Why PepsiCo scrapping procurement marketing is sign of the ‘customer-centric’ times for marketers

PepsiCo’s decision to axe its procurement marketing team is emblematic of marketing’s status within business slowly shifting from being seen as a cost to being used as a growth driver.

Number crunching will now be done by the snacks brand’s marketers, who will be able to refer to a procurement manual should they need to.

And while champagne corks are likely flying across the rooms of PepsiCo’s agencies following the announcement, it doesn’t mean budgets will now flow readily into campaigns. Rather, it will bring the two opposing forces of marketing and procurement together in a way that ensures investments are steered by financially adept senior marketers rather than finance directors. Procurement isn’t normally responsible for the customer but PepsiCo’s claim that the move will make it more “efficient” and “effective” suggests a more considered approach to doing just that.

“It doesn’t make any commercial or logical sense holding procurement outside the marketing function,” said Richard Robinson, managing partner at Oystercatchers. “I think this is executives at board level looking at the chief marketing officer and asking ‘what do you need to be in charge of if you’re really going to be responsible for the customer?’.”

A glance at the latest quarterly results for any of the top consumer goods companies will reveal how hard growth is to come by now. It’s led to a reappraisal of the role of marketing in recent years, with the likes of McDonald’s and Tesco elevating marketers to the summit of their organisations in order to grow, rather than just talk to, their existing customer base. In 2011, just 14 per cent of FTSE 100 bosses were marketers and in 2014 this figure jumped to 21 per cent, according to a study by Spencer Stuart. On the flip side, 53 per cent of chief executives came from a finance background in 2011, and this dropped to 32 per cent over the next three years.

But marketing procurement professionals shouldn’t panic, claimed Steve Lightfoot, global communications procurement manager at the World Federation of Advertisers (WFA).

“We’re not seeing scrapping of the function as a broader trend, and what’s more, across the 80 different global sourcing teams in WFA’s membership we are in fact seeing record highs in terms of clients recruiting for additional sourcing talent and growing their marketing procurement team. A conservative estimate would be that more than 30 per cent of our members are looking for new people right now. So you could say that this is the exception that proves the rule,” he added.

“Forgetting costs for a moment, marketing sourcing’s job is most commonly to manage the agency governance process (from pitching through selection to performance assessment and remuneration). When we have looked at the future of marketing procurement, one emerging trend is that some marketing procurement teams are restructuring their reporting lines to report in to marketing (the CMO) instead of the head of indirect procurement (or CPO).”

After the financial crisis, businesses became more cost-focused and consequently marketers were viewed as not financially adept enough and were given permission to delegate commercial and financial responsibility to procurement managers. It’s a widespread issue across ad land, with everyone from WPP’s Sir Martin Sorrell to Deutsche Telekom debating the implications of having marketers not in control of what they spend – a debate akin to those had four years ago on whether digital expertise should be a separate function or not. Today, the idea of a large business without a digital view of things isn’t profitable and, importantly, isn’t reflective of how people behave. It’s what is happening with PepsiCo’s marketing procurement now.

Advertising experts have taken to Twitter to hail the company’s move, although it’s one that isn’t as new as it first seems. Procter & Gamble has been practically doing this for more than a decade through its patented ‘Brand Building and Integrated Communications’ model, albeit under the radar.

"After Unilever's decision to abandon quarterly reporting in 2011, it is another example of a leading brand owner thinking innovatively about this issue of how to balance short-term cost management with longer-term value creation,” said Tom Lewis, finance director at the Institute of Practitioners in Advertising (IPA), which has been working with its members to align marketing and procurement.

“It also places greater focus on maximising return on marketing investment in both the short and the longer term, an area that the IPA has championed with its Effectiveness Awards and Commercial Certificate training,” added Lewis.

The immediate response from advertising experts to PepsiCo’s move is positive, the rationale being that when procurement and marketing align their objectives and work closely together, it’s proven to be a win-win for the business, and closer alignment of KPIs between these two functions will help get the most of out of a brand’s external partners.