Marketing Math Blog

Managing Controllable Spending

By Marketing Budgets No Comments

The ANA recently released the results of its sixth annual spending survey of 250 marketers regarding their 2012 budgets.  Not surprisingly, budgets are not going up much, if at all.  In fact, half of those surveyed indicated that budgets would be flat and one-third stated that budgets would be reduced from prior year levels.  As part of their budget management efforts, more than 8 out of 10 marketers are being asked to “tightly manage” their controllable spending.  Not surprisingly, the focus on controllable expenses is being extended to the organization’s agency partners as well with more than half of those surveyed indicating that they would ask their agencies to cut internal costs.

The not so good news is that some of the categories of expense reduction being targeted ranging from the elimination of employee training and development to shifts in media mix to lower cost media channels can negatively impact a marketer’s effectiveness in the near-term and over the long-haul.

What if there was an option available for a marketer to meet their organization’s budgetary guidelines, without sacrificing their ability to build brands and to profitably drive sales and market share?

It might surprise some to learn that the ability to boost available budget and drive efficiencies is closer than they think.  The answer comes in the form of a contract compliance and performance audit of an organization’s marketing agency partners.  In a majority of client/agency relationships the right to audit is specified within the master services agreement.  However, most marketers don’t avail themselves of this legal provision, which yields both improved financial controls and recoveries while leading to improved agency efficiencies and performance.

When was the last time your organization conducted an agency fee reconciliation or conducted an independent billing reconciliation that included actual versus estimated costs along with 3rd party vendor remittance data?  Have you recently checked to determine whether early pay discounts, annual volume rebates or your pro-rata share of agency group buying discounts were being captured and returned to your organization?  Do you currently review your agency partners’ monthly time-of-staff investment reports?  Reconcile them quarterly?  Engage in dialogue with your agency partners to evaluate ways to streamline processes that can reduce your costs and bolster their margins? If the answer to any of these questions is “no” then you could be leaving money on the table.

How much money you ask?  In our experience, it is not uncommon for a compliance audit to yield financial recoveries, future savings and risk avoidance benefits in the 3% to 9% of audited dollar range.  While periodic compliance audits make good legal and financial sense, they can also serve as the impetus to strengthen the client/ agency relationship by establishing and tracking performance criteria while identifying mutually beneficial process improvement opportunities.  Interested in learning more about the ANA survey results? …  Read More

Agency Agreements Lacking Adequate Audit Rights

By Contract Compliance Auditing, Letter of Agreement Best Practices, Right to Audit Clauses No Comments

For those organizations operating without a Right to Audit clause or a weak clause in their agency agreements, marketing suppliers can outright refuse to cooperate or significantly limit the scope of a proposed audit.  In some cases, the missing clause could turn what would have been a relatively quick and cost-saving process into a long and difficult effort.

More often than not, however, even without a written contract right, most marketing suppliers will allow an audit, especially if the advertiser is or was a major client.  An agency that refuses an audit request knows that it could be portrayed as having something to hide.  Sometimes circumventing your current agency contact and appealing to a superior may result in a positive outcome, since senior management may be unaware of all the reasons for the initial contact’s refusal.  Moreover, certain marketing suppliers may embrace the audit as an opportunity to voice concerns if it thinks it is being unfairly treated, wants to discuss process change, or is seeking additional business from the advertiser.

To obtain a right to audit, options include, in order of preference: (1) amending the current Client-Agency Agreement to add a right to audit clause; (2) adding a right to audit clause within an ancillary document such as a Statement of Work (SOW) and or an annual amendment to the master Client-Agency Agreement; (3) creating a new document signed by both parties creating a right audit and adding it to the vendor master file; or (4) the least desirable option, filing a civil lawsuit and subpoenaing the documents needed to conduct an audit.  When adding a new contract right, it is also important to ensure the audit clause is well-written, clear, and comprehensive.

Most importantly, once the right to audit clause is in place, the advertiser must exercise its right to detect and deter abusive or wasteful practices and potentially recover appropriate funds.  This can include performing regularly scheduled limited audits for some accounts, conducting comprehensive examinations on an annual or bi-annual basis, or performing exit audits after an agency relationship has been terminated.  Often overlooked, as well as extremely effective, are post-audit monitoring programs with metrics specifically tailored to each relationship that can be objectively measured.  Results can be shared and act as a self-policing mechanism to maintain improved performance.  These performance metrics can also be integrated into client-agency evaluations.

