Agencies have been adapting to new channels of communication, new brand structures and new opportunities since their inception. We wouldn’t all still be here running agencies today if our ideas, and the way we apply them, weren’t adapting to the world at large.
However, there’s one area in which we’re all seemingly still fighting against the tide – procurement and cost consultancy. If you’ve worked at an agency you will most likely have said (or most definitely heard) one of the following more than once: “Procurement inhibits creativity and stifles ideas,” “the marketing team don’t have enough sway over their procurement team”; “Procurement don’t want to pay the hourly rates of senior staff members” or “Procurement make it impossible to break out of the unsustainable hourly rates model.”
This isn’t to say that all agencies and all procurement people are at odds all the time. There are some fantastic procurement people that look at the process rather than the pricing and there are innovative agencies that consistently deliver savings and great results, but the majority of problems with procurement tend to be blamed on the client.
Why should we expect or wait for them to change? Procurement isn’t going to disappear in the immediate future. Agencies have a responsibility to show we can be faster, more nimble, dynamic and, ultimately, be willing to mix it up a little bit!
Part of the difficulty in budget comes down to the hourly rates model. It hasn’t been sustainable for decades but not many agencies are actively trying to change it. Why? Quite frankly, some people are very comfortable with the model they’ve been using for years. They like the way they do what they do and how they go about their daily lives – agencies and procurement included.
Recently, we have been moving to a value-based pricing model at Rothco and procurement is nothing less than a battle. But it is a battle that helps us see clearly.
Transparency has always been an issue with procurement. Value-based pricing has a huge amount of clarity compared to hourly rates. We get paid based on results. Ultimately, if we don’t get the results we don’t get the upside of any payments. We are making sure that the client is getting what they pay for.
Sounds great, right? But it’s no easy feat to implement. Many want to work on a value-based pricing model but are often blocked from doing so by their board or their clients. Agencies seem to see this as the end of the road but they still have options. For example, have they ever considered walking away from a piece of business when procurement is beating them down? We have.
We stopped trying to hunt down certain types of brands and businesses. Instead, we focus on key marketers. It is true that in really big organisations there can be a disconnect between procurement and marketing. You can convince the marketers and then get blocked by procurement.
However, good brands and good marketers know that value-based pricing works. Some of our clients have produced their most effective, award-winning work as a result of this model. When you start to enable your clients to produce amazing results and they can see the pace at which it is working, it makes the argument for its continued use much easier. At the end of the day, it puts the client’s best interests at heart. If you can’t prove results within three to six months, procurement can come back in and revert to hourly rates.
Value-based pricing makes budgetary ‘tick-boxing’ savings much more difficult. It drives efficiencies in a different way; one that can’t be measured to its full extent until the process has begun. For procurement, this means changing their process of evaluation entirely. For us, this means that we must evaluate tenders very carefully. If value based pricing isn’t going to work, then we have to walk away from business at an early stage.
For there to be a wide felt change in the industry, agencies need to step up to the plate and be brave about how they cost for their services. It is under our control. Playing the waiting game isn’t the way to drive a change in behaviour.
Patrick Hickey is CEO of ROTHCO.
First published in Irish Marketing Journal (IMJ June 2017)© to order back issues please call 016611660