Marketers continually have to re-evaluate their external supplier relationships, even more frequently in recent disruptive times.
Easier access to low-cost services globally and more remote working opportunities have impacted agency relationships and provided alternative options.
Learn the 10 signs of a good Procurement-Marketing relationship
Physical marketplaces have lost their importance compared to digital environments. Decisions must be made about what functions and activities to manage ”in-house” and what must be outsourced to one or more agency partners.
Long-term contracts with traditional agencies are no longer the norm. The landscape is changing faster than the commitments made.
Marketing agency relationships
There are different types of marketing agency setups. The best agency model depends on your goals, maturity, and agency market dynamics.
The most common types are the multi-agency and lead agency models.
Some companies partner with one ”lead” agency that provides strategic, creative, and digital services. The chosen agency may also offer a full range of support services, including engaging with sub-contractors to source media space, promotional goods, printed matter, and market research.
Lead agencies can act as the coordinator, eliminating infighting among other suppliers, avoiding service overlap, and creating accountability.
Alternatively, some marketing organizations work with two or more agencies that provide customized services or local representation.
Agencies have a specified set of services and capabilities. Either way, it makes sense to retain some activities in-house that require technical industry or specialized business knowledge - the core internal capabilities. There are advantages and disadvantages to every option, there is no single preferred model.
Choosing the right agency partners is vital to any marketing organization's success. For these relationships to succeed, they should be built on a foundation of transparency and mutual respect.
Procurement professionals must be sensitive to this, knowing marketing procurement differs from other categories. Creative agencies have a significant role in establishing a brand's position in the marketplace, helping to shape customer perception of their product and service offerings.
Traditional sourcing and selection processes, without some consideration, may deliver an unsatisfactory result. Examples of this include blind tendering of creative services without enough attention to the quality of the outputs.
Image source: McKinsey -- The interconnected ecosystem of ideas and engagement between partners, agencies, and platforms.
Scope of work (SOW) in marketing
A well-designed SOW forms the basis for any sourcing activity. It defines the deliverables to be included within a supply agreement that will align expectations between the parties.
SOW is a basis for billing and the most important appendix to your agency agreement. Having a complete and clear SOW before engaging in a relationship reduces potential misunderstandings and conflicts.
But circumstances do change, and new business priorities will emerge. An SOW becomes a living document, needing regular realignment. Over time additional tasks may be added (scope creep), but work that is no longer needed may still continue at unnecessary cost.
Marketing supplier selection
Any organization with an existing lead marketing agency may be dissatisfied with the incumbent and feel the need to challenge it, or they may require a completely new approach and set of competencies.
It is rarely about cost. The usual process for sourcing agency services has changed little for years.
The Marketing agency sourcing process:
- Research the supply market for potential partners
- Define the scope, objectives, and key requirements with your team of marketers
- Approach the market with a Request for Proposal (RFP)
- Use the RFP to shortlist the candidates
- Brief each short-listed company with a request for a pitch to be delivered within 4 weeks
- Prepare a more specific set of questions or an assignment to test the candidates in practice
- Select the best fit partner, negotiate contractual terms
- Define and confirm SOW and service level agreement (SLA)
- Award the business and ensure successful contract handover
There are some inherent weaknesses in this process. Without conducting due diligence into their company, signs of financial, cultural, and operational misfit may be missed.
- How will we know whether the chosen agency can provide the necessary skills and how will they structure their fees?
- When sourcing multiple agencies, do we understand how they fit together without creating overlap?
- How do you ensure cultural fit with your marketing team? What if some agency key persons change, and the team is no longer the one you intended?
For procurement to add value to marketing procurement, they need to apply a robust process while considering the importance of relationships.
Agency pitches may promise to deliver value based on price and capability, but can they deliver? Procurement can support specification-building systematic processes and safeguards.
Applying a market benchmarking process every now and then keeps agency partners honest about rates and gives marketing leaders a chance to learn about the latest developments in the industry.
Marketing agency remuneration models
Agency compensation models can vary. This is complicating life for procurement professionals.
Retainers, fixed project fees, or hourly fees are preferred as they are easier to budget and manage.
There are complex value-based models where the agency earns a profit based on the value of its strategy or creative thinking. These are in limited use because they are both high maintenance and difficult to measure and verify.
Commission-based models have the same challenges. More widely used are rate-based structures that are used extensively in professional services such as accounting or consulting.
Here the agency charges its time for a set price or hourly rate. For the client, this model secures transparency and insight into the agency’s overhead and profit.
However, it needs monitoring. Problems can occur when the agency bills for executive hours when the work is (or could be) effectively being fulfilled by junior staff.
A popular choice is a fixed retainer based on the entire SOW or a percentage of the client’s overall budget. Pricing per project is another way to agree on costs. The agency prices the project based on the estimated hours to complete it, plus a buffer fee or margin.
The client knows exactly how much it will cost and when and any budget variance must be agreed upon in advance or will be covered by the agency. The procurement technique that establishes the ”should cost” works well in this context.
Understanding market pricing for similar services provides transparency and offers opportunities to negotiate better rates.
Agency collaboration: set clear expectations and utilize best practices
Open and clear communication between the parties is essential to long-term relationship success. Parties must agree on communication practices, including briefing, changes, and approvals.
- Briefing can make or break it - Using a standard briefing template across multiple projects and assignments builds consistency. The brief should be understandable, detailed enough, and include measures for success.
- Commit to succeed – Parties should agree on success measures for the relationship in general and every project and campaign. When measures are jointly defined, there is higher accountability and commitment to success.
- Establish steering practices – Assign a steering team for the relationship. Having a single point of contact, i.e., a key account manager, reduces the risk of errors when managing a team of experts and multiple overlapping projects. The account manager communicates client hopes and wishes and secures escalation paths in case targets are unmet.
- Speak out - The client should remember that clear communication is built on shared hopes and expectations and the guts to express your concerns. Too often, concerns become problems simply because they were not taken up early on.
- Set up a clear approval process – Complex approval delays the process. Set up guidelines for content and visuals. Define and communicate who is responsible for approvals and what is considered approval. Whatsapp may not be the best channel for billing basis in case you need to return to the decision trail later.
- Trust your partner - Agency can build trust by sharing their references, standard practices, and project plan with the client before the actual work starts. Frequent updates on progress provide visibility for the customer. Although the customer may be eager to see the tangible results, it helps to remember that they have chosen the agency for a sound reason - for their competence in delivering such marketing services as recognized experts. Trust your partner and their process!
Developing marketing agency collaboration: incentives, penalties, and rebates
Sticks and carrots are an effective way to steer the performance. Incentives encourage agencies to consider the client’s needs and perform above expectations. A bonus can be offered above the base rate for exceptional work that exceeds service levels and targets. Incentives and penalties align with agency and client interests.
There may be discounts and rebates embedded in some pricing models. Media agencies can receive rebates from publishers, digital platforms, and sales agents for purchasing in bulk on behalf of multiple clients. Who should receive this benefit? Procurement should know that unbundling sub-contracted services like this can drive down prices.
The increased complexity of media and creative agency relationships demands a different approach to sourcing and contracting. The aim is to ensure that agency partners deliver optimal value and that the marketing organization gets a return on its investment. Marketing, finance, and procurement teams must work together to build functional and effective partnerships with their agencies.