Right to audit clauses are a necessity in today’s business environment.  Determining a schedule, methodology, and defined approach that encompasses all members of an organization’s marketing vendor network provides assurance to management that it has adequate rights to oversee its advertising dollars and can identify and take advantage of opportunities for efficiencies through improved oversight.

Interested in a complimentary second opinion on your agency agreement right to audit clause?  Contact Jim Bean, Principal, AARM at

ANA’s Advertising Financial Management Conference

By Advertisers No Comments

The ANA in conjunction with this year’s conference program chair, Sopan Shah, Group Manager, Marketing Procurement for Nestlé USA have done a great job in assembling a thought provoking line-up of topics and speakers.  From global procurement and agency compensation best practices to insights into the expanding digital media segment and lessons from advertisers that have conducted media audits there is much to be excited about if it is knowledge that you seek.   Whether you work for an advertiser, an agency or a marketing services supplier and regardless of what your functional roles and responsibilities are this year’s “Advertising Financial Management” conference will provide an excellent opportunity for knowledge sharing and dialogue.

While there is guarded optimism that global markets will break through the economic malaise which has plagued the business sector for the last few years, there remain challenges for firms seeking to increase sales and market share.  One thing is certain, the time is now for Marketing, Finance and Procurement to work together more closely to drive cost savings, increase marketing ROI and deliver extraordinary value to the organization.  A balanced approach will clearly be required to achieve enterprise expense reduction initiatives, without jeopardizing demand generation success.

For advertisers interested in learning more about achieving this balance, AARM, North America’s leading provider of Marketing Agency audit and consulting services would like to extend a special offer to this year’s conference attendees.  We are offering a complimentary, no-obligation consultation on the role of compliance auditing in building a high-performance marketing agency network to anyone attending this year’s conference.  Simply click here to answer a few questions and sign up for your free session.  We shall look forward to seeing you in Boca Raton on May 5th.

The Key to Improved Marketing Procurement Practices

By Marketing Procurement No Comments

marketing procurement

The topic of Marketing Services procurement practices remains a much discussed, often hotly disputed topic within the industry. There are several reasons why differences of opinion exist, however the time has never been better for marketers, procurement professionals and marketing services agencies to establish a mutually beneficial framework for constructively advancing this discussion.

Recently, a number of global marketers including Coca-Cola, PepsiCo, Procter & Gamble and General Motors have made announcements that directly impact marketing services procurement, albeit in different manners. In the case of Coca-Cola, the organization will utilize savings wrung from supply-chain efficiency gains to fuel its investment in marketing. PepsiCo seeks to streamline its global marketing services agency network, with CEO Indra Nooyi announcing that the organization’s beverage division has identified 100 North American agencies that will be eliminated from its agency network. Procter & Gamble will pare back its investment in traditional media to leverage the reach and efficiency of digital and social media. Dan Akerson, the CEO at General Motors, which just consolidated its global media planning and buying with Aegis Group has stated his intent to “reduce complexities and drive efficiencies.“

In addition to the actions and intentions being announced by large multi-national advertisers, there was an interesting study on marketing procurement conducted by Charterhouse at the close of 2011. Entitled; “The Marketing Maturity Index” the organization surveyed 200 procurement professionals from a cross-section of Europe’s 500 largest businesses. The findings of this study reinforce the need for constructive action in this area:

  • A vast majority (88%) of those surveyed felt that current marketing procurement practices are inefficient.
  • 4 out of 5 claimed that marketing product and services could be purchased more efficiently.
  • 4 out of 10 identified efficiency savings as a “significant opportunity” for their businesses.
  • Only 1 out of 5 felt that their organizations were as lean as possible.

The take away is clear, a well thought out marketing services procurement process can play a key role in supporting both an organization’s supply-chain management and demand generation initiatives.

To successfully create and manage an effective, highly efficient marketing agency network a collaborative approach may be best. Why? As the breadth of marketing agency networks have expanded and the tenure of CMO’s has declined (around 24 months according to recruiting firm Spencer Stuart) a cross-functional approach to the development, management and monitoring of agency performance and contract compliance is required to safeguard the interests of each stakeholder. Further, the marketing agency network is a vital corporate asset that would benefit from the involvement of and access to senior representatives from Marketing, Procurement, Finance and Legal. Let’s face it the cost of changing agencies is expensive in terms of absolute costs, financial risks and demand generation momentum. Thus, an organization committed to a stable, high-performance agency network stands to gain significant value.

