Marketing Procurement: The Most Important Metric Should Be ROI, Not Cost Reduction

billduggan“Data Driven Thinking” is written by members of the media community and contains fresh ideas on the digital revolution in media.

Today’s column is written by Bill Duggan, group executive vice president at the ANA (Association of National Advertisers).

In marketing procurement, industry stakeholders have been repeating many of the same conversations for years. It’s high time to move the discussion from the tactical to the strategic.

To this end, my organization recently embarked on a qualitative and quantitative study and created a whitepaper called “Elevating the Role of Marketing Procurement,” to better understand the metrics used to measure marketing procurement organizations’ contributions, as well as the importance of each metric.

It’s no surprise that procurement professionals rated cost reduction and cost avoidance as the most important metrics used to measure the contribution of marketing procurement today. However, when asked, “Ideally, what should be the metrics used at your company to measure the success/contribution of the marketing procurement organization?” they ranked agency/supplier performance improvements and process improvements, in addition to cost reduction and cost avoidance, at the top.

The study also asked respondents to rate how much importance their company currently places on the various metrics. Cost reduction outranked the other metrics by a wide margin, followed by internal stakeholder (marketing) satisfaction, cost avoidance and then risk mitigation.

Now here’s where it really gets interesting. The study then asked, “Ideally, what should be the importance placed on each of these metrics?” The most ideally important metric, according to the study’s respondents, is … (drum roll please) … improving marketing ROI – meaning maximizing the return on the investment of marketing expenditures (Yeah!).

Sorting results by the maturity of the respondents’ marketing procurement organizations yielded further insights. The more mature an organization is, the more likely it is to use improve marketing ROI as a metric to determine success. Firms using marketing-procurement organizations that are 15 years or older are almost twice as likely to use the improve-marketing ROI metric as firms with marketing procurement organizations that are 5 years or younger.

Adoption of the improve-marketing ROI metric is key to treating marketing spend as an investment to be maximized, rather than an expense to be minimized. Grasping that concept is important, and it’s critical that procurement organizations approach their marketing and agency relationships with this perspective. The role of marketing procurement, in that concept, is to help clients get the most out of their marketing activities.

A good analogy would be your personal investment portfolio. When selecting a financial planner, your primary concern should be whether the planner can maximize the value of your investments. Although the cost of engaging one firm versus another may be a consideration, it’s secondary to the evaluation of the firms’ skills and competencies, including risk manage­ment. With one’s financial security at stake, finding the “lowest-cost” financial planner isn’t likely to be the best approach.

Likewise, marketing spend is an investment companies make to grow their businesses. Aligning a company with the right set of marketing partners is crucial for the business to achieve its growth objectives. As a result, the role of marketing procurement cannot be shortsightedly focused exclusively on relentless cost reduction and the lowest-cost options. Instead, marketing procurement should work to ensure that every dollar invested delivers as much growth and profitability as possible. Procurement should initiate innovation and process improvements, which then lead to reduced costs. Ideally, savings should not be the goal; it should be the byproduct.

It’s plain to see that marketing procurement must continue to evolve from a tactical role (i.e. cost reduction) to a more strategic one (i.e. improve ROI). Older marketing-procurement organizations have already progressed on their respective journeys to embrace more strategic metrics. I’d encourage younger marketing-procurement organizations to learn from the experiences and best practices of their more mature peers to expedite their progress.

Follow the ANA (@ANAMarketers) and AdExchanger (@adexchanger) on Twitter.

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