Pepsico Points The Way For PR Industry's Procurement Puzzle
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Pepsico Points The Way For PR Industry's Procurement Puzzle

Pepsico's decision to eliminate its marketing procurement department will hardly be unwelcome in the public relations world.

Arun Sudhaman

Pepsico Points The Way For PR Industry's Procurement Puzzle

If there is one topic that is sure to agitate even the most relaxed PR person, it is probably procurement. Even the most optimistic PR type can find their stride broken by the prospect of a procurement review, bringing with it — as it often does — a focus on driving fees down, just because three years might have passed since the last one.

Which means that Pepsico's decision to eliminate its marketing procurement department, has hardly gone unnoticed in the PR world. Instead, as AdAge reports, agency selection and compensation will be overseen by individual brands, reflecting an era in which "marketing decisions are being made more often in real time."

"I think the whole industry is pleased that one of the biggest spenders is doing that," said FleishmanHillard EMEA UK and Middle East head Jim Donaldson. "Obviously, financials are an important part of any commercial relationship. To have something that is very focused on financials, to the extent of excluding everything else, isn’t necessarily going to work in marketing services."

PR firms, like all agencies, typically find themselves pressured to reduce their fees by procurement departments, sometimes via such processes as the reverse auction, which ranks agencies according to how low they bid. Ultimately, as many PR execs will note, the approach ends up viewing PR and marketing services as a cost rather than an investment.

"Year-on-year, the best thing to do is to drop prices," adds Donaldson. "Is that really going to bring you the best people, ideas and creativity?"

That said, procurement may not always be the hindrance it is made out to be, particularly for the bigger firms that benefit from a desire for consolidation. "Procurement in many instances prefers to work more deeply with fewer partners," explains former Edelman vice-chairman Alan VanderMolen. "So, if you are one of those partners you could find yourself with a higher volume of work with favourable margins at scale."

That approach, adds former H+K Strategies EMEA head Sally Costerton, has helped to underpin the expansion of global agency networks. "It benefits the owners of agencies when they are in expansion mode and need large guaranteed clients to underwrite that expansion either sectorally or geographically. They can leverage what is often a blue chip client to open new offices, practices and recruit good quality staff."

"Likewise the owners of the clients — the corporations — can boast to their shareholders that they are achieving year-on-year cost reductions in their marketing spend," says Costerton.

Even allowing for those factors, though, Costerton — who now consults for corporates, including ICANN — does not think procurement "achieves benefit for either client or agency."

One the one hand, as she points out, agency margins are driven down, which often causes conflict between agency ownership and management. This can be exacerbated in multi-market relationships, where smaller offices in less developed markets end up struggling to run global client accounts on a profitable basis.

"This inevitably breeds resentment and managers may respond by trying to either get rid of as much of the procured client work as possible or use the cheapest available staff," says Costerton. "Naturally this leads to client dissatisfaction over time. They reasonably believe that investing their millions in one agency should deliver consistent preferential treatment, with top class teams at their disposal."

"Like a tour in Helmand"

For agency executives, multi-market procurement deals can lead to some odd career moves. "There are some well known examples in our industry where staff have had to work on clients in rotation rather as if they were doing a tour in Helmand and been assured that only one six-month stint is required," says Costerton. "Ambitious agency staff will work on the client for a period to enhance their CV, and when they have gained practical experience and credentials they often leverage that for a better job within the agency or client side."

All of these drawbacks, along with the need for increased speed and flexibility, mean that other companies could well follow Pepsico's lead. "Now that campaigns are so readily and instantly measurable it should be easy for brand managers to be held accountable by their employers for marketing spend without the need for an intermediary," explains Costerton.  "Agencies must be ready to be honest with their clients about how they make money and be confident enough to strike productive commercial partnerships."

What won't change, though, is what VanderMolen calls the "historical challenge of defending the value of PR," which has often placed PR firms at a disadvantage during procurement negotiations.

"PR firms that can bring a level of predictability and measurability to their proposals will find an easier time in negotiating more favorable rates," he notes. "Digital analytics and real time measurement are helping PR firms demonstrate value and justify higher fees."

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