Marketing Procurement

Marketing Procurement Roundtable: How data can navigate procurement through the perfect storm of inflation and budget cuts in 2023

Top Tip for 2023

“Transparency cuts both ways. Be willing to share your data with your agencies, and challenge them to do the same”

Using a data-driven approach to procurement strategies and marketing campaigns, benchmarking helps marketing and procurement teams to yield more value from their agencies. Marketing Procurement iQ sat down with three marketing data specialists from RightSpend to discuss the challenges and opportunities facing Marketing Procurement in 2023.

Wherever you are in the world, there are profound economic challenges. There are no prizes given for this as a general observation, but the problem of global inflation is having a major bearing on the world of marketing procurement – on what clients get for their advertising Dollar, Euro or Yuan.

The pattern seems to be that marketing budgets are under increasing scrutiny from CFOs and CPOs while agency rates are increasing in response to inflationary pressures – something that George Roumanis, Global Partner, Head of the Americas at RightSpend describes as “the perfect storm”. 

This is a push/pull conundrum that brings into greater focus what the role of marketing procurement is in tough times, as well as posing once again the eternal question of whether marketing is a cost to be cut or an investment to be ring-fenced. 

Or is it somewhere in between, where intelligent savings can be made by applying a laser focused approach to cost control through a deep dive analysis into agency costs, which can only be achieved through the use of data?  

With such a backdrop, it’s clear that the pressure to maximise the value of every penny of marketing spend is greater than ever. And this is very much where benchmarking comes in. It applies a data-driven approach to marketing procurement, seeking to create the framework for negotiated contracts between clients and agencies that meet the needs of both parties. 

And this was the starting point for our roundtable discussion with three RightSpend marketing procurement data specialists George Roumanis; Tiffany Crow, Global Client Services Director and Client Services Director Asia, Jamie Pierre.

Marketing Procurement iQ (MXPiQ): Against a backdrop of increasing costs and tighter budgets, how do you avoid conflict when negotiating with your partners?

George Roumanis (GR): Data itself is going to be extremely useful in those situations because it’s going to let you make educated business decisions and take the emotion out of your negotiations. The data will let you decide whether increased agency costs align with what the data is suggesting or not and then you can make an educated business decision as a marketing procurement professional. It’s going to arm you with facts to have that discussion with your partners and not just go back and forth on an emotional level. 

I tell clients all the time that benchmarks are directional – they’re not gospel. There are plenty of good agencies that command a premium in the marketplace, where we know you’re going to pay higher than the benchmark, and that’s fine. Our clients have that data, to do that sanity check and to ask, what premium am I paying for that agency, and is it worth it?

Tiffany Crowe (TC): It’s about being in control. If you’re armed with the intelligence and data you can benefit from redeployment of savings or efficiencies, for example it doesn’t have to be about rates, it could be about hours. Having control of the data in challenging times can be very useful.

Jamie Pierre (JP): In Asia, I ask everybody up front: what do you currently do to benchmark your marketing campaigns and a lot of the time they don’t do anything. Even when they do, they’re often using data from one or two years ago or from one of the other sub-brands within their group. The global economy has changed so rapidly in the past year that this approach doesn’t give them that up-to-date holistic picture of what’s happening to marketing costs. 

MXPiQ: Inflation is obviously a huge factor. What are you seeing in terms of how this is affecting the industry and budgets?

GR: As a company we’ve talked a lot about what we are seeing from an inflation perspective in agency salaries from 2021 to 2022 and going into 2023. We’ve been able to peel back the layers and say, well maybe some increase is warranted, maybe some isn’t, because not everybody at an agency or at any company gets a raise each year. 

We look at data through a number of lenses: for example, part of our data is client driven; our system anonymizes and blinds actual negotiated rates. From an inflationary perspective, as a first point of order we would look at how rates have changed from one period to another and what’s driving that. We also use other external resources and do our own sanity checks on the data to make sure there are no anomalies. 

MXPiQ: There has been a lot written about a talent shortage, is that what you’re seeing and is that impacting on costs?

TC: What we’re finding is that it depends on the brand. Some brands are very good at negotiating rates through volume but that can end up being a race to the bottom and talented agency people don’t want to work on those types of brands. So, they’re generally the brands that are concerned about a talent crunch because sometimes these agencies are finding it difficult to get people to work on that brand’s business. 

What we’re seeing with the “challenger” brands and the “cooler” brands is it seems there isn’t a problem, and it doesn’t exist. I think there’s an element of scaremongering, because we’re not really seeing a genuine talent crunch overall. 

GR: There are always going to be clients who are difficult. In the grand scheme of the larger ‘great resignation’ around the world, there’s no doubt that some people are simply tired of the bureaucracy of big agencies, of working long hours for little recognition. But there are some clients that are fantastic, that people are climbing all over to get on that piece of business.  

JP: I’m not personally experiencing too many conversations of that nature in Asia. Movement of people is happening, but I’ve got friends who work at various agencies, and they’ve said there’s no issue with attracting talent – the best agencies will rise to the top in that sense.

