Keep strategic control in-house

Are all marketers lazybones? We don't think so, but the degree of outsourcing is remarkably high in marketing. In a recent study, marketers said that most functions are almost “fully outsourced”, including sensitive areas such as media strategy development³ (Exhibit 8.2). There is nothing wrong with hiring someone to provide specialized services. But the functions that drive value creation at your company should be the privilege of your own managers, and some non-core functions call for checks and balances to make sure agencies and advertisers are pulling together.

Whatever you do, don't let any vendor control your marketing strategy. The brand identity and value proposition belong in the hands of your senior executives, as do decisions about long-term marketing and communications strategy. In recognition of this principle, some companies have taken deliberate action to insource core tasks. As Jonathan Mildenhall, a senior marketer at Coca-Cola at the time, once put it: “Coke had to take creativity in the widest sense back from the agencies. It couldn't belong only to the hairy elites of agency creative departments.”⁴

On the other hand, third parties bring the experience, the scale, and the speed that come from working across many companies and industries. So do not hesitate to take advantage of external specialists in non-strategic areas. Internal capability building takes a long time, can be very costly, and it makes you inflexible as consumer needs and communication channels evolve. What's more, chances are your team will never reach the proficiency of outside specialists in certain fields, such as marketing technology. We will discuss the benefits and the pitfalls of marketing technology solutions in more detail in the next chapter. Some functions, however, come with a built-in conflict of interest between the company and its vendors. Take media planning. The media plan that is best for the agency is not necessarily best for the advertiser. While the agency seeks to maximize its profits, the advertiser wants the mix of media, choice of titles, and levels of activation that best support its marketing objectives. There is widespread concern among advertisers regarding the transparency and legitimacy of media buying conditions. So great is their worry that the American Advertising Association has launched a large-scale project to review the practices in this area.⁵

So keep strategic marketing in-house, enlist the services of third parties in non-core areas, and always make sure your team has the expertise to review and challenge the recommendations of outside service providers.

Rebuild your portfolio from scratch

Have you heard of GMOOT? It's a disease, and it's highly contagious. GMOOT is short for “Get me one of those”, and third-party management is highly susceptible to it. Someone high up in the corporate hierarchy, or some whiz kid straight out of college, has seen a tweet about a cool piece of software, heard a rumour about the latest fad in mobile marketing, or been to an event hosted by a hot boutique agency. Before you know it, you have entered contractual agreements with three new service providers you may or may not have use for. And sooner or later, they will start messing with your brand. You don't need that.

Don't enslave yourself or your brand to what other people think you should be buying in. As the CMO, you have the best sense of the jobs that really matter, whether you need outside help to get them done, and which vendors are best suited to complement the capabilities of your own team. Take control of your portfolio, and make sure you balance quality (the best agency for each job) with complexity (a reasonable number of agencies in total). Don't start with your current roster of service providers. Instead, take stock of what you really need. We call this the “zero-based” approach, and it has helped many of our clients clean up their portfolios, reduce transaction costs, and drive efficiency.

Start by mapping out the types of work you will need to do over the course of the next few years, e.g., campaign development, media planning, digital marketing, and so on. Then determine how much agency support you need in each of these areas. As you do this, think about the requirements of different brands, countries, and business units in your company. Some services – such as marketing technology – can be sourced centrally and rolled out globally, whereas others – such as media planning or PR – depend on local agency presence and expertise. And while some services – such as web hosting or sourcing of physical materials – can be easily bundled, others – such as sponsoring or retail marketing – call for case-by-case decisions.

It can be a cumbersome effort, but when you are done, you will have a robust list of what you really need, including the types of service providers, as well as the scale and scope of services. You will be surprised by how short and how helpful that list will be. At least that is what major global advertisers felt when they did the exercise. Examples include Unilever, L'Oréal SA, and Visa. Most prominently, Procter & Gamble announced in 2015 that it was planning to reduce the number of advertising agencies it works with dramatically.⁶ But before you start hiring and firing, set aside some time to weigh the pros and cons of different portfolio structures (Exhibit 8.3).

Keep your eyes open

If you had gone into cryonic sleep five years ago and woke up today, you wouldn't recognize the agency landscape. It was already highly fragmented in 2010, and new players have entered the scene virtually every day since. Entirely new functions have emerged, while others have gone out of style. At the same time, some sectors have seen rapid consolidation. Smaller players are being sucked up by a handful of conglomerates, or forced out of the market altogether. The advertising industry, for example, is already dominated by four giants: WPP PLC, Omnicom, Publicis, and the Interpublic Group. Collectively, these four groups generate some USD 50 billion in annual revenues.⁷

So, how do you stay on top of this complex, rapidly evolving provider market? There is nothing wrong with traditional sources of information, such as trade journals, industry newsletters, agency rankings, industry conventions, and creative awards ceremonies. Leading players have even established an executive position to stay on top of the vendor landscape.⁸

Unilever has taken a slightly different approach. To identify the best marketing technology start-ups, the company has created the “Unilever Foundry”, a platform for collaboration with promising start-ups. Real briefings are posted online, and every start-up that thinks their product or service may fit the bill can submit a proposal. Based on a preselection of five to six companies, Unilever brand managers choose a provider for a pilot. This entire process often takes no more than two months. It has resulted, for example, in a collaboration with a technology start-up based in South Africa. The company helped Unilever create a text-based service needed to reach users of old-school mobile phones in sub-Saharan Africa, where smartphones were virtually unknown at the time. Text-based marketing turned out to be a powerful driver of consumer engagement, and Unilever has since rolled it out to other areas.⁹ Other companies are spreading a certain sliver of their agency funds even more thinly, e.g., by holding open competitions and giving a test budget to a comparatively high number of agencies.

