Media trading: A procurement professional’s best friend

Media trading: A procurement professional’s best friend

As a procurement professional, your mission in life is to find material measurable savings on the purchase of goods and services for which you are responsible. But what can you do beyond the usual price negotiation in all its various forms? What can you add to your tool kit that gives you even lower costs and the resulting competitive edge, not to mention the accolades and bonuses for a job well done!

You know that some goods and services have higher margins than others, right? Certain industries are more inefficient than others. What if you were able to transfer the higher margin found in one of your purchase categories to a lower margin good or service purchase? In other words, what if you were able to leverage market inefficiencies into lower costs?

If you are responsible for overseeing the purchase of media, you know that advertising can be a pretty high margin business. It also tends to be a fairly inefficient market. Unlike commodity goods that have a fairly tight range of price, advertising has a wide range of pricing. The price you pay could depend upon how much you buy, your relationship or your agent’s relationship with the media vendors, past deals or the lack thereof, pre-season commitments, and of course supply and demand which changes every quarter, etc.

How to tap into that market inefficiency and turn it into an advantage for you.

Did you know there is an established media market existing outside of the purchasing model in which you are currently engaged? It is the trade market, and it is the province mainly of the corporate trading firms. The power of the trade market has lately attracted a number of the world’s largest media conglomerates, so that should tell you that there is something interesting going on.

The trade market provides the means for media to be acquired using goods and services rather than cash. The media trade market also smooths out supply and demand imbalances from quarter to quarter by taking positions in “media futures”.  Regardless of its inner workings, trade  allows you to access a lower cost basis for advertising, not in terms of the rates or CPM, but in your bottom-line investment. Trade takes advantage of the fact that margin exists that is sufficient for a cable network to gladly accept hotel rooms for a Fall ad schedule. It provides the means for a billboard company to take a retailer’s gift cards for a high profile spot in Times Square.

Now, it’s unlikely you have a stock of goods and services that exactly meet the needs of your specific media vendors. You need to enlist the services of a third party that has established relationships with your media vendors AND possesses a wide variety of the specific goods and services desired by those vendors.  Acting as a clearing-house for you and the media vendor, this is the role of a corporate trading company.

By purchasing advertising through a corporate trading company, margin exists and is transferred so that it can be used for many other corporate needs. This brings us back to the point that the margins of advertising can be leveraged to create savings on your lower margin purchases. Consider the following examples of how you can use corporate trade:

  • Cost reductions on routine operational expenses
  • Savings on raw materials and other direct costs
  • Funding for non-budgeted needs
  • Gap financing on goods and services for which budgets are insufficient
  • Payment for excess inventories, surplus real estate, and obsolete capital equipment at well above the cash market value
  • Full price payment for current goods and services that can be distributed outside of current channels
  • Reserves for “rainy day” needs and other emergencies

You’re likely to ask three important questions to determine if corporate trade is a viable means for achieving cost savings for your organization:

  1. Are these savings real?  The fact that corporate trade has been around for decades and that the world’s largest advertising agency holding companies have entered the trade market demonstrates a certain legitimacy to this market. Corporate trade structures conform to GAAP, and a great many companies, including perhaps your competitors have added millions on their bottom line due to corporate trade. As to the real savings that you can accrue through trade, ask a corporate trading company to take you through a scenario using your particular purchasing and circumstances in order to project your potential results.  Those savings can and should be measured and reported.
  2. How difficult is it to implement? If you were to attempt entering the trade market without a trading company, you would have your work cut out for you. You’d need to acquire goods and services needed by your media vendors, create a new accounting process to track the various trades, and restructure the entire billing methodology between you and your media vendors. Luckily, the corporate trading company takes care of all this for you. No new worthwhile cost-cutting tool is effortless to implement, but corporate trade can be a relatively simple and enjoyable process that will pay significant personal and professional dividends.
  3. Are the savings measurable and sustainable? Measuring the savings from corporate trade is simple. If you choose to create media savings through the purchasing of your advertising through the trading company, your reduction in cash can be easily calculated. If you choose to pay for advertising using an asset like excess inventory or surplus real estate, simply look at the market value of the asset relative to the higher price paid to you by the corporate trading company.

