A story about black, white and grey worlds and little green men
Many years ago I used to work for J. Walter Thompson when it was known as the University of Advertising. In those days there was a “copy test” for people who wanted to be copywriters in the agency. One of the questions was, “Explain how you would sell eggs to a Martian”. As you can imagine, there were numerous responses along the lines of, “an egg is oval shaped, it breaks if you drop it”, etc etc. However one day, they received a response that was so uniquely creative that the person was offered a job on the spot. His response was something like “eheg hig, kijjg, flip, sjhgsyt”. This is pure genius. The writer has used the Martian’s own language, (or a version of it), instead of using English, which we assume the little green man wouldn’t understand.
It’s simple when you think about it. But I’m wondering if this is why procurement and agencies are so often at loggerheads – they live in different worlds and talk to each other using different languages. Media agencies work in the slightly grey world of negotiable ratecards and infrequent research supporting important spending decisions. Procurement people on the other hand like to work in a black and white world, where everything has a precise, comparable, measurable value. And we both insist on using our own jargon to describe our worlds.
This is strange really. Because in my opinion, both sides actually have rather a lot in common. Both of us are focussed on value. We both want maximum return for our buck. We both want to continually deliver improved value. We’re both in the negotiation business. And yet, when it comes to negotiating with each other, it’s like an earthling talking to a Martian, each in their own language.
“Procurement people on the other hand like to work in a black and white world, where everything has a precise, comparable, measurable value.”
So, what’s the problem? Up until a few years ago, it was the exception rather than the rule, for procurement to get involved in agency fee negotiations. Agency fees and terms of business were negotiated between finance or account directors, directly with marketing directors. Then gradually, we started to see the involvement of procurement in these negotiations, and suddenly agencies were starting to be faced with some very unreasonable demands.
I should declare an interest at this point – I’m probably one of the few people who has worked on both the agency side, and with client procurement people. So I like to think that my views are quite well informed, as I can see things from both points of view.
For instance, I believe that there are some really good procurement people working in the industry. There, I’ve said it! But I also believe that they are outnumbered by the ones who don’t understand marketing services. These are the people who treat a service as they would a widget. This doesn’t make sense, as I will explain. On the other side of the fence, agencies don’t always help themselves either. Mention “procurement” to many agencies and you see them tense up, and get all defensive / aggressive – which doesn’t put them in the best place for handling negotiations.
Issues and Solutions
Healthcare Professional media isn’t the same as Consumer media. No, really it isn’t. You know that, and I know that, but do our friends in procurement know it? Quite honestly, often they don’t. The clue is when they come in and ask for a fee reduction to some ridiculously low level, with no rational argument to back up their request.
“Mention “procurement” to many agencies and you see them tense up, and get all defensive / aggressive – which doesn’t put them in the best place for handling negotiations.”
There are two issues here. Firstly, given the comparatively low spend levels in Pharma media, it’s highly unlikely that this is where major savings are going to be delivered. (According to Nielsen, media spend in the category has decreased by 30% since 2006). It’s far more likely that decent savings are going to be achieved by working together towards better media buying. But curiously that’s very rarely the first area that procurement looks at.
Secondly, where does the idea of “I don’t want to pay more than 2% for media” come from? Answer – either from some great truth that has been handed down through the years or, more likely, because that’s the rate that they pay their consumer media agency. But hold on a minute, comparing Pharma specialists to consumer agencies is like comparing chalk and cheese. “He would say that wouldn’t he”, you’re probably thinking at this point. But having had long experience of both I genuinely think that there is a difference.
Firstly consumer media agencies enjoy significant economies of scale, and as a result they can staff a team and still make a fair profit on a 2% fee. They will be far larger than a healthcare specialist could ever be, meaning that they can spread the workload across teams if necessary. They may conduct annual negotiations with key media owners, delivering efficiencies in terms of time spent on servicing client’s business. But most importantly, the nature of their clients means that a typical budget will be spent with relatively few media owners.
“But hold on a minute, comparing Pharma specialists to consumer agencies is like comparing chalk and cheese.”
