As the procurement function has grown and matured, its scope and influence in buying decisions has increased. This means that procurement is moving into new areas of spend that they traditionally had not played a big role in. These include intangibles and services such as legal services, temporary labor and marketing services. Marketing services in particular is a big area of focus for many procurement organizations. This is because it’s a big category of spend for many businesses, it’s often very fragmented, and there’s lots of leverage with suppliers.
This usually spells bad news for suppliers of marketing services. Sales teams are often not prepared to deal with a professional buying organization with the skills, process and influence to make a big impact. Unfortunately, this usually means lower prices and margins for unprepared suppliers. In a recent webcast on marketing services procurement, there were over 1000 buyers and marketers participating. The best practice companies talked of routinely saving 20% or more on marketing services. Of course the 20% savings can translates into approximately 20% price reduction for suppliers. That’s a huge hit to margins. So, what can suppliers do? There are some simple steps to take:
(1) Develop a basic understanding of the value you provide to customers. This entails moving from feature based selling to benefit and value based communications. Quantify the value in financial terms to the customer.
(2) Look at your offering and find ways to unbundle it if possible. Are there parts of the offering that cost a lot to provide? Does the value vary across components of the offering? If so there’s a possible opportunity.
(3) Prepare the sales team to negotiate better with procurement. This means understanding the procurement process as well as the tricks, techniques and strategies procurement uses.
(4) Give the sales team some standard give-gets. In other words, when pressed for lower prices, what are the standard items the sales team can take out of the offer and lower the price. It’s about getting to a “yes, if” stance with procurement. Yes, I’ll lower the price, if you agree to…..
(5) And of course, always qualify the opportunity and situation. Marketing folks use to run for the hills when they saw procurement coming. This is changing for many companies. In fact, I worked in a procurement organization where many of the procurement folks were much better business people than the marketers they were supporting. So, the procurement folks had a lot of respect and influence on buying decisions. One thing to look carefully for is how aligned are the marketing and procurement folks you’re selling to. If they seem highly aligned, get ready!
Although the great recession has ended, the impact to many sales teams is still being felt. This is because the recession helped usher in a new era of the economic buyer that is here to stay. In fact, a survey of chief procurement officers showed that 60 percent believe that procurement has emerged as the winner from the global recession. Don’t let your sales team and margins be the losers – be prepared.