Regarding sustainability of the cost savings of corporate trade, the most successful trading relationships are those that are maintained over a long period of time. Once the trading process is implemented by your organization, you will likely see it as an integral part of your procurement process. After all, if you can use obsolete assets or other approaches to save 12% or more on your advertising expense through a proven process, why would you stick exclusively to the difficult exercise of price negotiation with your vendors?

To learn more about the mechanics of corporate trade and how to implement this across your full range of purchasing, download The 9 Insider’s secrets to Winning at Corporate Trade.

Some observations from the ANA 2013 conference

Some observations from the ANA 2013 conference

Our own Mark Ordover shared with us the following observations of the recent ANA Advertising Financial Management Conference in Phoenix.

We just returned from the 2013 ANA Advertising Management Conference in Phoenix. Similar themes seem to resound through the formal presentations and into the various breakout sessions and food breaks.

  • How can procurement find a place within their organizations to drive a common strategy between both marketing and procurement where procurement is bringing innovation and added value to their marketing partners as well as thoughtful cross brand cost efficiencies?
  • How can procurement develop trust within their internal organization as well as with their external marketing partners?

Still, the resounding feedback from external agency partners is that many procurement professionals today don't really know what the external agency does, where their value creation is and therefore only focuses on the cost side of the equation. Sopan Shah, Global Leader, Advertising and Marketing Procurement at Nestle had some powerfully simple advice, "Procurement professionals need to build relationships with their external partners by spending time with them! Days, if not weeks, should be spent with the external agency partners to build relationships, understand their work flow, continue to educate them selves in a very fast paced evolution of marketing and media channels." Without a deep understanding of your partners capabilities and their talent pool, it makes it very hard to create a contractual relationship where mutual goals are met and agreed upon!

Another theme that continues to get big discussion is the role of Big Data in today's business environment. Clearly, today's technology enables businesses of all shapes and sizes to collect data on their supply chains, sales, marketing touch points and customers to a level that has never before been available. But the resounding question is, "What do you do with the data? And how to avoid being buried beneath it?" Again, I find the best advice tends to be the simplest! Sandra Zoratti, VP Marketing of Ricoh Production Print Solutions LLC sumed it up the best when she advised "Start small. Use one brand. But start!"

Because of the volume and depth of the available information, you need to compartmentalize the data, maybe using one brand so that the organization can begin to test the data, develop assumptions, strategies and tactics from the analysis and then execute on those tactics.  

Clearly, as you wander through the various meetings and discussions, similar issues regarding the roles of procurement within the organization still abound. Can procurement and marketing co-exist and share similar objectives? Who should procurement report to and is it wise to have procurement professionals still so focused on cost regarding marketing?

It seems clear to me, that like a great football team, you need many players on the field to all execute their specific jobs within a coordinated ballet among other individuals to pull off a great play. Same within organizations. Procurement professionals need to help the organization look for efficiencies within purchasing habits across brands and business units, however, they need to evolve within the organization so that their business intellect and relationships enable them to help suggest ways to innovate and add value within the marketing world. Both groups need to train off the same playbook to make this happen. 

Lastly, as technology drives change, it seems obvious that the role of the marketing professional within the organization is changing with it. Whether it is data driven analytics that drive decision making or new technologies that continue to change the viewing and spending habits of the consumer, the new world of the marketer is one of dizzying change! In some organizations, the marketing departments are becoming larger spenders on IT than the IT department. Wow! Seems clear to me that there is more than enough here for both procurement and marketing to work together to build the organizations success.

Thanks ANA for another great few days!     

 

Innovation at odds with Procurement?