On the other hand a specialist agency will find that they are spending vast amounts of time negotiating smaller budgets with many media owners. They are on the wrong side of the equation because they are handling much smaller budgets but more resource is required to manage them. So I would argue that the comparatively higher percentage fees that Healthcare Professional agencies charge compared to consumer agencies are absolutely necessary in order to service their clients efficiently.
Secondly, Pharma agencies are specialists. That is, their staff are specialists, and such people cost money. In a recent survey by EPG research, clients valued specialism above anything else in their agencies. A total of 94% of clients surveyed stated that it was very or quite important for them to work with specialist medical / healthcare agencies. Overwhelmingly they can see the benefits of using a specialist agency rather than a generalist. They believe that Pharma media activity should be planned and bought by Pharma specialists because they have the best contacts with media owners, extensive experience and relevant knowledge of the category, including the regulatory pitfalls. Clients don’t want to spend time teaching their agency, and they don’t have to if they use specialists. The same can’t be said for a general media agency.
But securing and retaining specialists isn’t a low cost exercise. Can you name any profession where a highly experienced specialist (30 years in our case), charges the same as a generalist? Would you try to save money on surgery by using an inexperienced surgeon, just because they were cheaper? Would you take advice on your pension from a person in a foreign call centre? Of course you wouldn’t. So why would you take advice on a six figure media spend from an agency with no experience in the category?
“Clients don’t want to spend time teaching their agency, and they don’t have to if they use specialists.”
Where I do think Pharma clients, (and their agencies), could learn a lesson from consumer agencies is in the fact that consumer media agencies moved away from a percentage fee to a fixed fee years ago. Paying your agency a percentage of your media spend just doesn’t make sense. It’s like looking through the wrong end of the telescope. It is completely pointless. If this remuneration method didn’t already exist, no one would invent it, because it doesn’t make sense. Why should an agency’s fee be related to how much a client spends? Shouldn’t it be related to the size of the resource that’s required to adequately service the business? To give an extreme example, it would be far simpler for an agency to plan and buy a £1m TV campaign, than say a £500,000 campaign going in print and online. The agency would earn twice as much for the TV campaign, assuming a percentage fee, for maybe half the work. Where’s the logic in that?
So what can agencies do better, and what can clients do better so that everyone wins – how can we start talking the same language?
Five suggestions for clients:
1. Trust your agency. They are experts. And accept that the work from a Healthcare Professional agency is very different to that of a consumer agency.
2. Work as partners. Partnerships always deliver better results.
3. Aim to achieve better value together. Help your agency to help you by briefing them early and briefing them well.
4. Be prepared to commit to 12 months of activity. You’ll always be able to cancel if necessary.
5. Agree a fixed fee, renegotiable and renewable every year. By agreeing a fee, you will have certainty over your outgoings, you will get a good, consistent team on your business and you will get a resource appropriate to your needs.
Five suggestions for agencies:
1. Work with, not against, procurement.
2. Be prepared to justify your fees, and be realistic.
3. Educate clients on how they can achieve better media value – don’t assume they know.
4. Maintain a relentless focus on achieving better value.
5. Total transparency of costs. Clients won’t accept anything less these days.
If both sides can work towards achieving these objectives, the outcome will be a win-win. Agencies will get fair fees for the work that they do. Marketing will get the best agency people on their team. And procurement will achieve cost savings.
Happy days, or iupu txvsst dsy, as they say on Mars!
About the author:
Steve Pollack is an independent consultant who offers a wide range of advice about all aspects of media advertising to clients and agencies. Steve established his client consultancy practice in December 2008, and since then he has worked with several major international companies including MSD, BMI Healthcare, EMI, World Press Group and ISBA. He is currently working with gem/hme in the areas of business development, international media, strategy and training.
Steve is comparatively new to the Pharma category, but despite its specialist nature, he believes that there are many lessons that can be learned from the broader media world. Prior to establishing his consultancy, Steve was a Managing Partner at Mindshare Worldwide. In this role he was responsible for managing the international media requirements of several of the agencies major clients including American Express, Gillette, Kimberly-Clark and Kraft Foods
Unlike many people who are involved in international media management, Steve has actually experienced foreign media at the sharp end, having worked as Deputy Media Director of JWT Athens, between 1992 and 1996.
Web link www.gemhme.com
How can media agencies better collaborate with procurement?