The 2011 ANA Financial Management Conference set the stage for what may be the most important strategic process of the decade. That is, how advertisers and agencies will worktogether in the future to ensure a successful and enduring relationship. This is necessary now more than ever for several reasons. Advertisers will no longer invest in media without knowing what to expect in return. The idea of wasted media dollars is no longer acceptable. Advertisers now insist that every dollar must be accounted for and measurable with full transparency. The return on investment must always be greater than the spend, or adjusted to accommodate the shortfall either in dollars, strategy or execution.
The two elements that bring the relationship between advertisers and agencies into focus are cost and benefit. On the cost side procurement takes center stage. How much can be saved from expenditures in resource, workload, media spend and compensation. And how should costs be managed and controlled. On the revenue side the result comes from increased sales. That's where the marketing function provides the expertise to invest effectively to produce maximum consumer response and contribution to brand growth.
Both procurement and marketing need to be aligned, of course, to deliver bottom line profit. The role of the agency is to work harmoniously with both parties by delivering creative and media strategies and execution efficiently and keeping their operating costs under control. At the same time they need to provide the required leadership and innovation to insure full value in the communication process. So what's the problem?
When you ask advertisers about the procurement and marketing functions, they are not aligned. Procurement people believe they play a much larger role in agency review functions than their marketing colleagues believe they do. In fact, according to a 2010 ANA study, there is a 33% average gap between the belief that procurement and marketing people hold regarding procurement's role in evaluating several agency functions. Here's another statistic. If you ask all three "partners"; procurement, marketing and their agencies, about the health of procurement's relationship with the agency, it's very discouraging. Only 40% of agencies believe that procurement has a healthy relationship with the agency and only 50% of their marketing colleagues believe they do. Not surprising, however, is that 91% of procurement people believe they have a healthy relationship with the agency. Want more disconnect? A startling 4% of agencies believe that procurement understands marketing and only a third of marketing people believe that their procurement colleagues do. Here, at least, procurement people acknowledge that they need more understanding of the marketing function with about half saying they do. When all is said and done, the most disturbing question leads to the following: What is the inflection point whereby excessive cost reduction will cripple a brand's growth because of insufficient investment in marketing and resources.
Clearly all three "partners" are not always on the same page and that spells trouble for the future unless it can be corrected honestly, with an open mind and without resentment or defensiveness. The process must, of course, have a monetized and measurable consideration. In other words, a balanced equation between cost savings on the supply side and investment on the demand side, is the necessary model for success. This must include a clear definition of roles and responsibilities, an agreed upon measurement for value and accountability, a curriculum for knowledge and understanding of specific qualitative and quantitative functions and methods for benchmarking, and a collaborative approach to setting goals and continuously improving the process. The ANA has put forth a welcomed first step in the formation of an ANA/AAAA task force committee to investigate the issues and develop recommendations. Hopefully we will not have to face the same situation next year. It will be a sad day if we do.
Mike Drexler is currently a Managing Partner at Drexler/Fajen & Partners, a media agency review firm that works with advertisers to evaluate their agencies’ performance. He can be reached at firstname.lastname@example.org.
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