Marketing Procurement

Gen AI will fundamentally disrupt agency pricing models: How can Marketing Procurement respond?

Open and Honest

Prioritising transparent discussion with agencies on AI strategy will earn dividends in terms of new opportunities and savings realisation. As with previous disruptive changes, agencies will be most willing to pass on Gen AI’s benefits to clients who demonstrate a track record of collaboration, openness and mutual respect.

If agency use of Gen AI wasn’t already at the top of our 3am worry list, a recent Rightspend workshop in Amsterdam has us convinced. CEO Iain Seers laid the challenge to leverage Gen AI’s cost saving potential, whilst mitigating risks, firmly at Marketing Procurement’s door.

And the assembled Marketing Procurement professionals from leading brands rose straight to Seer’s challenge, exchanging insights into how their organisations are tackling the topic.

Marketing Procurement is feeling the pressure

Marketing Procurement professionals already have their hands full. CMOs are concerned about the integrity of crucial agency relationships. The marketing mix is rapidly evolving, requiring ever-more content at ever-increasing speed.

Marketing budgets are shrinking globally. We need to support marketing to do more, with less, and somehow keep the peace. On top of this, the breath-taking evolution of Gen AI is keeping us awake at night, as we ruminate on how it will affect an already delicate balance.

CMOs are concerned about the health of critical agency partnerships

A recent survey of 500 CMOs showed 95 % believe staying on top of agency investments and maintaining open communication nurtures long-term partnerships, (Rightspend survey of 500 CMOs, 2024).

Whilst 99% feel intense pressure to make every penny count, three-quarters admit they don’t feel on top of managing costs, and 38% cite concerns of jeopardising critical agency relationships as the reason for this lack of control.

The challenge for Marketing Procurement here is the inherent tension between the need to drive savings, and the need to support cordial agency relations.

Agencies are already wary of procurement; a recent ANA study showed whilst 57% of procurement respondents rate agency relationships as extremely/very healthy, only 15% of agency respondents agree (ANA – The Good, the Bad and the Ugly, 2022).

Gen AI will fundamentally disrupt the agency value chain

CMO desire to keep agency relationships running smoothly, and agency disgruntlement with Marketing Procurement’s (perceived) push on price are nothing new. When we throw the time and cost-saving potential of Gen AI into the mix, we’re suddenly in a position where established commercial agreements may be fundamentally undermined.

If there’s a lack of transparency about the time, and therefore money, creative work requires, the trust in agency-client partnerships may be on the line.

Agencies are experimenting with Gen AI applications in data analysis, copy creation and workflow optimisation, and investing heavily into proprietary solutions, with WPP committing €300 million annually, for example.

Whilst Gen AI isn’t delivering savings across the board (yet), Rightspend confirms the most adept agencies are already passing tangible benefits on to clients.

A recent Rightspend case study with a top brand client demonstrated a 37% reduction in marketing costs, $10M annual savings, 25% reduction in external supplier spend, and time savings from over 1,000 AI-generated images.

There’s also risk here. The win-some-lose-some balance of the prevalent deliverable-based pricing model is particularly vulnerable. Deliverable-based models rely on a thorough understanding of the time & materials, (or value chain), needed to deliver a tightly scoped brief.

Through Gen AI, agencies will be able to drive efficiencies to reduce cost but may be under no obligation to disclose or share savings with clients. Some would argue that this is fair recompense for considerable Gen AI investments, but others in Marketing Procurement are seeking clarity to redress the balance.

Gaining clarity requires pricing transparency

Leading advertisers are already amending contracts to address the risks from Gen AI. Requiring transparency on Gen AI usage is crucial to protect against data misuse, copyright risk, the quality and accuracy of AI-generated content, and the impact on creative professions.

The ANA, ISBA and other trade bodies have already issued statements and contractual terms.

Many of the advertisers present in Amsterdam were in the process of updating their agency terms & conditions and were on the front foot with pricing too. According to Rightspend’s Client Services Director, Mareike Ahner, the time to raise the Gen AI question with agencies is now.

Initiating the conversation before pricing becomes too distanced from the underlying value chain allows for timely and ongoing adjustments.

She advocates for procurement to ask open questions to understand which AI tools are in use, and for which tasks. Once it’s clear which parts of the value chain are benefiting from Gen AI, pricing reviews can follow.

Obtaining pricing transparency demands client-agency trust

Some agencies aren’t open to this conversation yet, with many still experimenting with solutions to find the right mix of tools.

That’s fair, Ahner advises, but maintains that in six months’ time she expects all leading agencies to have a handle on what Gen AI is delivering for them. She warns that if the conversation still isn’t forthcoming then, a closer look at the overall health of the partnership might be needed.

Going on the journey of AI efficiency together could strengthen an already solid partnership, but if there is little trust or collaboration today, it could prove a divisive sticking point.

Rightspend’s Tiffany Crow, Managing Director EMEA, advises that if open, frequent communication isn’t already in place, Marketing Procurement needs to act immediately to rapidly foster agency trust.

How can Marketing Procurement navigate the challenge?

With this insight into the disruptive potential of Gen AI on pricing transparency, what can Marketing Procurement practically do next? The solutions shared at the Amsterdam workshop underline the need to reinforce general good Marketing Procurement practices.

Taking a balanced approach to driving cost savings versus value creation should already be a given, as should understanding the value-add of creative services in the context of organisational goals. Investing in continuous learning about innovation and staying informed on ethical and legal considerations by following industry body guidance will continue to support risk mitigation.

The importance of the quality of agency-procurement relationships was our biggest takeaway from the workshop discussion. This has long been a core responsibility for enlightened Marketing Procurement, but the rapid acceleration of technological change underscores the point.

Prioritising transparent discussion with agencies on AI strategy will earn dividends in terms of new opportunities and savings realisation. As with previous disruptive changes, agencies will be most willing to pass on Gen AI’s benefits to clients who demonstrate a track record of collaboration, openness and mutual respect.

To discuss in more detail contact RightSpend

About the author

Helen Thompson is a regular contributor to Marketing Procurement iQ. She spent 18 years in marketing procurement roles in pharma, life sciences and consulting, in the UK, Switzerland and the USA. Helen founded her own independent consulting practice in 2022, and now works on strategic change projects with major brands, agencies and production companies.