Project case study: How premium brands buy in marketing
Realigning the marketing procurement team of a market leader in the construction supplier sector.
By using large marketing budgets to promote and expand their brands, marketing procurement teams play an important role for branded goods manufacturers in the premium sector. The same applies to this case study, which centres around a long-established German-based family company that is a market leader in its sector of the construction supplier sector in Germany and other European countries. The company spends large sums on an equally large volume of marketing services for its premium brands and, naturally, these services need to be procured.
Due to the very varied nature of corporate structures within the group – which itself comprises numerous companies and sites – the local marketing teams had developed organically and generally procured marketing services independently. In 2007, however, a procurement project was launched to make the most of opportunities to pool requirements and thereby lower procurement costs.
The starting point
Localised marketing procurement and parallel processes
Since marketing procurement was organised locally, the marketing team or product managers for the various brands had thus far bought in marketing services themselves. Over time, all the various sections of the company had become very independent. And because the buyers focused predominantly on the success of the marketing activity, the actual process of procuring marketing was not their core activity. What’s more, since, for example, many decisions were made on the spur of the moment, the procurement and ordering process differed greatly between the various business sectors. In some cases, timing pressures meant that some requirements were never even put out to tender.
The procurement project
“Getting the best possible results from the existing marketing budget” – it was a brief that suited both the accounting and marketing functions. The cost savings resulting from the project could then be re-invested in brand growth. To ensure that potential was fully utilised over the long term, collaboration with specialist functions and sites was to be reorganised and supported by a central marketing procurement function.
INVERTO was brought on board for the project, which would first have to create transparency and reveal the bigger picture of the spend structure. Based on an analysis of the existing potential, the procurement project was subdivided into seven work packages for top positions in marketing. These included brochures/pamphlets, media, creative agencies, promotional items and samples, for example. These work packages were allocated to teams of representatives from the specialist and procurement functions at the various companies and sites. The 2007 procurement project was one of the first to require such group-wide teamwork.
To show that existing potential savings could be unlocked very rapidly, INVERTO also began to negotiate short-term requirements. Each week, a survey was sent out to the marketing functions requiring them to report all requirements that exceeded a projected procurement value of €10,000. Renegotiations and the use of new suppliers enabled the buyers to achieve average savings of 18 percent in the first three months alone, without compromising on quality or performance. Besides delivering short-term savings, this approach also put the future process of central marketing procurement through its paces and helped everyone involved get used to the new strategy.
Leverage for unlocking savings in the biggest cost items
Agency services, brochures/pamphlets and promotional items/give-aways accounted for the majority of the marketing spend.
But which agency was the right one for which order? First, a distinction was drawn between creative services and production services. Often, several agencies are commissioned to provide design services and one is chosen over another depending on the specific creative service that is required at any one time. However, when it comes to production (e.g. lithography and printing) long-term partners should be found who can deliver high quality standards over the long term. INVERTO led a comprehensive agency screening programme. Agencies that were already on the books were also asked to break down their fees according to creation and production and present in detail the top five projects they had executed for the corporation. This gave the project team a good insight into the existing agency structure.
Agency screening was used to shortlist agencies for the subsequent pitch process. The companies that came out on top during the pitches then entered negotiations with the aim of establishing a catalogue of standard products with fixed prices. By creating a pool of suppliers, the procurement team was also able to maintain an element of competition between the approved companies. All basic conditions, services, usage rights and prices were agreed in a comprehensive contract document, thereby consigning endless negotiation and disagreement about prices and usage rights to the past.
The key to success in the procurement of brochures/pamphlets and promotional items was that, instead of assigning projects on an individual basis – as had been done in the past –, the team mapped out the entire annual volume for each supplier. This approach helped the team negotiate consistently lower and more feasible prices for all products. By planning requirements in this way, the team was also able to minimise seasonally adjusted and capacity-dependent prices as well as surcharges for urgent jobs. Moreover, putting orders out to tender across the whole of Europe led to the formation of a better qualified supplier pool.
Implementing a sustainable process to safeguard results
By working with INVERTO, the company was able to establish marketing procurement as an independent, forward-looking corporate function. It also had at its disposal a comprehensive price comparison list for all standard marketing products that would enable it to calculate prices for future projects. Now, if a concrete project arises, the customer for that project gives the marketing procurement team a list of requirements (specifications, volumes, deadlines, etc.).
The marketing procurement team then consults the price comparison list to find the supplier that offers the best price for the project. This information is then fed back to the customer who takes charge of the project from that point on by transferring data, coordinating delivery times and checking invoices, for example. The project was a success in two main ways. Firstly, it enabled the company to reinvest the resultant double-digit savings in the further expansion of its brands. Secondly, establishing new, better performing and more innovative suppliers helped boost the effectiveness of communication and marketing activities.