Just plain nuts

Dear marketing procurement, forgive my ignorance, but I really thought we got past this.

The other day, and apropos of nothing in particular, somebody from a research agency who told me that recently they had to complete their bid for a large financial brand’s research requirements through a reverse online auction.

As an industry, I honestly did think we had got past this.

We all know the temptation of new shiny toys, but reverse auctions are old now. Even if they’re still new to some, shiny toys have to be applied to appropriate tasks. We might buy a new chainsaw but we still shouldn’t use it to cut vegetables.

Anyway, it appears not everybody got the memo – or the blog, or podcast, or book on this subject – though there have been many – including my own. So, in an admittedly frustrated attempt to further clarify why the use of reverse auctions for marketing is not only inappropriate but fundamentally damaging, I thought I'd make another attempt here.

Costs and investments

First off, all marketing expenditure, from the brand’s own people, their salaries and bonuses, to media spend and advertising production, to agency fees, to market research, to events, shelf wobbler design, emails and SEO - every single piece is an investment - not a cost. 

The difference is that we like to see returns from investments – whether we can measure that return directly or not. Whereas, a cost is an unfortunate overhead contributing to the price of doing business (Before anybody starts, we all know it's not that straightforward, unless perhaps we're only talking about the cost of utilities or other commoditised goods and services where quality can be entirely assured or doesn’t really matter.)

Auctions are leverage buying tools. As Kraljic pointed out, we should only leverage our buying power if we can ensure quality measures, and we cannot ensure the quality of marketing insights, strategies or ideas while negotiating down their price because they are solutions to problems with unlimited possible solutions.

Further, and for example, if we used a broker to invest our pension contributions would we incentivize them to invest less of it? Even if we wanted to invest less we would know that we would have to increase our risk in that investment if we still wanted to see the same return.

Well – shock horror – the same is true of marketing. 

If we want to reduce our marketing spend and maintain or improve our return on any aspect of that spend then we increase our risk. Therefore, we must be prepared to lose more. So, it’s probably best to clear that with marketing before adopting it as a buying strategy.

Consider dependency and risk

Secondly, here’s the staggering thing about reverse auctioning for market research specifically, and something I’ve said in negotiation training at the Market Research Society on a number of occasions: almost every aspect of the returns on marketing expenditure is dependent on the integrity and quality of market research if it has been employed. Brand propositions depend on consumer insights, targeting uses segmentation studies, product propositions might rely on U&A studies or user groups, creative development often uses pre-testing. So, to divest from market research is like a builder cutting corners on the quality of the concrete that will hold his bridge together. It's a fraction of the whole expenditure, but everything depends on it.

Time is not a measure of value.

Thirdly, and hopefully this is enough for now, time is not a measure of agency value in any marketing services organisation. So if we use a reverse auction to drive down hourly rates we could easily just be buying less for less.

Time does not equal effort and effort does not equal value.

To elaborate: you can pay me for an hour and it doesn’t mean I’ll try hard for that hour. And even if I do try hard for that hour, it doesn’t mean I’m necessarily any good at what I do. And actually, the best value might be from somebody who knows what they’re doing but doesn’t have to try very hard at all.

Marketers be warned.

Now, to all you marketers and agencies out there who endure the continued use of this bluntest of instruments – here’s something else you should know – most people in procurement worth their salt already know this.

As much as it might appear to be the case, procurement people are trained not only to reduce costs but also to mitigate risk. But who carries the can for high risk in marketing? Unless they share your KPI's, it's control without responsibility. (BTW, I have a book coming out about that.)

The more progressive marketing procurement folk know this but they have willingly changed their MO to work with marketing, to have a shared interests in marketing’s return on investment. Bravo – seriously. I’ve worked with such procurement people and it is an absolute joy, because we’re all pulling in the same direction.

But if your marketing procurement people are incentivised by cost savings and cost avoidance you have two big challenges. The first is, you have to persuade them to share your interests and share your incentives. Secondly – and perhaps more challenging – was best expressed by Upton Sinclair:

“It is difficult to get a man to understand something, when his salary depends on his not understanding it.”

Because making saving on investments isn't difficult - you just invest less.

David Meikle

Founder, The HTBAG Company

Author: How to Buy a Gorilla. 

New book coming soon: Tuning Up - Improving relationships and performance while reducing stress in advertising and marketing

Early reviews: “F*****G BRILLIANT!” 

"What took me three decades and a series of panic attacks to understand, David’s book will teach you in a few hours."