9 Marketing Procurement Tips From the ANA Advertising Financial Management Conference

Earlier this week, the Association of National Advertisers held its annual Advertising Financial Management Conference that gives marketers and agencies a look inside procurement, the financial side of agency-client relationships and the economy as a whole. Adweek's marketing and agencies team sat in on nine panels to highlight the biggest takeaways from the conference that marketers and agencies need to know. Verizon’s agency compensation strategy Fewer agency of record relationships are giving way to more project-based relationships. As brands build agency rosters, they must choose both the right partners, and the right ways to work with them. Denis Budniewski, Verizon executive director of marketing investment and transformation, spoke about ways brands can structure an effective agency compensation model and simultaneously avoid stoking tensions between partners. A recent 4As summary presented Budniewski with three common compensation formats that brands can employ: Input based: This includes pay-as-you-go options.Output based: Paying by deliverable, offering commission, accepting fixed-price proposals and even licensing.Outcome based: Performance-based compensation is an example of this. “Is there any right or wrong answer here? I don’t believe there is. In fact, at Verizon, we use every one of these models to various degrees,” said Budniewski. Despite this, Verizon finds deliverable-based compensation effective. This approach redirects conversations to the work, and encourages honest communication about bandwidth. Ultimately, it enables agencies and brands to scale workload up or down as needed. This way, Verizon can avoid catalyzing agency concerns about “burning hot on hours,” Budniewski said, adding, “It redirects the conversation to ‘Oh, we’re burning hot on deliverables.’” —Olivia Morley Advice for procurement officers The Hershey Company's manager of indirect procurement, Kevin McCollum, began his talk by rattling off some sobering stats about procurement. A 2022 ANA report found: 54% of procurement respondents think the relationship with marketing and agencies is healthy.Just 30% of marketers feel the relationship is healthy.Agencies give it an even lower grade: 15%. McCollum gave procurement officers a tutorial on how to improve this relationship. Marketers should understand this advice, and ask their procurement teams to incorporate it into their workflows: Understand marketing leaders' goals and incorporate them into their own goals.Keep marketers informed of both industry news and how it impacts the business, as well as developments across the company, to ensure marketing teams can get ahead of anything that could impact their department.Educate yourself to truly understand what you're buying. "If I don't understand what we're buying and why we're buying it, then I'm going to be of very little use to my marketing team that I support," McCollum said. —Jameson Fleming Seeking agencies and common ground Unsurprisingly, brands and creative agencies have differing thoughts on what the agency search process should look like. It helps to have someone who’s been on both sides of that search discussing its future. Before Gina Gray moved over to Minneapolis creative agency Colle McVoy and eventually became its evp of business development, she spent nearly seven years in procurement and agency management across town at Target. She joined Target’s director of strategic partnerships Melissa Lewis; the 4A’s svp of business intelligence and insight Matt Kasindorf; and moderator and ANA svp of brands and media Greg Wright for a discussion of the 4A’s/ANA Agency Search Simplification Report looking into points of contention in the agency pitch process. In some of the report’s findings, agencies and clients’ views differed wildly. When asked if clients should share the list of agencies participating in the review—unless an agency has specifically requested confidentiality—84% of agencies agreed, compared to only 15% of clients. Asked if clients should disclose the budget for anticipated work in an agency review, 100% agreed, with 98% considering it “painful” if that information was excluded. Just 70% of clients agreed, with only 37% feeling agencies’ pain. Frustratingly for creatives, when asked if agencies should have access to decision-makers without consultants or “gatekeepers,” only 11% of clients agreed, compared to 88% of agencies. When asked if agencies should maintain rights to work created during the review process, agencies unanimously agreed—but 50% of clients believed it should belong to them. “Target is sitting in marketing: They’re in all the meetings, they're meeting with the marketers all day long, they're in the strategic conversations, and they do all the