Innovation at odds with Procurement?

harvard-business-review-ipad-digital-magazine-229x300We recently ran across an article in the Harvard Business Review blog written by Michael Schrage entitled, “Procurement’s Best Priced Deal May Stifle Innovation“. The provocatively titled piece makes an interesting point about the alleged conflict between Procurement’s focus on lowering prices, and the business unit leaders, product managers, and marketers desire for more innovation from their suppliers.

The author claims that seeking out innovative solutions is rarely viewed as a priority by Procurement, who sees their role limited to choosing vendors based on price. Schrage makes the interesting point that in certain cases innovation itself can provide organizations with a greater cost efficiency that simply identifying the cheapest among the standard contenders.

We believe that corporate trade is one such innovation that can add millions of dollars to the bottom line of organizations willing to look at an alternative method of achieving real cost savings. We’ve frequently made the point here that there are only so many tools available to most procurement professionals to achieve greater savings in the direct and indirect goods and services purchased by their organization. You’ve squeezed what you can from price negotiation. Now what? For those organizations who have never taken advantage of corporate trade, this an innovative financial solution that can provide substantial cost savings for virtually any good or service sourced by the organization.

To learn more, download and read our paper entitled, Savings Beyond Price Negotiation.

 

Making it a lot easier for a sponsor to say YES

Making it a lot easier for a sponsor to say YES

The buzz lately in the NBA has been about the league soon allowing corporate sponsors to have a patch on the players' jerseys. The NBA Board of Governors could hold off no longer given the pressure to increase team revenues. It is estimated that the new advertising will raise $100 million.

While advertising on team uniforms is becoming very common in professional sports, some teams haven't been able to reach agreement with potential sponsors due to cost. After all, in a league allowing uniform advertising, if a team has no sponsor patch, it's probably safe to say that the cost is higher than sponsors are willing to pay. There very well may be corporate sponsors interested in the team, just not at the asking price.

This is a perfect scenario for the financial muscle of corporate trade through Evergreen Trading. Just like excess inventory or surplus real estate where there is a gap between the price the seller wants and what the buyer is willing to pay, corporate trade can bridge that gap through the placement of advertising on behalf of the sponsor.

Say the team wants $1MM for the uniform sponsorship and the potential sponsor believes it to be worth – or can only pay – $500,000. Evergreen Trading can pay the additional $500,000 to the team by placing a pre-determined portion of broadcast, print, outdoor, or digital advertising for the sponsor. The advertising placed by Evergreen Trading needs to have nothing to do with the team or the games – just part of the normal advertising being done to promote the sponsor's products or services.

The amount of advertising needing to be placed in order to raise the $500,000 depends upon the type of advertising, rates, schedule, and all the normal market conditions that effect price. But, the advertising placed by Evergreen Trading will be the same as that placed by the sponsor's advertising agency or in-house marketing people without Evergreen Trading. No compromise. No additional fees. The difference is that the agency is unlikely to write a $500,000 check to bridge the gap needed to execute the sponsorship. We will.

In fact, this idea could be taken further to the point of providing a no cost sponsorship for the advertiser. By Evergreen Trading placing additional advertising on behalf of the corporate sponsor, the entire sponsorship cost could be zero. The entire million dollar cost could be paid entirely by Evergreen Trading! How's that for a new twist on financing professional team sponsorships?

The 2012 ANA conference: bigger and better than ever

The 2012 ANA conference: bigger and better than ever

We just returned from a fun and enlightening three days in Boca Raton Florida. The Advertising Financial Management conference of the Association of National Advertisers was an intense immersion into the financial issues of advertising.

There were some terrific speakers like Sir Martin Sorrell, CEO of WPP, who talked about client/agency relations and admonished agencies to be strong junior partners to their clients and to invest in new functional capabilities. 