Your company is not ready for a sourcing platform or an open competition? Then why not join forces with the CFO and have the procurement department screen the vendor landscape for you? Some companies even have established dedicated marketing procurement specialists, sometimes with a dotted line to the CMO. But don't make a habit of having agencies pitch for your account all the time – least of all in strategic areas. And don't let the total number of marketing service providers get out of hand. Performance partnerships require a measure of continuity and trust to prosper. You don't want a new agency messing with your brand every other year. Consistent messaging is a key prerequisite of sustainable marketing performance.¹⁰

Do your homework

Bring down the price of external services, and the “R” as a percentage of the “I” in marketing ROI automatically goes up. It's as simple as that. But this very simplicity may be what keeps companies from pursuing contractual negotiations as the powerful driver of marketing ROI that they are. The plain fractional arithmetic of “R” over “I” just doesn't sound nearly as sexy as the multivariate regression analysis that is often involved in mix optimization (see Chapter 6). Don't get us wrong. We are not saying you should not engage in advanced analytics. You should. But you should also ensure you are getting your money's worth from service providers, the way any sober tradesman would.

Supplier management can generate 10 to 15 percent in savings without sacrificing marketing impact (the “R” in marketing ROI). In essence, supplier management is about paying less for what you buy, i.e., reducing prices without changing the specifications of products purchased and services rendered. Admittedly, specifications in marketing are harder to pin down than in more tangible areas, such as raw materials or prefabricated components. How do you define the required level of quality – let alone creativity – for an advertising agency? It takes a lot of expertise, experience, and care to make sure you don't cut corners where it really matters. But such challenges should not stop companies from managing marketing investments with the same rigour as other investments. Proven tactics include:

• Bundling volume: Buying from fewer service providers enables you to capture volume discounts. Relevant cost positions include creative agency services, production services, media agency services, media buying, and marketing technology. Volumes can be bundled across legal entities, business units, departments, brands, regions, and countries.
• Switching to providers that give you better value for money: Items such as POS material or giveaways can often be purchased more cheaply from providers in low-cost countries (so-called LCC sourcing). Try to pick countries in which your company has a branch or subsidiary so you can have someone go check on low-cost providers for quality management and compliance with ethical and environmental standards.
• Negotiating rigorously: It may sound trivial, but if you come well prepared and are willing to see things through, chances are you will be able to get better service for what you're paying, cut commissions, or extend payment terms. Make sure you are included in all relevant negotiations, e.g., when media agencies sit down with media owners to work out rates and kickbacks. Many companies have not done this, and they are paying dearly.

Keep in mind that certain functions – such as creative services – are crucial to marketing value creation and should be optimized for quality rather than cost. Switching creative agencies is a big deal. The last thing you need is new people trying reinvent your brand every other year. The downside of losing the expertise and experience of a trusted partner may easily outweigh the savings you hope to capture from hiring a cheaper competitor, or from forcing your agency to scale down the size or the seniority of the account team by driving for lower rates. To hedge this risk, build a mixed portfolio of agencies and assign them different roles. For example, put a top agency in charge of creating the big ideas for your campaigns and work with a flexible roster of high-quality second-tier agencies to develop local adaptations.

Be a great client

What do you do when your million-dollar campaign tanks? You blame the creative agency. What do you do when brand equity nosedives? You fire the market research firm. What do you do when the website crashes? You pin it on the digital marketing contractor. When things go wrong, it's always someone else's fault. It's a natural reaction, but you know it isn't true. We are all for accountability, but it should be a two-way street.

There are a number of things you can do to be a great client. It starts with a good briefing. Make sure service providers know what you expect from them by establishing clear objectives for a given campaign or activity. Investing time in a good briefing initially will give you the confidence to let the agency do their thing later on. Many companies underinvest in clear briefings and overinvest in pestering service providers with follow-on discussions when what they need most is the freedom to innovate and create. Who exactly is the target group, what do we know about them, and what is the change in attitude or behaviour that we are trying to achieve? Sometimes it can be as simple as making clear who gets to sign off on the agency's work throughout the development process. We have seen many campaigns go downhill because the agency didn't know who was in charge on the client side. Trying to please everyone is bound to produce a result nobody likes. Think of the briefing as the bridge between strategy and creation, and make sure that it provides your contractors with all the insights and objectives they need to do great work (Exhibit 8.4).

And when great work is done, do not hesitate to acknowledge it publicly and reward it financially. Performance-based fees are a great way to bring out the best in service providers. Don't think of this as a cost-saving mechanism. You want great work, and if you get it, the return it generates enables you to pay for it. However, the classic agency compensation model – a commission fee on media or production cost – has many disadvantages. Not only does it incite agencies to favour “expensive” media over potentially more efficient or innovative instruments; it also gives you, the client, an incentive to cut back on upfront planning and keep requesting reworks, simply because they come at no additional cost. The traditional commission is going out of style anyway. According to an ANA¹¹ survey, 61 percent of companies in the US use performance incentives. Most players (69 percent) use a combination of client and agency performance. Popular indicators include agency performance review scores (75 percent), advertising awareness (54 percent), and client sales (48 percent). Leading multibrand players pay agencies a percentage of total sales or value generated by all brands that are part of the agency's account. Depending on the strategic importance and prospective value of a given project, agencies will receive a bonus of up to 30 percent if they hit predefined impact targets.¹² In a perfect world, your team and your agencies work towards the same set of targets and are rewarded based on the same performance indicators, ideally with marketing ROI as the master KPI. There is nothing more frustrating than conflicting objectives, and nothing more motivating than a common cause. Trust us, even the CFO will agree.