‘We’re both playing the game’: Confessions of a procurement director on agency rebates
The lucrative but sometimes opaque way media owners give rebates to agencies in exchange for larger media budgets may be legal in the U.K. when disclosed, but that hasn’t stopped them being blamed for advertising’s slump into a murky black box.
Nevertheless, there are some marketing execs, like a senior procurement director at a U.K. advertiser, who believe the controversial practice of rebates is an acceptable part of how they work with agencies as long as they understand the details. For the latest in our Confessions series, in which we exchange anonymity for candor, the procurement exec explained why advertisers must take a more pragmatic view on rebates.
Excerpts lightly edited for clarity and flow.
Why are rebates important to the way you work with agencies?
There’s an overall perspective that should be applied to things we decide to turn a blind eye to and that comes with maturity. If an agency is locked in on a retainer and I know I’m getting great value and my stakeholders are happy then I can accept that business making money on our account. We’re both playing the game. It’s part of the overall landscape. If I sign off on those deals knowing that we’re a cash cow then I’m not doing my job properly. I don’t want to have a creative or media agency go out of business because I was too onerous. You need to decide as a business whether you’re prepared to bring that agency skill-set in-house which might make things 20% cheaper because you don’t have the VAT and there won’t be that cushion of margin you’re having to pay out, which might add up to another 20% of savings.
Is that relentless focus on cost where procurement usually falls down?
Yes. If you’re going only after the cost then you will drive organizations out of business. That’s not the responsibility of procurement. We were the ones that would be brought in after the big fat lunches between marketing teams and agencies to squeeze that last 5%, but that shouldn’t happen anymore. Senior procurement execs are at the top table now to get stakeholders to take a look at other agencies they could work with rather than just continuing with the same ones.
What’s the best way to structure a payment deal for agencies?
There are a few payment models but there seems to be a move toward cost-plus models. Here, the business will pay the agency the going rate for staff, work them as efficiently as they can before paying fixed costs on top of that fee, which can be negotiated. In those instances, most procurement execs will focus on the fixed fee because they won’t care what the day rate is for agency execs if they’re able to secure a whole range of services for a lump sum. Agencies must figure out whether they can afford to push against these sorts of deals where they won’t make as much money but could potentially be a door opener to larger accounts later on. On some of the tenders we’ve run recently we’ve had agencies decline to participate because those sorts of deals aren’t worth the effort.
Are agencies easier to negotiate with now?
Deals are a lot more complicated to land. Gone are the days when you could do a nice schmoozy agreement where you’d have your pre-prepared terms and conditions and you’d negotiate your socks off against the agency. Usually, the commercial director at the agency, particularly the small to medium-sized ones, would be wet behind the ears, and subsequently, deals were nice and easy to do. Now, the fight is more equal. The large holding companies have big legal teams. It’s why procurement execs have had to step up their game. If you’re in the lead by literally knowing a little bit more than the people you’re negotiating with then it can feel like you’re the one-eyed kind in the land of the blind.
Is it easier for procurement to work closer to marketing teams in some businesses versus others?
For CPG and other manufacturing businesses, it’s easier to get on the same page as the marketers. These are businesses that have invested in separate procurement departments over years and usually a chief procurement officer. A car manufacturer like Ford, for example, will be used to procurement getting in the way of other processes because there’s a framework in place that shows they add value. Service-focused businesses don’t tend to have as much experience and therefore the fight with other departments is much harder.
Can being in procurement feel like you’re ostracized from other departments?
My current role is straightforward and somewhat of a quick fix to an internal issue. I report back to my stakeholders regularly to outline what we’ve done. That’s about as much interaction as I get with wider stakeholders and that’s fine because the job necessitates that. There are other companies I’ve worked at where I’ve had to pull out all the stops. I’ve had to buy the biscuits to help win over people in the marketing team, sit through late teleconferences and pull in people from three different continents to run projects. People tend to see that effort in my experience. If you’re a procurement exec and you feel there’s another procurement exec who feels ostracized then they need to make more of an effort to break down those barriers with the marketing department because it can repay benefits.
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