annual planning and they understand the work deeply,” Gray said. "But from my experience on the agency side, there are so many procurement teams who operate the same way that just don't happen to sit within marketing. It's just a lot of building those relationships … it's about trust.” —Jason Notte Brands Find It Painful to Address Agencies’ Most Pressing Pitching Problems 4A’s/ANA Alternative Compensation Model Task Force Earlier this year, the ANA released its Trends in Agency Compensation survey, which found that 82% of the industry still uses labor-based fees and timesheets when paying agency partners. Considering that both sides want to be paid the value of their work, the 4A’s and the ANA gathered an Alternative Compensation Model Task Force to help each side better understand compensation models and focus on better outcomes for everyone. Members of that task force gathered to discuss their ongoing findings. They found that the multiple compensation models in practice all fell into three main buckets: input-driven models (time and materials); output models (what is made and delivered); and outcome models (results, pay for performance). The panel, made up of agency and brand executives, found that there was a need to have multiple models in the arsenal in order to keep pace with the changing needs of the end of the industry. While many companies are reluctant to change their compensation models, the panel found that many needed to do so. The best way to help evolve the industry, according to the team, would be to develop a compensation playbook that looks at the different models, and provides guidance and understanding of what they are, how they work, and when they were most appropriate. That playbook is expected soon, and the task force will continue to look at training and other ways to meet the needs of the industry. —Kyle O'Brien As Agencies and Brands Define the Value of Their Work, Compensation Models Merit Closer Scrutiny Mark Penn reaffirms Stagwell’s commitment to its tech stack Mark Penn, chairman and CEO of Stagwell, spoke with Katherine Freeley, global head of media and digital procurement at Novartis, about the onslaught of technological changes and his organizational strategy. Stagwell’s marketing cloud is central to Penn’s vision. It’s the only holding company leaning hard into a SaaS model, although its competitors are also navigating that revenue model to varying degrees. To guarantee results for clients, Penn continues to consolidate and create custom networks within Stagwell, betting that reintegrating media and creative will generate results. Most recently, the company folded several previously standalone agencies into its legacy creative shop, Crispin Porter + Bogusky. Penn’s holding company is more likely to earn fees based on revenue lift, instead of more traditional payment models like time, materials, fees or monthly retainer, according to the leader. The holding company is also building an ad-tech product, Media Studio, positioned as a competitor to DSPs like The Trade Desk. It raises questions about how far agency holding companies could or should go to present marketers with true full-service offerings. “A coordinated set of services is what is most effective,” Penn told the audience. —O.M. Four Stagwell Agencies Combine to Form New Crispin Porter + Bogusky A mild recession KPMG senior economist Kenneth Kim gave a 30-minute crash-course in the state of the economy, eyeing what key indicators might mean for brands and marketers in the months ahead. It was, as one might expect, a mixed bag. Citing ongoing factors like banks tightening their lending conditions, a deterioration in manufacturing productivity and a 35% dip in commercial real estate prices, Kims aid, “We expect the economy to enter a recession in the middle of this year.” However, Kim added, he and his colleagues believe that a recession will be “mild,” in large part because unemployment (forecast to rise to about 5%) is still within normal limits. “People are getting jobs, getting paychecks, and they're also continuing to spend,” he said. Consumers also still have “dry powder”—money saved during the pandemic period as a result of both government stimulus checks and reduced social activity. That’s good news for marketers, of course, but inflation—currently around 5%—remains a concern. Kim was speaking on Monday, two days before the Federal Reserve’s expected quarter-point interest rate hike—part of an ongoing effort to get inflation down to 2%. But already, “the Fed’s rate hikes are starting to bite,” Kim said, citing the weakening of consumer packaged goods purchases in recent months. —Robert Klara How 5 Agency CEOs Are Preparing for a Likely Recession HP gets honest about its marketing supplier diversity journey “If not our industry, then where will this