Organizations’ can improve their return-on-marketing-investment by optimizing the performance of their marketing agency network by taking the following actions:

  • Stabilize the Marketing Team and marketing agency network. Organizations lose valuable knowledge when institutional marketing memory is not transferred to others. The rate and rapidity of personnel and agency turnover creates risks in this area.
  • Truth, transparency and respect are necessary ingredients for successfully managing marketing agency networks. Implementing contractual, financial and performance oriented controls can safeguard an advertisers marketing investment and establish a sense of clarity among the supplier base as to “what is expected” and the analytics that will be used to assess performance.
  • Reality matters when its insight that you seek. Monitoring and benchmarking agency performance yields knowledge which can be utilized to drive efficiencies and to socialize “Best Practices” throughout the advertisers organization and across the network.

When it comes to marketing service procurement and the benefits to that can be realized by creating and maintaining a high performing agency network, one can take inspiration from the noted Roman poet Ovid:

Make the workmanship surpass the materials.”

This perspective is as valid today as it was two millennia ago and it has the potential to galvanize each of the stakeholders in this important discussion around the ultimate goal of marketing services procurement. Interested in learning more? Read a summary of the “Marketing Maturity Index” survey.

Is the Size of Your Agency Network Limiting Performance?

By Marketing Agency Network, Uncategorized No Comments

enhance agency network performanceGone are the days of the full-service advertising agency, providing integrated support across a broad range of marketing disciplines. Today, advertisers rely on a network of marketing services agencies that specialize in specific functional areas, geographies or diversity segments. The net effect of this shift is that the number of agencies which comprise an advertiser’s agency network has mushroomed. The question one might consider; “Is a larger network of specialist agencies more than a smaller network effective?”

With this question in mind, it was with great interest that I read a paper entitled; “Why individuals in larger teams perform worse.” The paper was based upon a study conducted by Jennifer Mueller, Professor of Management at Wharton who sought to explore team size and the impact on individual performance. The parallels between individuals serving on a team and specialty agencies collaborating as part of a vendor network are quite striking.

Professor Mueller found that the cost of collaboration was higher for larger teams. Of note, one of the “costs” identified in the study was tied to less time available to form meaningful relationships that boost productivity with each member of the team. How many firms make up an advertiser’s agency network? The numbers can grow to be quite unwieldy when you consider the combination of creative services shops, media agencies, digital agencies, diversity agencies, DM agencies, PR shops, social media agencies, research firms, printers and so forth. Have client-side Marketing staffs grown sufficiently to effectively manage large, diverse vendor networks and to nurture meaningful relationships with each?

One of the other bi-products of large teams was an increased level of stress tied to uncertainty regarding “who to turn to” or to call on when a question or a need arises. This scenario when viewed in the context of the lack of role clarity and responsibilities that exemplify many agency networks and their client-side sponsors can lead to both “relational loss” and “coordination loss” each of which can impede productivity, fuel stress and negatively impact the quality of work.

The key finding of the study was that while larger groups may perform better than smaller groups (up to a point), individuals on smaller teams performed better than individuals on larger teams. Professor Mueller was able to determine that the lack of connectivity between members of a larger team was the key driver of lower productivity.

Thus the challenge for advertisers managing a large agency network is to determine a means of enhancing connectivity between those agencies in a manner which leverages their respective areas of specialization while synchronizing the efforts of the team as a whole. Improved connectivity can aid team building efforts and boost relational strengths. Professor Mueller suggests the appointment of a “troubleshooter” to serve as a quarterback or “go to” person for each team member to turn to when problems solving support is required. Many advertisers have attempted to leverage their agency of record to serve on point in the capacity of “troubleshooter.” However, history shows us that the notion of a “lead agency” serving as the go to contact for other firms in the agency network is fraught with challenges and often proves to be an exercise in futility. Preferably, the “troubleshooter” should be a representative or representatives of the client’s Marketing Team, which more directly supports the goal facilitating disparate vendor organizations to work together in an efficient, connected manner to optimize the organization’s marketing investment.

The addition of a “go to” representative when augmented with clear roles, responsibilities and contract/ compensation models tied to desired performance outcomes is an excellent method for integrating the efforts of a marketing agency network. Further, continuously monitoring agency contract compliance and performance will provide an advertiser with additional controls to mitigate risk, generate a timely stream of accurate marketing analytics data and boost productivity of the agency network. Check out the article in its entirety at Knowledge@Wharton … Read More



Can Procurement Add Value by Focusing Solely on Cost?

By Marketing Procurement No Comments

improved agency performanceWhen it comes to Marketing Services sourcing, the short answer is no. Driving costs down is an important element of strategic sourcing but not at the expense of brand building, customer acquisition and revenue growth.