MXPiQ: Let’s talk about the issue of overheads, and how that impacts upon the discussions and relationships you have in this sector. There are perhaps two big issues here: rents and salaries.

TC: In the first quarter after Covid, there was a client-side interest in whether they should renegotiate on overheads because agencies were not all in the building during lockdowns, so they didn’t need so much floor space.  Temporarily, it did seem a negotiation point that clients were looking for. We were very honest with clients on that and explained that it’s not that straightforward.  

GR: I get asked all the time about this by clients – that agency overheads should reduce significantly because during Covid no-one was going into the office, so lights and heating didn’t have to be used, etc. The reality is the agencies must still pay rent on those offices – whether empty or full. They still have to pay power and security. We’ve seen overheads reduce slightly on average in most markets out of Covid, but not sufficiently to materially impact your rates. 

With salaries, our data shows that yes, on average, salaries have gone up for the most part around the world. But the data also shows that salaries have not gone up by nearly as much as a lot of people are claiming or are trying to negotiate for. We’ve seen some countries where inflation is a lot higher – Turkey, for example, a huge inflation jump from last year to this – and that has translated into higher rates across the board, but that’s an exception.

MXPiQ: What’s happening with outsourcing and offshoring in terms of what impact that can have on staffing costs?

GR: In the US particularly, this is market-driven. Agencies are outsourcing staff to overseas locations, which is fine, and we’re maybe seeing rates increase more in Colombia, Costa Rica and India, because there’s more work happening there. It’s being shifted from London and New York and other higher cost markets to lower cost offices. That’s why we strongly recommend staffing plans. Make sure you get locations and names, no TBDs, (To Be Determined), average years of experience to compare like for like basis and locations. Frankly, costs in Atlanta are different to New York, so you shouldn’t be paying New York rates for staff residing in Atlanta. 

TC: It’s important to ask the question and, believe it or not, not all brands are doing so. From an agency perspective, certainly with offshoring, the first thing they might say to a client is, leave it with us, it doesn’t matter where we do the work. Very rarely does a brand come back and say they want to know more, not only about where people are based, but who they are, and what they can bring to their business. They have a right to know who’s on their account or campaign. 

We have found with some highly reputable digital agencies, that they are changing people’s titles, so an account director is becoming a senior consultant, and that is being used to add up to 15% to the rates. If you dig deeper, these are the same individuals who were working on the business last year – they just changed the title and are being sold out at a higher rate. 

MXPiQ: Looking at Asia, and China specifically, what is happening there Jamie? Is it still that big and growing market? 

JP: There are some interesting trends in China, because some brands are trying to break out of the domestic model. Alibaba, for example, has this ambition to be more of a global business. So, some of the big brands that we’re working with are stretching their legs and expanding their marketing budgets outside the region to establish a larger presence in Europe and in the US for example. So these expansive brands need data to understand the cost of using agency partners based in other regions such as North America or Europe.

And then on the flip side there are instances of Chinese brands that want to use the talent of other mature markets, such as a New York PR agency or a creative agency from London that are part of larger holding groups but with local offices in Shanghai  But what is interesting is that we sometimes see that where major Chinese brands are putting faith and trust in these businesses to give them the best guidance, they’re not necessarily getting a fair rate for the projects that they’re looking to do. We’ve seen that with a couple of big brands in China, they’re being quoted ridiculous prices for teams which are on the ground.

But my feedback is that the Chinese brands are reluctant to discuss these issues with their agency partners because they don’t want to rock the boat too much and affect relationships. They want it to be productive and see them as partners, not suppliers, so it’s about finding the right way to approach these topics. Data becomes a key element because it’s more objective than emotional. 

MXPiQ: Jamie, is marketing procurement managed in Asia differently from the rest of the world?  

I think resource is a big thing. We conducted some research and found that there are 50% fewer marketing procurement specialists in APAC than there are in EMEA, even though Asia Pacific has the second highest ad spend after the US. So, there’s an under-resource happening within this particular niche, and I see it in the conversations we have with the brands. 

There are still huge teams, 100-plus procurement people in some teams, doing direct and indirect and so on, but they aren’t specialising in the marketing side of things yet and in that respect, Asia is behind Europe and North America. We have been working with a number of these procurement teams who want to understand how to manage this huge opportunity and make their mark, so we’re empowering them through data and education, such as whitepapers and best practice guides for example. 

Round-up. Data Driven Decision Making

It’s clear that for most clients 2023 is going to be a challenging year and that pressure will be put on marketing procurement from all sides, from external partners wanting (or needing) to pass on some or all of the increase in costs that they may be facing, whilst internal stakeholders will be looking to freeze or reduce budgets. It seems on the face of it an impossible situation to square off. But as our expert panel has pointed out, negotiating with your partners using data that is based on real ‘actual numbers’ makes the process far more objective rather than subjective. 

MXPiQ:

And finally, we asked our expert benchmarking panel what was their top tip on how data can navigate marketing procurement through the perfect storm of inflation and budget cuts in 2023?

For more information contact RightSpend