happen?” Tara Agen, HP’s global head and vp of marketing operations and mar tech, asked the audience. “If not the people in this room—marketing, finance, procurement agencies and businesses—then who? And if not now, then why not?” Agen is one of several HP leaders spearheading its diverse supplier journey, which began roughly four years ago. It announced its CEO-endorsed 2030 vision to be the “world’s most sustainable and just technology company.” Achieving the vision depends on progressing in three areas: climate action, human rights and digital equity. Executive compensation is tied directly to these pillars, meaning leaders are held directly responsible for increasing the number of Black-owned businesses HP partners with. When it began, HP spent just 1% of its revenue with Black-owned companies. Now, the company’s upped that number to over 10%. It’s also put guidelines in place to encourage its partners to prioritize diversity and inclusion. For every 10 people working on an HP account, one must be Black. The company added a legal addendum to its contracts stating HP will withhold compensation from partners that do not meet that requirement, until they do. As a result of this and other efforts, Agen’s marketing team achieved 126% of its goal. It’s also created a playbook on how other brands can do this too. “I will spend time with you, with your bosses and leaders, and really walk you through more detail here,” Agen told audience members. —O.M. Magna’s Equity Upfront Brings Communities Together. But Change Hinges On What Happens Next Redefining ‘value’ in the agency-client relationship McDonald’s vp of U.S. marketing, brand content and engagement Jennifer “JJ” Healan and Wieden+Kennedy global group strategy director Tass Tsitsopoulos explored the many the ways that the agency has led creative ideas for the brand. Healan and Tsitsopoulos talked about the collaborations that have not only brought value to the agency-client relationship, but also built brand equity thanks to meeting cultural moments and being anchored in McDonald’s “fan truths.” Tsitsopoulos talked about “sharing the pen” with fans, meaning the brand has the confidence “to share with those that love it.” Specifically, McDonald’s gave over control of its menu to celebrities, starting with Travis Scott and later including J Balvin, Saweetie and BTS. Those “famous orders” earned $283 million in incremental sales and grew penetration with 18-24 year olds by 3.2% over the previous year. The two also talked about tapping into younger fanbases, in particular the partnership with Cactus Plant Flea Market, which created viral moments as fans collected the characters and posed with Cactus Buddy at McDonald’s benches. “As we share the pen, this is something that actually continues to put the brand in culture and we're again driving the business through the lens of creativity,” said Healan. Healan and Tsitsopoulos concluded that what started as a creative strategy between the agency and McDonald’s has growing into a brand and business strategy, with fan-to-fan interaction at the center of its universe. —K.O.B. Golden Arch-itects: How 2 Marketing Dynamos Reinvigorated McDonald’s for Gen Z Asking better procurement questions Does “optimization” mean anything, or is it just another molecule of hollow jargon that expands to fill the volume of any marketing conference it occupies? Going back to the 19th century and the peak of the Industrial Revolution, to optimize something simply meant to make a product or process as good as it could be. Tom Denford, global CEO of management consulting company ID Comms Group, noted that “optimization” in marketing now relates mostly to agency and third-party costs. He argues that it should be tied to incremental improvement. “Remember, we are all in service of brands,” he said. “Procurement should be the guardians of value to brands, and what I think you’re the guardians of is optimization.” He used the example of Matt Parker, the “head of marginal gains” for Great Britain’s 2012 Olympic cycling team. Parker used heated pants to keep cyclists’ muscles warm between races, sanitation processes to minimize team illness and a “golden hour” of preparation between semifinals and finals to improve performance. As a result, his team won seven of a possible 10 gold medals that year. Denford brought up David Hale, director of marketing and supply chain procurement for T-Mobile, to speak about his company bringing more of its marketing in house. As a result, T-Mobile focuses on elements closer to its business while procuring agency help to create brand awareness. “Ultimately, I report to the CFO, and he's looking at those strategic investments and saying, ‘OK, what's the right thing that we need to be investing in?’” Hale said. “He sees the benefit, and we continue to get support.” —J.N.