Procurement professionals must take a broader view of their role in the marketing services supply chain if they are to optimize their enterprise value in this important area. Yes, there are a plethora of opportunities for improving an advertiser’s cost basis, streamlining vendor networks and enhancing their agency stewardship controls through the application of sound procurement practices. However, these efforts must be complemented by pragmatic processes designed to leverage an organization’s marketing resource investment in driving the demand side of the business. For example, contracts which provide the organization with the requisite legal, financial and intellectual property controls, creative remuneration systems which incent extraordinary effort, vendor performance monitoring systems which provide transparent reporting on a near real-time basis and the use of an analytics based vendor network benchmarking program to gather intelligence on time and material costs at a task level across the supplier network to inform future resource allocation decisions.

Further, as advertising agencies look to evolve their own procurement efforts, advertiser organizations can realize significant value by providing assistance to their partners in collaborating to determine how strategic sourcing can drive cost efficiencies across the strata of 3rd party vendors that represent an important element of an advertisers marketing supply chain. Remember that while an advertisers marketing services vendor network might number a few to a few dozen agency partners, those agencies represent the advertisers interest to thousands of 3rd party vendors ranging from illustration studios to talent agencies to production houses to media properties. By focusing efforts in these areas Procurement will realize their near-term cost reduction targets and build a system for driving marketing performance for many years to come.

As the old Chinese proverb goes; “Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.” Interested in reading more on this topic? Check out the article by David Rae on the Procurement Leaders Blog

The Time is Right for Procurement & Marketing

By Marketing Procurement, Uncategorized No Comments

time is right for marketing procurementToo often brands change advertising agencies like politicians change their stance on key issues. Debating the efficacy of this dynamic is a topic for another time. The issue which I would like to address is how Procurement can assist their Marketing peers in mitigating the risks associated with the revolving door approach being employed by many organizations when it comes to their marketing services vendor network.

Building brands is expensive to be sure and there is no guarantee that if a company invests the marketing funds necessary to launch and sustain a portfolio of brands that its efforts will yield the desired results. However, successfully building brands can create tremendous asset value for an organization which in turn can deliver superior returns to its shareholders year-in and year-out. Given the size of the budgets involved and the relatively thin margin between success and failure, it behooves an organization to optimize each and every marketing dollar invested.

To this end, the Marketing Team is perfectly capable of assessing the competitive landscape, positioning the organization’s brands for competitive success and determining the appropriate strategies for driving sales and market share. Proficiency in these areas will drive sound resource allocations decisions with regard to target penetration, market support, media selection and messaging. Marketing should “own” these areas and should be held accountable for the impact of their decisions and the resulting return on marketing investment.

So, where does the role of Strategic Sourcing come into play? In assisting Marketing with the procurement, stewardship and evaluation of its agencies, thus leveraging their processes, tools and expertise to aid marketing in the following areas;

  • Managing the vendor selection process
  • Development of agency remuneration programs
  • Best practice contract development/ negotiations
  • Improved reporting and transparency
  • Ongoing monitoring of agency performance
  • Independent auditing of agency contract compliance and performance
  • Securing and providing performance and relationship feedback to all stakeholders

With Marketing focused on the demand generation side of the ledger and Strategic Sourcing on procurement best practices, the organization stands to benefit both in terms of in-market performance and in maintaining the appropriate controls, transparency and benchmarking data that can drive marketing vendor sourcing and performance management.

The old days of decades old agency relationships are not as prevalent as they once were. Therefore, advertisers must confront the impact of the growth in the number of marketing services vendors and the frequency with which this roster of agencies changes. With change comes opportunity to be sure. But change also increases the risk quotient. With Procurement and Marketing working together the opportunity to effectively manage the risks associated with these changes; improve vendor network performance and the organization’s return-on-marketing investment increases exponentially. Interested in learning more? Check out the article by Paul Broeren, Managing Partner of Quadrivium BV on how to enhance to effectively involve procurement in the marketing services procurement process at Procurement Leaders.


Do Agency Brands Still Matter?

By Advertising Agencies, Marketing Agencies No Comments

agency brandsTimes have changed. In 1984 the average client agency relationship lasted 7.2 years. Ironically, while that may seem like a short duration, by 1997 it had declined to 5.3 years. Where do you believe it is today? Gone are the days when the advertising agency relationship was so esteemed that advertiser CEO’s were often on point for managing what was viewed as an invaluable resource. Advertising agencies once measured the span of their client involvement in decades and prided themselves on the longevity of those relationships. Unfortunately, transience has supplanted stability as the law of the land.

