I can’t say I’m a fan of procurement.
I recognize that every company wants value in its purchases. Yet, procurement’s behavior often reflects a singular mission: secure the cheapest price point possible. I also find that procurement often takes the same approach to selecting PR services as pitting Walmart against Costco in buying soda pop.
As a public service to procurement, I offer the following chart as a starting point to figure out how much weight to put on pricing.
If a product or service involves high-variable execution and the stakes are high, pricing should be a secondary consideration, not THE primary consideration.
Collecting RFPs for heart surgery and selecting the low-cost bidder is a sure-fire way to end up with a bad connection to the left ventricle. At the other end of the spectrum, only a few variables go into the soft-serve yogurt experience. The mixture goes into the machines. The chirpy server fills the cup, and voila! If I don’t like the new pom berry yogurt, I toss it.
I think most people would agree that the stakes are high for communications. An organization might allocate $100K, $500K or even $1M plus for a campaign that shapes how people are going to perceive the company/brand, which in turn impacts the buying decision.
The disconnect comes from some organizations believing that communications involves a low variable or simple execution; thus, they commoditize communications consultancies. It doesn’t really matter which one they choose, the thinking goes. They all essentially do the same things and will generate the same results. So these organizations use price as the primary driver in selecting a PR company.
I bring this up because a high-profile organization that will remain anonymous — those pesky non-disclosure agreements — issued an RFP in 2015 with the following evaluation process.
Basing 30 percent of the decision on price, the organization sent a message that price, though a consideration, would not be the most important consideration. Instead, they wanted to hire a communications consultancy that would bring critical thinking and creativity to the table. They wanted to hire a consultancy that would help them win in the market.
But the next time the same organization conducted a PR agency review, the focus had shifted to finding the cheapest “supplier.”
Obviously, the organization’s philosophy changed two years later. By basing a staggering 60 percent of the decision on price, the organization is now telling the world that they’re going to select the low-cost provider.
I’m tempted to say this is crazy, but that would be unfair. Acting in its best interest, the organization believes that a commoditized communications program (low variable) will serve its purpose. Or they believe that they can squeeze high variable execution (complex) out of its chosen agency for a commodity price.
Consultancies must bear some responsibility for this unpleasant dynamic. Some implement check-the-box campaigns which fit under the commodity umbrella. Others devalue their services by accepting 70 cents or so on each dollar of work.
I suppose one could argue that that’s the beauty of capitalism, a place for all types. I just wouldn’t want this particular organization selecting my heart surgeon.
Side note: A version of this post appeared on Oct. 3, 2017