3 problems with the procurement approach to media buying – and why the partnership approach is better

Long ago (when dinosaurs roamed the Earth and I was a young lad skipping carefree through the meadows, placing a media buy here and there as I went) media agencies were treated as partners by their clients. We were co-owners of their successes and failures and while we never forgot that we were running our own business, we did focus a great deal on our clients’ businesses. We took client media managers to key media negotiation meetings, involved them in our calculations, projections and negotiation strategies and gave back every penny that didn’t belong to us.

Now? Media Agencies get hired and fired every couple of years. We read non-stop about non-transparent transactions (not just in media buying) and various other scandals of a financial nature. Agencies rarely have a CMO relationship any more.

What changed? In a word, media buying (and a lot of other services that get delivered through agencies) became the responsibility of procurement departments.

Now, I’m not saying there’s anything wrong with procurement departments. A long time ago when P&G first got procurement people involved as advisors to the media buying process I was blown away by the insights and skills they brought to the process. Their strategies and approaches improved our results tremendously.

What I’m not a fan of is some of the specific frameworks and approaches that get applied to media buying and other advertising services without thinking about whether they make sense (even when most indirect / marketing procurement people come from an agency or marketing services background)

Problems with the Procurement Approach

  1. Advertising services and media buys are critical to demand generation – not to product supply – therefore media buys are fungible in a way that product components cannot be. You can’t substitute a gear wheel for a pulley wheel but you can substitute one media buy for another if it delivers better results with consumers.
  2. Your media buys for the near future can be entirely different from last year or last month’s: making it hard to get commitments for what you don’t know you’re going to buy.
  3. Unlike physical components or raw material, consumer attention is highly time-sensitive Whether it’s impressions or clicks or anything else, if a media owner doesn’t manage to monetize it fast, it’s gone. This is especially true in real-time bidding environments where the variability of pricing is particularly apparent. Pre-commitments, faster decision-making frameworks and a focus on the real KPI to deliver all make a difference to the price which is not really possible to predict a year in advance.

Given all this, procurement’s insistence on pricing commitments for specific media buys and treating these as guarantees is completely wrong.

All of this is even more true in China – where a typical set of media buying commitments is a humungous data set with literally tens of thousands of lines. Imagine the 3 problems I’ve just outlined in the context of that large a volume of media buys. You will never achieve a result where an agency meets every single one of that many price commitments, so why do this in the first place? If the intent is to achieve an overall result, then do the analysis and commitment at that level.

Our solution – The Partnership Approach

Working with the agency to deliver common targets instead of making it the singular responsibility to deliver cast-iron commitments

The fundamental thing that needs to change is getting media agencies to put down pricing for very detailed media buys and then treat these as guarantees that the agency has to meet out of its own pocket if necessary. We never did this in my agency days – but we also did a great job then of delivering competitive pricing and not making money in other ways.

“But agencies will be uncontrollable without price guarantees” I can hear my friends in procurement (yes, I still have some) say.

Not true at all. You can still have pricing targets, set up a proper incentive and penalty plan for deliver and then work with the agency closely to achieve genuine client-specific deals. You can insist on and get real transparency and a return of all rebates and discounts that fairly accrue to you. If new media crop up you can have a framework for determining a target price before going into negotiations that you have complete visibility of.

Doing all this means discarding the convenience of cast-iron guarantees in excruciating detail on an extremely large spreadsheet (think 100 times larger for China!). It means paying (and incentivizing) the agency fairly, getting involved in key deals, putting in and monitoring a contract that mandates transparent transactions, collaborating on negotiation strategies and target pricing… It’s a lot of work. However, if you’re interested in using media as a means to build demand, it’s a far more productive approach than the one that most clients use now. It’s also an opportunity to involve the agency in outputs and strategy rather than just input pricing, creating a greater alignment of motivations and interests and a real sense of partnership.

With over 30 years experience managing agencies, ad-tech startups and consulting Sriram has a deep understanding of how media and ad-tech services work, especially in China. Reach out to him for more information on how to frame and apply our Partnership Approach to your marketing services partners in China.

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