Too much has been made about the participation of Strategic Sourcing personnel in the marketing services procurement process and whether or not it has had a negative effect on agency compensation levels. While it would be nice to be able to identify some overarching force or entity to blame for an organization’s or an industry’s ills, strategic sourcing is not the culprit, nor is pointing a finger in their direction a productive response. The notion that advertisers view certain aspects of an agency’s offering to be “commodity like” (i.e. media buying, production) and therefore able to be bid and sourced on the basis of the lowest available price is largely overblown.
Agencies themselves are responsible for this issue going back to the start of the “unbundling” process as key service offerings were spun out as separate profit centers in the hope that they could optimize their resources in a particular area by expanding utilization of those services to a broader client base. By definition, a commodity is a good or service that is viewed as interchangeable with another because it has lost its qualitative differentiation. Offering commodity like services, while they may be priced at lower rates, doesn’t necessarily mean they lead lower to lower margins.
Agencies are the masters of competitive differentiation. That is what they do for their clients. It is why Tide brand laundry detergent commands a higher retail price than Purex. Agencies can boost rates and margins by effectively positioning their service offering for competitive advantage while demonstrating the efficacy of their approach. Give advertisers credit for being able to discern both qualitative and quantitative differences in one vendors offering versus another’s beyond price. The three keys to successful negotiations between marketing services firms and their clients;
1) Preparation
2) Transparency
3) Respect.
Preparation for a successful negotiation involves diligence in assessing why the buyer is in the market for your services in the first place, what the key purchase drivers are and what pain points might they be seeking to eliminate. With a tacit understanding of these issues, a seller can begin to lay the process of educating the buyer on how their offering addresses these items in an efficient and effective manner, yielding maximum benefit for the buyer. When it comes to establishing a rate for your organization’s services, providing transparency into your service methodology, delivery processes, resource offering and cost structure is a pre-requisite for establishing sound dialogue on both the caliber of your service offering and the rates that you seek. Treating all parties in the negotiation and the process itself with respect is essential. Be mindful of the client’s time, help them to understand your organization’s offering, how it differs from those of your competitors and where it fits within the context of the industry. Share normative data to support your assertions and in the process position your organization as a knowledgeable, confident and valuable resource. If the advertiser doesn’t approach the marketing services acquisition process with a comparable level of respect, which is usually apparent at the RFP stage, than you have a conscious decision to make about whether you participate and if you do, how you will shape the pursuit approach to be taken by your organization.
Employing these “three keys” can result in a more meaningful negotiation process, more wins for your firm, higher margins and a clearer set of expectations on deliverables, staffing, rates and reconciliation of the effort between you and your client. Interested in learning more? In the following Advertising Age article by Sandy Sbarra, VP of Scotwork he shares his view on the keys to successful marketer/ agency negotiations … Read More