This was by far the biggest turnout for an ANA conference yet, and points to the increasing role of procurement in marketing. "Marketing is the new Finance" was heard more than once over the three days in which most attendees were there to gain a better understanding of best practices in agency compensation and procurement. The general feeling seemed to be that there may be some improvement in the economy, but clients are still looking to be efficient and smart about spending.

"Finance, metrics, and ROI are really driving the discussion at this conference and around the client conference table", said Evergreen Trading' John Floto. "I think more than ever, Procurement has a seat at the table and a strong voice when it comes to selecting and managing the agency relationship."

Also attending was our Managing Partner, Gordon Zellner who added, "It seems like lots of areas are up for re-interpreting and re-working, especially when it comes to agency compensation. People seem to realize that they must try new approaches in compensation models, working more closely with internal departments, and consider new ways to integrate digital and alternative media buying strategies into the mix."

Not surprising, we had a lot of conversations about how Corporate Trade could be used to drive down costs and create greater media efficiencies. "Procurement can cut costs only so much by adjusting agency compensation and negotiating with media vendors.", stated Gordon. "They need more than just the few points of savings those moves will give them. And I think people have been through the old corporate trade models, so especially with this audience, there is definitely a growing desire to evaluate a new media platform like Evergreen Trading."

Here are a few tweets from the conference that caught our eye:

From Ron Kline
Director of Marketing, Midmarket and Business Partners Organization
IBM Corporation

IBM: 71% of CMOs feel unprepared to manage data explosion; 68% social media; 65% channel and device choices; 63% shifting demographics.

IBM: CMOs have just three or four years to make their mark.

IBM: by 2015, ROI will be the leading measure of success for CMOs, followed by customer experience, new customers, overall sales.

From Kelly Mooney
Chief Executive Officer
Resource Interactive

Mooney: need to develop always-on teams, much like Gatorade's Mission Control, to gather consumer insights that influence the product.

Mooney: everywhere commerce is a digital trend; shopping whenever and wherever, with whatever. Brands can open/close sale in new places.

From Brian Wieser
Senior Analyst
Pivotal Research

Wieser: industry benchmarks should be viewed as reference points; use your own data to benchmark. How are you doing against yourselves?

Wieser: When looking for a new agency, don't base your decision on "lowest price" because, ultimately, you get what you pay for.

Wieser: be leery of media pricing benchmarks and forecasts because they don't really tell you a lot.

From Alan Rutherford
Founding Partner
Axiology (and International Advertising Association Chairman & World President)

Rutherford: all markets moving toward complex/opaque media sophistication.

Rutherford: benchmarking needs to take a back seat to performance optimization.

Rutherford: we need greater transparency between the agency and the holding company.

 

 

 

 

 

VAT: benefiting from Evergreen Trading without needing to advertise

VAT: benefiting from Evergreen Trading without needing to advertise

What do you do if you are a national theme restaurant chain with an overstock of branded mugs, t-shirts, handbags, caps, and souvenirs-all with a cash liquidation value that is painfully low? Trade them all for French fries, of course! That is exactly what a leading theme chain did in order to reap a high value for its excess inventory through Corporate Trade

You probably think of advertising as the primary means for you as a client to utilize corporate trade. You sell an excess inventory or piece of surplus real estate for a price higher than market value, and your payment is advertising. The advertising trade market has been established for decades, and for many other reasons, advertising is an efficient payment in a corporate trade arrangement.

But, what happens if you have excess inventory or a piece of real estate with a depressed market value, and you do not advertise? You'd like to take advantage of Corporate Trade but you lack the means to be paid by the trading company. Or perhaps all of your media for the foreseeable future has been placed or is contractually committed? This was the situation in which the theme restaurant mentioned earlier found itself.

Evergreen Trading can still provide you with the financial benefits of trade through our Vendor Accepted Trade program, or VAT.

Through VAT, you are not placing advertising through us. In return for a much higher price paid by us for your excess inventory or other asset, you are

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