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Consolidation threatens marketing services shops

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They've streamlined their media and creative agency rosters. Now a growing number of marketers are eyeing their below-the-line shops.

As the $271 billion marketing-services business becomes even bigger in this age of accountability, marketers are hoping to cut costs and drive more effective programs by condensing phone-book-size directories of direct, promotion and other service shops down to little black books. Motorola, conducting an interactive-and relationship-marketing review, joins a fast-lengthening list including Microsoft Corp., Schering-Plough Corp., AutoNation, IBM Corp., Royal Philips Electronics and Pfizer that have consolidated marketing-services accounts in one way or another.

"This is a clear trend," said Carla Hendra, president-North America for WPP Group's OgilvyOne Worldwide. "It's been building up a head of steam."

The rationalization reflects the growing importance of marketing services such as direct as companies try to reach consumers through more targeted approaches. As marketers move more money to direct and other non-advertising channels, they're paying closer attention to their return on investment and the quality of their partners.

And as a result, it's moving up the food chain: Top marketing executives are no longer delegating below-the-line work to subordinates or regional offices. Procurement officers are looking for efficiencies here as they have in other agency relationships.

"Marketing services now have to answer to the CFO," said search consultant Jane Bedford, who has worked on marketing-services reviews. "They've had to start quantifying what they're getting for the money they spend across all disciplines."

Billions of dollars are potentially at stake. Not only will spending on marketing services in the U.S.- b-to-b, Yellow Pages, interactive, telemarketing, direct mail, promotions and public relations-hit $271 billion this year, up 15% from 2000, according to figures from Publicis Groupe's Zenith Optimedia; by 2007, the total will soar to $298 billion.

Not all marketers will consolidate rosters-some will want to keep their business spread among a group and others won't be able to force changes through. And no one expects marketers to immediately move everything to one firm; more likely they'll move in steps. Still, it's something that big national players and multinational corporations are expected to look at if they haven't already.

At a global level, the big holding companies that have spent hundreds of millions buying specialty shops to add infrastructure will square off against each other. Daniel Morel, CEO of WPP Group's Wunderman, New York, said agencies need a presence in dozens of countries to take on large global clients. "If you're not in that ballpark, I don't know how you're going to be able to service them."

Microsoft fired the shot heard 'round the world in February 2004 when it parked its more than $400 million global customer-relationship-marketing account with two agencies, Wunderman and Interpublic Group of Cos.' MRM. Previously the work was spread among thousands of firms around the world. Microsoft is "a bellwether brand," said Tony Weisman, chief marketing officer for Interpublic's Draft, Chicago. "People pay a lot of attention to what they do."

IBM consolidates direct

The list has been growing. IBM Corp. consolidated its direct marketing with OgilvyOne virtually simultaneously with Microsoft's move (IBM also had worked with Wunderman, a conflict with Microsoft).

Streamlining the roster "ensures a consistent implementation of overall strategy, message architecture and creative look and feel," said Veronika Teufel, VP-worldwide demand generation for IBM. "It pays off for the client to invest in high-level agency skills, which might not be affordable if you work with many agencies at the same time." She added, though, that roster rationalization needs to represent a commitment to a strategic long-term partnership. It can't be done as a short-term savings move.

Indeed, the consolidation trend is about improving effectiveness as well as cutting costs, agency executives and industry observers said.

"I am absolutely seeing those conversations happen more as a consequence of marketers looking to strengthen their overall holistic solutions," said Nick Brien, CEO of Publicis' Arc Worldwide, Chicago.

James B. Arndorfer is a reporter for Advertising Age, a sibling publication of BtoB. Advertising Age reporter Matthew Creamer contributed to this report.

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