We have previously shared why pitching the incumbent agency at the end of a contract period is no longer good corporate governance. But this recent conversation with a procurement manager, hell-bent on pitching their current agencies as a routine, highlights the often-flawed thinking when it comes to agencies and other marketing suppliers.
Names have been deleted to protect the confidentiality of the people involved. But the author was one of the people in the conversation. In this example, it was about a media agency, but the issues and considerations apply equally to creative and other agencies as well.
Procurement: Hello. I was given your name as we are planning to review our media agency. And we are interested in how you could assist us with this process.
Consultant: Sure. When you say review, do you mean you are planning to put the account to tender or undertake a review of the agency?
Procurement: No, we are planning to go to market.
Consultant: What type of agency is it?
Procurement: Media agency.
Consultant: How long have you been working with the agency?
Procurement: Two and a half years, but the contract is up in six months and we want to put the process in place now as it will take that long to undertake the tender process.
Consultant: Six months is plenty of time. Is this a single market or a regional contract?
Procurement: No, just this market.
Consultant: Then you will probably only need eight to twelve weeks at the most.
Procurement: We have a rigorous governance process we need to follow.
Consultant: Okay, so how is the incumbent performing?
Procurement: What do you mean?
Consultant: Is the incumbent delivering on their contractual obligations (rigorous governance speak).
Procurement: Yes, why?
Consultant: Are the marketing team happy with the agency’s performance?
Procurement: I believe so.
Consultant: So, why are you going to tender?
Procurement: Well, their contract is up, and we need to go to market.
Procurement: To test the market and see if we have the right agency.
Consultant: So, the agency is doing a good job, the marketers are happy, and you are planning to disrupt this with a 6-month tender process to “test the market” (Quotations for emphasis).
Procurement: That’s right. How else can we test the market?
Consultant: Are you testing the market, or are you wanting to test the incumbent agency?
Consultant: So, the incumbent is in the tender?
Consultant: Even though they have a less than 25%* chance of keeping your business? (*According to data from COMvergence)
Procurement: What? Really? The Marketing Director said they should win it easily, as they know our business so well.
Consultant: But that is the point. They know what they are working with.
Procurement: Yes, so, what’s your point?
Consultant: What are you testing the incumbent on?
Procurement: Their services and of course their cost.
Consultant: Ah, so there is an expectation you could get a cheaper deal?
Procurement: Well, we won’t know until we test the market.
Consultant: And how are you planning to do that?
Procurement: Last time we used an RFP and a media bid process.
Consultant: And chose the agency that provided the best deal?
Procurement: That and the marketing team liked them too.
Consultant: Well, that is good. And the marketers still like them?
Consultant: So really, you are testing the deal? So, what happens if an agency tells you they can do it cheaper?
Procurement: The media buying and the fees?
Consultant: Sure. What if they tell you they can cut 10% off the fees you are paying now and buy media for you at 20% less than what you are currently paying?
Procurement: Well, that would be a better position and that is why we are going to test the market.
Consultant: But say you choose a new media agency because they promise this great deal, but how do you know they will not renege? How do you know they are not just offering this to get the business?
Procurement: We’ll have a contract.
Consultant: So, if they renege on the contract by not delivering the media rates promised, you will terminate the contract? Make them pay compensation for any shortfall? What?
Procurement: Would they do that?
Consultant: Of course not, because the winning agency is not going to over-promise and under-deliver, are they? No, they will just reduce the number of people and the seniority of people working on your account and then find a way to make you think you are getting a better deal. How do you measure media costs?
Procurement: What do you mean?
Consultant: CPM? Cost per impression? What?
Procurement: Well, we have the agency assess their buying position.
Consultant: So, the agency gets to mark their own homework. That is rigorous due diligence.
Procurement: Well, what would you recommend?
Consultant: If the incumbent is doing a good job and the marketers are happy, why not put them through a rigorous review? You have been reviewing their performance along the way, right?
Procurement: Well, I think so. It is in the contract. But I am not sure if marketing…. (Trailing off).
Consultant: Look, the danger is that by going to market, you will have a bunch of very eager and highly competitive agencies all vying for your business and while that can be a bit of a treat for the marketers, it is usually more of a distraction. You will also have several agencies who know nothing about what is really required to meet your media needs and will obviously offer you whatever it takes to win.
Procurement: I guess.
Consultant: Can I suggest instead of a tender process, give the marketers a break and undertake a deep and comprehensive commercial review?
The conversation ended soon after this.
Who knows if they will return to find out more on commercials reviews or will they go to a disruptive and time-consuming tender process?
But if you want, you can read more on Commercial Reviews right here and find out how it works here.