Ad agencies adjust to weak economy

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Countering the down economy and cutbacks in marketing budgets, ad agencies are deploying a variety of tactics to keep their businesses running successfully.

These include downsizing, adding new strategic services, changing compensation plans, restructuring account teams and putting processes in place to make marketing dollars work more efficiently.

RiechesBaird is one b-to-b agency that has completely overhauled its organizational structure and working processes in response to the sluggish economy.

Irvine, Calif.-based RiechesBaird has 44 employees and clients that include Pacific Life & Annuity, Parker Hannifin, Toyota Industrial, Epicor Software and Bosch Home Appliances. It has restructured account teams to provide more efficient service and is pursuing a different compensation strategy for budget-conscious clients.

RiechesBaird eliminated the traditional account executive position and created brand teams made up of a brand leader to work on day-to-day strategy, a brand manager to work on client interactions, and a brand mover to handle trafficking and internal processes. Clients are charged only for the hours that each specific team member puts into their account.

"It allows us to be extremely proactive on behalf of the account," said Ray Baird, president of RiechesBaird.

The agency also is pursuing more cost-saving tactics, such as using more electronic marketing and cutting back on the use of expensive production materials.

For example, for Pacific Life, it created a design standard that was less costly to print, replacing the client’s in-house, seven-color collateral process with a four-color approach.

It’s also using e-mail newsletters for clients, working with smaller focus groups and helping its clients revamp their internal processes.

"In today’s marketplace, it’s not enough to be an advertising agency. You have to be a lot more strategic," Baird said.

The economy is having another impact on agencies: It’s putting new entrants into the market. A study released last month by Jupiter Media Metrix Inc. found that media companies are trying to extract additional fees for creative services, putting even more pressure on agencies to excel.

Marissa Gluck, senior analyst at Jupiter and lead author on the report, pointed to Yahoo!, Microsoft Corp.’s MSN and New York Times Digital as examples of publishers that are expanding their creative services for clients.

"Most major publishers had creative services in house, but they were not that aggressive about going to clients directly," Gluck said.

Now, however, the economy is forcing them to be more aggressive in offering to create or help create ads for clients in order to drive additional revenue.

Sideways advertising

New York Times Digital, for example, in January worked with British Airways to help develop a new ad format that showed up sideways on the top of its Web page to promote the airline’s "Fly Flat" campaign. The ad was created by i-traffic Inc., New York, but New York Times Digital consulted with the agency and advertiser to develop the innovative format.

"We are always open to new ideas to work with agencies and clients," a New York Times Digital spokesperson said.

CNet Networks Inc. is another media company offering more creative services to clients. It launched a new online ad format, which quickly became known as "the CNet" ad, and worked with advertisers such as Oracle Corp. to create new uses of online advertising.

"Not having our own creative is part of what led us to the Lot21 acquisition," said Sarah Fay, president of Carat Interactive, a media-buying agency that acquired online ad agency Lot21 and relationship marketing firm Vizium in January.

"Reduced budget dollars are being treated more preciously on the client side," she said. "They’re much more interested in not only placing advertising online but in all the things they can do to maximize marketing on the Web."

Through its recent acquisitions, Carat is now offering online media buying, online creative development, e-mail marketing and other interactive marketing programs. It’s emphasizing performance-based pricing, including affiliate marketing programs and transaction deals through partners such as Be Free Inc. and Commission Junction Inc.

The new services are helping the agency win new business. One new client is Radio Shack, which signed up right after the Vizium acquisition, Fay said.

Most agencies shrinking

But Carat is one of the few agencies in expansion mode. Most agencies are downsizing and streamlining their services., one of the first online ad agencies, has cut its staff in half since December 2000. The downsizing took place in several phases, and the agency now has about 700 employees. In addition to downsizing, is cutting back some of the services it offers.

"We have made a clear distinction between infrastructure-based, supply-side consulting and external demand-side consulting," said Chan Suh, chairman-CEO of For example, he said, "We would not be doing ERP [enterprise resource planning] implementations, but we would do customer databases."

In addition to developing technology solutions, provides interactive marketing and advertising, customer relationship management and e-business services. But gone are the days of trying to do everything, Suh said.

"In many ways, people go back to their DNA [in tough economic times]," he said. "Companies like Sapient are going back to systems integration type of work, and we’re going back to marketing."

Besides narrowing the focus of its services, is cutting costs by decentralizing. In the past year, it has eliminated about 70% of its central services, including central marketing and central finance services, and has replaced regional presidents with client teams, Suh said.

Scaling back to concentrate on marketing basics and operating more efficiently are the themes most widely expressed at agencies of all types as they ride out the recession.

"Clearly, an already tough environment has become much tougher," said Brad Brinegar, president-CEO of McKinney & Silver, Raleigh, N.C. "Every time the economy clamps down and business becomes tougher, it places demands [on agencies] and filters down. There’s no question that every day, accountability grows, focus on ROI grows, and the need to move the organization behind the challenges grows."

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