which, as it turned out, provided a poorer quality of service with little or no contingency planning.
An unfortunate road accident next to DHL’s single depot caused an epic delay in deliveries which resulted in KFC having to close more than 600 of its restaurants as a result of depleted chicken supplies. If you’re intrigued and want more on the whole story – here it is.
Burger King, also lured by similarly enticing lower costs, had apparently fallen into the same trap several years prior and subsequently switched back to their previously trusted supplier, Bidvest Logistics.
Price is what you pay. Value is what you get.
As if we needed to spell it out: Lower costs are rarely – if ever – a silver bullet solution to saving money. Something typically has to give – in this case – an absence of chickens in restaurants and a fall-out ripple effect that doubtless included
- Bewildered customers
- Lost business
- Angry franchisees
- A distribution nightmare
- A public relations disaster
- And management scrambling for contingency solutions
Let’s leave the missing chickens for a minute and draw some parallels for marketing and procurement teams talking turkey – er negotiating – with their new or incumbent agencies.
So while a lower price-tag may get you some short-term relief in costs, it’ll almost certainly give you a long-term headache. Here are a few that could darken your doorway if you’re focused on cost rather than value:
Like any other business, your agency(s) need to make a fair profit and your scope of work or requirements are typically based on a staffing plan to deliver those requirements. Cut costs or fees too far and the agency will likely be pulling resources from your business to compensate.
Less senior resources
The other way agencies make up the difference in a shortfall in fees or remuneration is by substituting senior resources for less pricey and less experienced resources. One of the first symptoms of squeezing too hard is the marketer complaining their resources are too junior.
Team burn out
With fewer or more junior resources to manage and maintain your business, the chances of your agency teams getting burned out is much higher. And burned out teams typically don’t deliver inspiring strategies, great creative or solve difficult problems.
Weaker agency relationship
Got a great agency relationship? Well, one sure fire way to erode that relationship is to cut costs or fees – or sometimes extend payment terms – to a point where the agency feels they’re not being remunerated fairly. Eroding the relationship starts to build up frustration and service levels will likely fall quickly thereafter.
Competition kicks your butt
While you’re busy cost cutting to the bone with your agency, your competitors are likely focused on managing and strengthening their agency relationships, and focusing on growing their businesses together. Great marketers typically cultivate great agency relationships to help them build their businesses.
With cost cutting comes discussion and meetings about what to cut, how to cut, when to cut, forecasts for next year, scopes of work, adjusting staffing plans, agency margins and on and on and on. Cut too far or make payment terms unreasonable and be prepared to spend extended periods of time reviewing alternative plans to mitigate and manage the cost cuts.
Everything becomes extra
With costs cut, or payment terms extended, goodwill erodes quickly and you should be prepared for additional estimates, change order requests, contingency budget requests and invoices for anything that isn’t part of the original scope – all of which may cost more than you’ve actually succeeded in cutting.
You get a bad rap
Marketing communities are typically quite small and whether it’s award shows, industry events or resources leaving one agency and joining another – people talk. And no matter how much protection you think you have in place, word will get out that you’re a (this is gonna hurt…) cheap client. (So don’t be).
So what’s the lesson here? If you want to avoid making a hamburger of your agency relationships, look beyond cost in isolation. Ask yourself what constitutes value and make sure your procurement teams are aligned.
This post was first published at Le Riche Argent
TrinityP3’s Contract Review service is based on a mutually equitable remuneration model which ensures that your agency supplier contract is structured appropriately. Learn more