The relationship between procurement and marketing is essential

Tarek Alaruri
COO & Co-Founder
Fairmarkit
5-minute read

The 2008 financial crisis, Brexit, and the resulting shifts in the global marketplace have forced businesses to take drastic measures to stay afloat. In an effort to cut costs by optimizing expenses and reporting, companies have placed their biggest-spending departments – usually marketing – under extra scrutiny.

At the same time, due to their focus on delivering value at minimum cost, the procurement departments have become an invaluable asset to the success of most companies. It is thus no surprise that many CPOs and CMOs have found themselves working together, coordinating their respective departments to cut expenses and work toward the wellbeing of the entire business.

The state of marketing

Although the media landscape has changed dramatically in the last two decades, the role of marketing is as important as ever. However, adapting to the new digital world has proven difficult for most CMOs, as confirmed by a 2013 European survey conducted by the London-based Charterhouse.

The results showed that, on average, some of the largest European companies didn’t measure 124 million euros of marketing spend. In addition, only every fourth euro (approximately 27%) spent on marketing could be measured in terms of return on investment (ROI). Simply put, this meant that more than 70% of the total marketing spend was wasted. All of this because the CMOs were too eager to take advantage of the new platforms with no regards to the amount of money spent and what to expect in return.

After careful research and analyses, businesses realized that this had a lot to do with the outdated marketing procurement model that was still very much the norm. They reacted by deciding to cut out the middleman – in this case advertising agencies – and move marketing procurement in-house. Of course, they need full cooperation between the CPOs and CMOs for this new strategy to work.

Why the CMO and the CPO need to work together

By working together, the CMO and the CPO can help develop strategies to measure the exact return on marketing investment, commonly referred to as ROMI. There are many metrics they can use, including market share, percentage of qualified leads, customer loyalty, brand recognition and awareness, as well as the number of website visitors and leads if their business has an online component.

Individually, these metrics only reveal a small part of the picture. However, bringing them together and comparing them gives the CMO and the CPO a better understanding of how a certain marketing initiative affects the revenue. This, in turn, allows them to focus investments on those initiatives that bring results, which has the effect of making their entire marketing operation a lot more cost-effective.

Not all businesses have managed to turn this model into a success. In 2015, PepsiCo decided to cut its marketing procurement department completely, leaving its brands in charge of negotiating with external ad agencies. On the other hand, many companies in finance, consumer goods, and telecommunication have seen great results from their CMOs and CPOs’ coordinated efforts. Earlier this year, the automotive giant Toyota also decided to move marketing procurement in-house in order to save money for research.

Major media outlets have also gotten winds of the recent developments and decided to jump on board. Just over a month ago, Amazon Advertising decided to cut out ad agencies and work directly with brands and their marketing procurement departments. It shouldn’t surprise anyone if other media outlets join this initiative. After all, by cutting out the middleman, they only have to share the cake in two, which should result in higher ad revenues.

The final word

For the procurement marketing model to truly succeed, the CPO and the CMO need to work closely together. They need to develop strategies to maximize the impact of their marketing efforts in today’s digital world. At the same time, they need to find ways to evaluate the success of marketing initiatives based on several key metrics and track their spending to ensure optimal efficiency at a minimal cost.

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