BuyerThumb BuyerThumb BuyerThumb BuyerThumb BuyerThumb   Search INNOVO Blog

Buyers Pay Their Suppliers for Marketing Arms Race with 99.2% Waste

Author: Martin Kelly, CEO INNOVO

Commerce has traditionally been driven by 'Supplier push' marketing. Not only is this hugely wasteful, it generates other substantial hidden costs. As Buyers, we pay for all this waste in Supplier prices. It's time that Buyer demand should drive commerce instead of Supplier push. Collectively, as Buyers, we should drive Lean Commerce and share in the savings that arise.

We should replace traditional “Supply and Demand” with Buyer-driven “DEMAND then Supply”.

Supplier Waste is Much Worse than We Expect

Supplier push marketing has 3 implicit major cost areas which are surprisingly large. One of these is hidden and the third area is deeply hidden:

 1.    The Suppliers’ Marketing Arms Race – Financed by Buyers

According to an Economist[i] article “Advalanche” in March 2017, global advertising has increased by 47% from $350bn in 2008 to $515bn in 2016.Digital advertising[ii] has increased by 69% in 4 years to $178bn in 2016.

Digital advertising[ii] has increased by 69% in 4 years to $178bn in 2016.In 2016, 63% of B2B companies declared[iii] that they were increasing their marketing budgets. Over a third said their 2016 budget was increasing by more than 20% over the previous year.

In 2016, 63% of B2B companies declared[iii] that they were increasing their marketing budgets. Over a third said their 2016 budget was increasing by more than 20% over the previous year. As Buyers, we pay for our Suppliers’ advertising costs but for what benefit?

As Buyers, we pay for our Suppliers’ advertising costs but for what benefit?Salesforce.com published research[iv] showing only 0.8% of target customers approached actually convert to a sale. Suppliers have to approach 100 targets to get 1 customer. A process which is therefore 99.2% wasteful. Of course, Suppliers need to acquire new customers but why does it have to be so wasteful? It turns out that we, as Buyers, can now collectively really help Suppliers to reduce this waste and share in the savings.

Salesforce.com published research[iv] showing only 0.8% of target customers approached actually convert to a sale. Suppliers have to approach 100 targets to get 1 customer. A process which is therefore 99.2% wasteful. Of course, Suppliers need to acquire new customers but why does it have to be so wasteful? It turns out that we, as Buyers, can now collectively really help Suppliers to reduce this waste and share in the savings.Customer acquisition costs vary from company to company but typically range between 5% and 20% of the selling price. It is particularly unfair that even our existing Suppliers nearly always include customer acquisition costs in their prices to us. As Buyers, we receive no direct benefit from this

Customer acquisition costs vary from company to company but typically range between 5% and 20% of the selling price. It is particularly unfair that even our existing Suppliers nearly always include customer acquisition costs in their prices to us. As Buyers, we receive no direct benefit from this high-cost input.

2.    The Hidden Cost of Unsold Spare Capacity

Expensive customer acquisition costs then leave Suppliers with unsold wasted spare capacity. Not only does this represent lost profit, it means that their existing customers pay a higher share of fixed costs than if all the capacity was sold. The data below comes from the Economist[v] and other business sources:

% Capacity Unsold – Industry Average

Telecoms: 20 – 40%    Logistics: 25 – 28%    Paper: 16%    Automotive: 25%    Software: 80%+     Shipping: 15 – 40%    

Cement: 35%    Steel: 29%    Aluminium: 24%   Professional Services*: 20 – 30% (incl. subcontractors)

 The lost profit for Suppliers on unsold wasted spare capacity typically ranges between 10% and 30% of profit

3.    Deeper Hidden Costs at Suppliers

It follows that the Supplier itself is also paying for the wasted marketing costs and unsold wasted spare capacity at all of its own Suppliers. The vast majority of Suppliers are completely unaware of these wasted marketing and capacity costs down their own supply chains. We are only one customer of the Supplier, but these wasted costs extend across all of its own Suppliers.

The Simple Reason Why Supplier Push Marketing is so Wasteful

The single, simple root cause of all this waste from Supplier push marketing is:

The Supplier does not know when a target new customer is ready to buy ….

…. so it keeps bombarding it with sales and marketing approaches.

 This leads to three substantial areas of waste at the Supplier:

1.    The Supplier has to repeatedly bombard each target new customer until it is ready to buy.

2.    The Supplier is left with the unsold wasted spare capacity which is too expensive to sell.

3.    The Supplier has to pay these wasted marketing and capacity costs at all of its own Suppliers.We should drive Buyer demand instead of continuing to be on the receiving end of Supplier push marketing with all its substantial wasted costs.

Buyer-Driven Demand

As Buyers, we should drive Buyer demand instead of continuing to be on the receiving end of Supplier push marketing with all its substantial wasted costs.

1.    We should collectively let Suppliers know when we are ready to buy.

2.    They save their wasted marketing costs and profitably sell their spare capacity to new customers.

3.    In return for us enabling this, they share their savings with us.

Buyer-driven demand yields ‘Lean Commerce’ without the waste associated with Supplier push marketing.

Working together as Buyers, we can now help Suppliers eliminate this waste and share in the savings that arise. This replaces traditional “Supply and Demand” with Buyer-driven “DEMAND then Supply”.

As procurement leaders, we should initiate commerce.

 

[i] “Advalanche” article in the Economist, March 30th, 2017

[ii] https://www.emarketer.com/Article/Global-Ad-Spending-Growth-Double-This-Year/1010997

[iii] DemandGen Report www.demandgenreport.com

[iv] https://www.salesforce.com/blog/2014/11/b2b-sales-benchmark-research-finds-some-pipeline-surprises-infographic-gp.html

[v] www.economist.com – various articles

 

Add comment


Security code
Refresh

Contact us

Contact Technical Support

Full Contact Directory


Location:

New Bridge Street House

30-34 New Bridge Street

London, EC4V 6BJ

(near Blackfriars tube station)

 

 Search INNOVO