‘I know half of my advertising is wasted; I just don’t know which half.” The late Lord Leverhulme’s conundrum may never be completely resolved, but the increasing involvement of purchasers in buying advertising and marketing services is greatly improving what used to be a poor ratio.

Although the client will often deal directly with just one lead agency for a major campaign, there may be many other companies involved, including photographers, copywriters, film crews and new media resources such as website designers.

All this activity was once typically conducted in a contract-free zone of handshakes, verbal agreements and “traditional” customs and practices. In this environment, costs were largely uncontrolled and there was little or no attempt to assess the effectiveness of the different elements of a marketing strategy.

Two years ago, CIPS published the guide How to Buy Marketing and Advertising Services. The institute also worked with the Incorporated Society of British Advertisers (ISBA) to produce model contracts for full-service agencies, and for “below the line” activities. The society is currently working on a model contract for new media.

The ISBA itself also set up the Communications Purchasing Action Group (Compag), which works to create benchmarking tools, pool market information and experience, and develop and promote best practice in the procurement of advertising and marketing.

Three critical areas

So what does best practice look like in this field? The three most critical parts of the purchasing process are agency selection, contract negotiation, and the continuing evaluation of the agency’s performance. This being the advertising world, none of these is quite straightforward.

Agency selection involves two parallel assessments - creative and commercial. Shortlisted agencies that appear likely to have the appropriate skills and resources are asked to respond to an invitation to tender. It should include a detailed written brief.

This will outline the scope and purpose of the campaign, marketing messages and objectives, target audiences, timing and delivery, proposed methods for evaluating effectiveness and so on. The brief also needs to make clear whether the client is looking for a broad strategic proposal or a detailed creative “pitch” - bearing in mind that the latter is a costly and time-consuming exercise. The invitation should also include proposed purchasing terms and conditions, and instructions for completing the tender.

It is common practice to include a budget guideline in the brief. Agencies must have some idea of the campaign’s scale, but most bids come in at, or up to, 5 per cent above, this figure. This can be a starting point for negotiation. It is a common experience that similar bids disguise widely differing hourly rates, and by implication the amount of labour that the agency believes is necessary.

When it comes to assessing an agency, a team combining marketing and purchasing people should be involved. Clearly the marketers will take the lead in assessing creative and strategic issues, but purchasing managers need a good enough understanding of these to be able to assess the commercial value of the proposals. The personalities involved, and the relationship with the in-house marketing team, may be as important as the creative concept.

Creative issues cannot be commoditised to a tight specification; production and delivery issues certainly can and here purchasing can add significant value. This requires a deep understanding of the processes involved. It is vital that agencies reveal what parts of the work will be sub-contacted - typically, a large proportion - and on what basis such services will be charged.

Purchasing’s role also includes creating clear lines of accountability in a complex supply situation. Many agencies’ purchasing functions are fairly primitive and contracts with sub-contractors can be sketchy. Compag is developing benchmark data on agency salaries and charged-out costs, where there can be remarkably wide variations.

Where an agency is regularly employed on an account, a retainer may be suitable. A fixed fee may be paid for the delivery of a specific campaign. Alternatively, a percentage commission may be payable, based on third party and media costs, or a combination of these methods may be used.

In the future, agencies may be paid by results. At least one big London agency gets a percentage of the income from increased sales by a manufacturing client. This approach has not yet been widely adopted, but could go a long way to resolving the difficulty of knowing whether a promotional campaign has offered value for money.

Another important issue is intellectual property rights. This can be complex: there are not only the rights to work created by the agency, but the rights to use music or library photographs must also be acquired. Moral rights also exist. In theory, the director of a TV advert could object to their work being edited or altered, unless the client or agency has obtained a written waiver.

The most problematic issue is evaluation. In direct marketing, for example, and continuing or repetitive work in general, performance can be measured fairly rigorously - how many mailshots reach the agreed target market and the response rate, for example.

At the other end of the scale, the effectiveness of PR activity may be unquantifiable, except in a damage-limitation crisis. More generally, there is the need to distinguish between the effectiveness of a campaign or promotion, and the performance of the agency. The fault may lie with the product.

Overall, the message is that performance must be assessed where it can be, on cost control, response and delivery times, but there will generally be a large area of performance that can only be judged subjectively.

Sam Tulip is a freelance journalist specialising in purchasing issues

Checklist

Six tips for success

1. Choose the right agency: creativity and cost are important, but so is the ability to work with your marketing staff.

2. Brief the agency well: tell it about the specific product or brand and the wider corporate strategy and culture.

3. Work as a team: internally and with the agency and its key subcontractors.

4. Go for a win-win deal: explore partnerships and methods of sharing risk and reward. The negotiations will affect the ability of the agency to attract and retain the staff you want on your account.

5. Be proactive and creative: the agency doesn’t have a monopoly on good ideas.

6. Have fun: advertising and marketing are complex and fascinating supply chains and buyers can make a real difference.

Soundbites

What the experts say

“You never really know how long it takes for someone to have a bright idea.”

Bob Rodwell, marketing procurement manager, Whitbread

“Get the confidence and trust of the marketing people - they may see buying as old school‚ but they need to recognise that purchasing has moved on. We can help marketing become better practitioners.”

Procurement manager, major FMCG company

“Inevitably some things are subjective, but there is a lot you can quantify. It’s important to divorce the specifier and the implementer to gain some sort of objectivity.”

Julian Coles, director of procurement, Boots

“New technologies are driving many production costs down, but a lot of clients and agencies are still paying the old rates.”

Debbie Morrison, convenor, Communications Purchasing Action Group

“Agencies are not really very good at negotiation or procurement, and they tend not to think about saving money for the client.”

Indu Sharma, marketing procurement specialist, Creative Contracts Strategy & Negotiations