CEOs are seldom involved with the organization’s agency network, the Marketing function has lost some of its luster within the executive suite and according to a 2010 Spencer Stuart study, CMO’s turnover every 28 months on average. On the agency side, as holding companies greatly expanded their collection of traditional agency brands and specialty shops many with overlapping and often indistinct resource offerings the cache of the individual agency nameplates began to diminish. Add to this the trend that has emerged in numerous high profile agency reviews of the holding company offering to assemble a team of subject matter experts from across its network to serve up a “Best in Class” solution to the prospective client. While this approach certainly has appeal, on paper, aggregating professionals from companies with different cultures, philosophies, perspectives and processes has seldom proved to be the elixir advertisers and agencies alike have sought. Remember Enfatico?

Agency brands should matter, perhaps more so in today’s environment than at any time in the past. Whether they do or don’t is not what is at issue. The asset value of a strong agency brand to its diverse stakeholders can be significant. It starts with instilling a sense of belonging with the agency’s associates, which in turn leads to a feeling of pride and a passion for the work which they do, which drives employee satisfaction and reduces turnover.  Enhancing agency employee tenure is an important component in acculturating associates into the agency’s philosophy and belief systems, driving familiarity with advertising planning and development processes and creating a level of comfort and confidence among the client facing representatives with the agency’s solutions offering.  Stability and consistency in this area can greatly enhance the agency’s ability to achieve in-market success for client brands, which can transcend the environment of change and emphasis on short-term results that often permeates client-side organizations. Importantly, strong brands attract buyers.

Brands attract buyers based upon a known set of attributes which help to shape buyer expectations of what they’re getting, minimizing unexpected surprises and reducing buyer remorse. Clients that are satisfied with the agencies that their organization has bought into will invest the requisite time, energy and resources into those relationships, thus heightening the odds of success.

In the end, success, however each party in the client-agency relationship defines it is the key to rejuvenating individual agency brands and helping to stabilize a somewhat unsettled marketplace. As David Ogilvy once said; “The pursuit of excellence is less profitable than the pursuit of bigness, but it can be more satisfying.” I would contend that once excellence is achieved, profits will follow. One needs to look no further than average agency direct margins today vis-à-vis ten, fifteen or thirty years ago to prove that point.

Assignment Briefing Process: A Three Step Approach

By Advertising Agencies, Creative Services No Comments

assignment briefing processIt should be clear that advertisers’ “own” brand strategy and are therefore responsible for the assignment briefing process. With multiple agencies making up an advertisers marketing services vendor network, how can you have it any other way? Coordinating efforts across this collection of specialist agencies to achieve innovative, impactful, integrated marketing campaigns that deliver on the organization’s goals is the responsibility of the Marketing Team, which is ultimately accountable for generating a return on marketing investment.

There was an intriguing piece written in Advertising Age recently by Casey Jones of Jones & Bonevac on the assignment briefing process that identified results from a recently fielded survey by his firm. The survey found that 54% of agencies surveyed said that “fewer than 40% of the client briefs provided gave a clear indication of what the client expected from the agency.” And of that number; “… 30% said only 1% – 10% of briefs provide clear performance expectations.” This is an issue which creates pitfalls ranging from wasted time and money to ineffective marketing outputs and client/agency discord.

The remedy to this problem requires three relatively straight forward steps. The first is the easiest… develop an assignment brief template containing the requisite information fields necessary to be completed by the Marketing representatives responsible for the brief development. This would include information such as brand value propositions, key competitive differentiators, target audience insights, market/ competitive overview, historical brand performance data and quantifiable objectives for the project. Secondly, formalize an internal review and approval process which includes key stakeholders and senior Marketing management to provide an opportunity for both strategic input and discussion surrounding assignment “success” criteria and how the attainment of those criteria align with the organization’s objectives. Thirdly, construct a concise assignment briefing meeting format that the organization follows to present the approved brief to their agency partners, engage in dialogue with the agency representatives and clarify each agencies roles, responsibilities and deliverables.

Professionals within both the client and agency organizations are intelligent, motivated and desirous of a successful campaign outcome, thus formalizing a framework for the assignment brief can immediately improve the efficacy and efficiency of the entire creative development process. Why? A tighter assignment briefing process results in better creative briefs and stronger creative outputs.


Keys to Successful Client/ Agency Negotiations

By Marketing Procurement No Comments

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 negotiationsRead More