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New Ballgame
Promotion's enhanced status drives agency revenues up 20 percent.
The momentum continues.
The dot-com crash and an impending economic slowdown did little to hinder
growth among promotion marketing agencies, which posted a 20-percent gain
in net revenues to $2.6 billion in 2000, according to promo estimates.
[Editor’s Note: In a change from past annual reports, this year’s revenue
estimate was determined using information from 115 agencies in a survey
conducted by promo and the Promotion Marketing Association in January 2001.
Past revenue estimates based on the promo 100, which ranks agencies on financial
performance, tended to inflate yearly growth estimates.]
The growth is being fueled by a continued drive toward more effective, more
measurable, more interactive forms of marketing than the passive, image-focused
media advertising that has always dominated budgets. The catalyst of that
migration is two-fold: on one hand, product and service companies are looking
for better ways to not only reach customers, but to get them to respond
in a variety of ways; on the other hand, technological advancements such
as the Internet and interactive TV are giving control of media to customers
and practically forcing brands to incorporate response-driving messages
into advertising.
In the aforementioned survey, nearly one-third of brand marketers said that
promotion was the core component of their marketing plan, while 51 percent
said it was an important part of their integrated plans; less than 14 percent
said they used promotion as a stand-alone component of the mix. This elevated
status has brought more competition, as everyone from ad agencies on one
end and tactical suppliers on the other vie to become strategic promotional
partners for clients. In the survey, 94 percent of supplier companies said
they are at least sometimes involved in the promotion-planning process.
Unlike the last few years, when widespread industry growth gave a boost
to the majority of promotion agencies, last year’s gains did not benefit
all. In fact, 38 percent of surveyed agencies said revenues stayed the same
or decreased in 2000.
And it wasn’t just large companies that benefited. For every Interpublic
(which now holds more than $1.3 billion in promotion revenues) or Aspen
Marketing ($250-plus million) leveraging promotion’s rising status, a handful
of small shops have emerged to win business with creativity and hunger.
M & A
On the big side, Interpublic retained its status as the largest of the industry
consolidators this spring by acquiring True North Communications — which
itself had been gobbling up shops for its Marketing Drive Worldwide operation.
Two-year-old consolidator Lighthouse Global Network ($159 million), Chicago,
got an offer it couldn’t refuse from Cordiant Communications last summer,
although Lighthouse principal Terence Graunke was back on the acquisition
hunt by fall after buying DVC Group. Aspen, which has pooled 15 agencies
since launching in 1997, is now entertaining offers. “The wave of consolidation
is hard to ignore,” says Aspen ceo Neal Vitale.
Such networks do have their advantages. Although the official word was “merely
coincidence,” Burger King selected Chicago-based DraftWorldwide as promo
agency of record in January largely because it was part of the Interpublic
Group, which had just won the QSR’s two ad accounts. Dallas-based TLP, Inc.
earlier this year joined with BBDO Chicago, a sister in the Omnicom family,
to develop the first “fully integrated” marketing campaign undertaken by
Wm. Wrigley. Jr. Co.
The industry isn’t completely devoid of Davids, though. America Online,
whose recent merger with Time Warner makes it one of the biggest companies
in the world, recently signed one-year-old San Francisco shop Seismicom
as AOR.
The consolidation wave is far from over. Promotional products supplier Ha-Lo
Industries, which itself had sought to become a “full-service” marketing
partner, in early April was reportedly days away from announcing the sale
of Chicago-based Upshot. Wall Street woes at Cyrk, Inc. could bring a new
owner for its Los Angeles-based Simon Marketing unit. And at least three
other shops in the 2000 promo 100 are currently in play, according to principals
who spoke off-the-record with promo.
“The big just seem to be getting bigger,” says Mark Shevitz, ceo of still-independent
SJI, Inc., St. Louis, which uses its in-house fulfillment operation as a
point of difference from the networks. (There’s that “full-service” strategy
again.) “We’re going after the same [business] that the big boys are, but
we may have to settle for the truffle.”
There still seems to be plenty of snacks to go around.
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