While about half of firms outsource work to more than five external providers, including agencies, data brokers, database management firms, analytics firms and fulfillment vendors, working with so many service providers presents marketers with many challenges.
That was a key finding in a recent report titled “The Direct Marketing Services Ecosystem,” written by Dave Frankland, a senior analyst at Forrester Research in Cambridge, MA.
“Most marketers who outsource tasks to support their direct marketing efforts work with several service providers,” Mr. Frankland wrote in the report. “Unfortunately for marketers, there are a multitude of vendor options across many overlapping submarkets. The result? Confusion, frustration and missed expectations as marketers struggle to identify their outsourcing options.”
As providers expand their menu of services, the lines between provider capabilities are blurring, forcing marketers to dig beneath sales pitches and promises to identify best-of-breed providers, Mr. Frankland said.
“Marketers tell us that they struggle to differentiate providers’ offerings,” he said. “The head of marketing operations at a pharmaceutical company told us: ‘We invest heavily in vendor selection because we entrust a lot to our partners. My role in choosing the right partner is more valuable to my company than what I do on a daily basis.'”
Another challenge is managing activities across potential competitors.
“Working with multiple providers means that marketing must play the general contractor role and own coordination between the mix of players,” Mr. Frankland said. “The more providers in the picture, the more complex the coordination task, and we hear from many marketers that they must often be the referees in turf wars between providers. According to a senior marketing executive at a leading consumer packaged goods firm, ‘It has taken us two years to get all of our providers to play nice in the sandbox. I’ve spent an unbelievable amount of time in meetings, but we now have very collaborative relationships with and between our providers.'”
Mr. Frankland said another challenge is maintaining satisfactory service levels.
“While many marketers would like to consolidate to fewer vendors, they hesitate to expand their relationships with existing providers,” Mr. Frankland said. “Why? Because many believe that doing so will be a distraction for the vendor and dilute the quality of their service. The head of customer marketing at a leading multichannel retailer explained: ‘I work with best-of-breed providers because I haven’t found a vendor that is good at two things. I would much rather see quality service in the area that I hired them for than a sales pitch for additional services.'”
Mr. Frankland also highlighted the six fragmented submarkets that exist in the vendor ecosystem. They are strategy consultants, direct marketing agencies, database marketing service providers, list and data providers, analytics service providers and production and fulfillment vendors.
“Although direct agencies and database marketing service providers have the broadest service offering overall, a one-stop shop that offers best-of-breed services across every step of the direct marketing process simply doesn’t exist,” Mr. Frankland said.
To determine the right mix of providers, he said marketers should consider three outsourcing alternatives and mix and match models as appropriate.
The three alternative models are:
Best-of-breed point solutions. “Marketers are attracted to this model by the quality of offering and enjoy direct control over the services,” Mr. Frankland said. He said preferred vendor managers should have strong project-management backgrounds as well as specific channel knowledge.
Multifunctional solutions. “Marketers who outsource to multifunctional providers seek cost savings and fewer management points of contact but still wish to own each relationship directly,” Mr. Frankland said. “Where’s the rub? It’s hard to be best-of-breed across the board, so marketers who work with multifunction solution providers are usually required to compromise on less competitive offerings in non-core service areas.”
General contractors. “Subcontracting services – especially those described as “commodity” and “less strategic” – is an attractive proposition for marketers,” Mr. Frankland said. “They can dramatically reduce the strain on internal resources and potentially obtain point-provider expertise from each provider. The downside? Marketers must be willing to pay for the privilege and be willing to give up control over relationships.”
“Finally,” Mr. Frankland said, “there are pros and cons to each outsourcing model and marketers must make tradeoffs no matter which model alternatives they choose.”