Who owns the relationship between your organization and your network of marketing services agencies? Simple question, right? We would suggest that the answer to this straightforward inquiry is more convoluted than you might think.
Here is a process for self-assessing whether your organization has the most basic, yet overlooked, supplier governance characteristics in place:
- Identify the functional area(s) and or individual(s) that you believe are responsible for the stewardship of your marketing agencies.
- Request of them a current copy of the executed letter-of-agreement (agreement), along with amendments and all relevant statements of work related, including the basis & calculation methodology for current agency compensation.
- Request of them a copy of the latest independent agency contract compliance audit results, performance assessment document, and agency fee reconciliation.
From our experience in working with advertisers large and small, chances are very likely that securing the aforementioned documentation will prove to be much more of a challenge than it should be. The reasons are many and varied, and range from the rate and rapidity of turnover within the marketing organization to the lack of a clear established process for managing and monitoring the marketing services vendor network.
In most organizations there are multiple touch points over the course of the lifecycle of an agency relationship that usually involve representatives from Marketing, Procurement, Finance, Legal and Internal Audit. Typically, certain of these groups plays a role on the front-end in on-boarding an agency, negotiating the agreement, ensuring proper controls are set, and developing the compensation program. The groups should then stay involved. However, in practice once initial terms are set, involvement of non-marketing personnel tends to end. This leads to relationship “drift” and creates risks for the advertiser that are directly related to a lack of (or a lax enforcement) of controls and transparency into the stewardship of its marketing funds.
How much does your organization spend on marketing? According to a 2009 Businessweek article, “What Should You Spend On Advertising?” the authors indicated that retailers typically spend between 1.5% – 5.0%, automotive advertisers between 2.5% – 3.5% and consumer packaged goods marketers between 4.0% – 10.0% of revenues on marketing. No matter how you view it, the absolute dollar marketing investment is significant and is worthy of a commitment to solid contracting and contract maintenance procedures, as well as a consistent program to monitor contract compliance and agency performance; all in an effort to optimize the return on marketing investment (ROMI) and manage risk.
Implementing a pro-active marketing services agency vendor management program starts with the perspective that members of an organization’s agency network are valuable contributors to the organization’s demand generation efforts. Secondly, the enhanced asset value generated through clarifying agency roles and responsibilities and synchronizing their efforts can yield asset value well in excess of the advertiser’s agency fee investment. Thirdly, developing performance criteria and agency remuneration systems that align an agency’s resource investment with the organization’s business goals is a critical component of the process. Finally, it is imperative that agency performance vis-à-vis both contractual obligations and KPIs is monitored and feedback provided to insure that each link of the marketing services supply chain is properly focused on what is important to the advertiser.
With the average tenure of a “Top 100” branded company CMO right at 23 months (source: 2004 Spencer Stuart, Blue Paper “CMO Tenure: Slowing Down the Revolving Door”) businesses must provide a level of “continuity” insurance to counter the level of turnover among CMOs, and to avoid unnecessary vendor churn.
Without a commitment to continuity the predictable cycle of upheaval and change within an organization’s marketing agency network will begin anew every two years.
Often when a new CMO comes on board, a number of agency reviews are launched to bring in “their team” and before the new agency even has two full planning seasons under their belt, the cycle begins again. And make no mistake about it, changing marketing agencies carries a level of risk and cost that negatively impacts an advertiser’s ROMI – due to the agency / client business learning curve, cultural assimilation, and transition management, amongst others.
Best Practice: Constructing and implementing a successful vendor management program for marketing services should NOT be the sole purview of marketing. In order to achieve a level of stability and sustainability with an organization’s professional services providers in this area, cross-functional involvement is an important and necessary ingredient.
Thus, shared ownership, strong stakeholder continuity outside of Marketing, along with independent compliance and monitoring support to provide objective feedback on marketing agency performance, can assist an organization in building a responsive, highly productive agency network.
Interested in learning more about a marketing services vendor management program? Contact Don Parsons, Principal at Advertising Audit & Risk Management at dparsons@aarmusa.com for a complimentary consultation; “Building a High-Performance Marketing Agency Network.”