The economic forecast for 2013 can be summed up in one word, “uncertain.” One of the results of this uncertainty will likely be downward pressure on corporate budgets…. including marketing spend. Whether this results in budget stagnation or enterprise expense reduction initiatives, companies will be looking to balance their revenue generation efforts with the need to contain expenditures.
Point-in-fact, a recent study released by the UK advertising agency group IPA, found that as of the end of October 2012, marketing budgets “had been reigned in during the third quarter of this year to a greater extent than at any time since 2009.” Of note, 23% of survey respondents “reported a reduction in marketing spend” with only 18% indicating that their budgets had increased. According to the group, that -5%+ differential “represented a dramatic fall” when compared to the -1.1% in the second quarter and +1.0% in the first quarter of this year.
In light of this challenging environment, it is highly probable that corporate procurement will be asked to expand their involvement with marketing to identify potential cost savings for the coming year. These types of corporate edicts complete with succinct timetables and “hard” cost-reduction targets can create challenges on both sides of the aisle. If procurement and marketing haven’t already forged a close working relationship and a base level of understanding of the role that each group plays and the expertise that they bring to the task at hand, then the risk exists that the process will be fraught with anxiety and tension. Clearly Bill Phillips had it right when he intoned:
“Stress should be a powerful driving force, not an obstacle.”
Unfortunately, this is not always the case. One has to look no further than the political gridlock in Washington D.C. over the “Fiscal Cliff” to see that time-constrained processes designed to address challenging financial issues are difficult, to say the least. Stakeholders tend to become more entrenched in their views and focus on defending budgetary “sacred cows” or attacking perceived “excesses” rather than working together to map out a balanced approach.
Marketers, let’s be honest, whether you’re managing a $15 million budget or a $500 million marketing budget, there are always opportunities for improved efficiency’s. The key to success in working with procurement on a near-term expense reduction initiative is to help identify the “nice to have” budgetary line items versus the “need to have.” Remember, it is still marketing’s obligation to optimize the organization’s revenue potential during uncertain times. Prioritizing areas to explore to achieve the organization’s expense reduction goal will be a significant help to the procurement team and will provide the catalyst necessary to jump-start the process.
One area often overlooked by marketing and procurement teams when seeking hard cost savings are the dollars that can be generated from a historical review of the organization’s marketing investment. Agency contract compliance audits and billing reconciliation reviews can yield significant financial true-up opportunities as well as potential future savings. In our experience, it is not a-typical for a contract compliance audit to return between 2% – 9% of audited billings in the form of financial returns and or future savings to the advertiser.
Best of all, by engaging an independent contract compliance auditor this process can take place concurrently with the efforts of marketing and procurement in reviewing the existing/ proposed budget for potential savings. Further, given the historical, data-driven approach which should be the hallmark of a contract compliance audit, the process requires little time on the part of the marketing and procurement team members and virtually no time on the part of the agency account teams that often play a critical support role in working with the client to identify potential budgetary savings.
Every dollar’s worth of saving is generated from historical rather than future expenditures and the risk to the organization demand generation efforts are significantly lessened. This is precisely the type of scenario in which all stakeholders can find grounds for agreement.
Interested in learning more about the benefits of compliance auditing and its role in an enterprise expense reduction initiative? Contact Cliff Campeau, Principal at Advertising Audit & Risk Management at ccampeau@aarmusa.com for a complimentary consultation on the topic.