Introduction
Organizations require services that they do not offer and therefore, they have to purchase those services from third parties. These services fall under two major categories, which include generics and professional services. Unlike generics, which are low cost and low risk services, professional services are high-risk services and for this reason, they have the potential for purchasing to add value.
Advertisement is one of the most significant services that every organization has to buy. According to researches, the firm’s top management in conjunction with marketing / advertising with little involvement from purchasing makes key decisions regarding the hiring, monitoring and firing of agencies.
This paper focuses advertising agencies with the aim of highlighting the fundamental aspects of purchasing professional services as opposed to purchasing of goods.
Professional services
Purchasing professional services differ from purchasing goods in a number of ways. One of the most common assumptions of these services is that they are intangible. This is because they are actions and no one can see, feel, taste, inspect, or touch them in the same manner as goods.
The other characteristic is that they are inseparable from production and consumption and therefore the buyer has a direct contact with the production process.
Thirdly, these services are heterogeneous meaning that quality may vary on a day-to-day, customer-by-customer basis and lastly is the fact that the services are perishable since these services cannot be stored or saved.
Another important consideration when purchasing professional services is evaluation. A modified industrial product paradigm may classify services into three categories, which include; easy to valuate, intermediate to evaluate and difficult to evaluate.
In the desire to compensate for the high risk involved in these purchases, corporate buyers often seek the endorsements of peers and positive word-of-mouth (WOM). The reliability of WOM depends on the theory of perceived risks.
Advertisement agencies
These corporations generate communication ideas and plans, and implement them. They include advertisement and communication agencies and associated companies like creative, media, public relations agencies, and direct marketing.
The following model explains the potential role of purchasing in the agency-client relationship. The model consists of the five roles of “user,” “buyer,” “influencer,” “decider,” and “gatekeeper”. Users are people who use the services of an agency on a regular basis.
The influencer on the other hand is the person who influences the selection process while the buyer is the individual authorized to negotiate with the agency. Deciders are the individuals who determine and finally approve the final selection of the agency while the gatekeepers are individuals who regulate the flow of information regarding the selection of agency.
Criteria for choosing Agencies
The criteria for choosing advertising agencies vary from one organization to another. However, there are three major criteria used in making this choice namely; the quality of people assigned to the account; complete agreement between the agency and client on goals and objectives and the need for agency personnel to learn the characteristics of the client business.
The first consideration in making this choice is the type of agency-client relationship the management team aspires to have, whether long term or short-term. Short-term relationships are majorly project-based and rarely last much longer than the specific problem at hand.
The other characteristic feature of these relationships is that the clients generally have relatively small advertising budgets. Once the agency has offered and implemented a solution, the relationship no longer continues. The long-term relationship (collaborative relationship), unlike the short term ones continue averagely for even over a period of seven years.
Purchasing a service
Purchasing services is different from purchasing goods in a numbers of ways. First, services are more difficult to evaluate than goods. Often, services have objective standards that service suppliers cannot offer. The second difficult arises from the fact that suppliers of professional services are often reluctant to provide benchmarks for testing.
Another problem is that matching payments to the service provided is imprecise since mediocre or poor services are difficult to evaluate unlike the excellent services, which are easy to monitor. Furthermore, unlike goods, which are returnable if the fail to perform, services, are not returnable. Finally, poor services, unlike goods, which are easily noticeable, may be undetected for a long period.
These differences bring up new considerations when purchasing professional services. One consideration that is uncommon for the purchase of goods but fundamental when purchasing professional services is the reputation of the supplier.
This therefore bring highlights the role of peers in recommending agencies that provide these services. Some of the key purchasing criteria are references, experience, examples of work, current clients, equipment used, and price. By comparison, the key purchasing criteria for goods were price, investment recovery, quality, and reputation.
Many professional services have a measurable performance outcome. This is unlike advertising, which has no such measureable performance outcomes and thus it is more difficult to evaluate. Even though it is possible for purchasing to evaluate budgeted cost versus actual cost and to analyze cost-benefit ratios associated with these services, it is hard to evaluate their effectiveness.
Agency selection
The process of selecting advertisement agencies is the responsibility of the purchasing/ marketing and the top management. While Technical efficiency should be the main issue for purchasing managers, effectiveness should be the main issue for top management and marketing/advertising.
This is a three-stage process. The first stage is the search stage. In this stage, the managers evaluate the market and the current agency relationships comparing them with others. Another task in this stage is to determine a best procurement policy and the establishing selection criteria.
The second stage is the alternative evaluation stage in which the managers write and issue the advertisement brief, and assess the advertisement proposal and presentation. Purchasing main contribution should be the establishment of guidelines for commercial arrangements.
Other tasks like risk assessment for each agency dominate this stage. The final stage is the selection of the agency. At this stage, it is the role of the purchasing to negotiate a contract and the terms of payment.
Some of the factors that affect the purchasing involvement with agency suppliers include trust, commercial efficiency, knowledge and experience of advertising and project or collaborative relationship.
Conclusion
The intangibility of professional services brings a considerable difference between the purchase of these services and the purchase of goods. More specifically on purchasing advertisement services, the purchasing should play a more commercial role while the top management and the marketing should play the role of ensuring effectiveness.
The decision of which agency should be as a result of consultation between the marketing and the purchasing since such consultations yield more concise goals, added value, improved commercial and cost efficiency, and the ability to negotiate thorny contractual matters. However, the purchasing plays a facilitating role when it comes to agency relationships.