16th Annual Integrated Agencies

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Reeling from the post-9/11 economic doldrums and downward pressure spinning off from the dot-com collapse, integrated agencies-comprising direct marketing, sales promotion and interactive disciplines-dropped 3.5% in U.S. revenue to $5.31 billion in 2002, according to the 16th annual Advertising Age Integrated Agency survey.

Of the total, direct marketing was both volume leader and best performer at $2.5 billion in revenue, down 1.8%, and sales promotion hit $1.55 billion, down 2.2%, but interactive, at $1.26 billion in revenue, offered the biggest negative influence. It was off 8.2% from 2001.

Although spam and ad clutter continue to affect integrated marketers in the interactive medium, other factors appear to be holding the lid on interactive revenue. "E-mail is selling for a fraction of its former price," says Harold Brierley, chairman-CEO of Brierley & Partners, Dallas, noting pricing pressure has been caused by continued dot-com dislocation.

A climate of non-spending and war talk also has dampened growth in these integrated disciplines the past two years. "Business had its finger on the pause button," says Robert T. Wilke, chief strategy officer at Protocol Direct Marketing, Deerfield, Ill. "We had no dramatic client losses, but clients were putting off or canceling programs."

Some of those cancellations were structural. A cut in ad spending for package goods and a medium shift of those products to network broadcasting affected results at Ryan Partnership, Wilton, Conn., whose revenue slipped 17% in 2002. The decline in business had a "brighter" side for some. "The Iraq war caused some cancellations in event marketing, but it also caused us to look at our security side," says Gary M. Reynolds, CEO of GMR Marketing, a New Berlin, Wis., event specialist that is part of Omnicom Group's integrated operations. Mr. Reynolds notes, however, that the slowdown was a cumulative effect that started four years ago.

The 3.5% overall drop this year relates to a 12.4% decline in sales promotion and 4.3% decline in direct marketing last year-the worst year for these two disciplines since Ad Age began charting their returns in 1989-and a 31.7% decline in interactive revenue. Volume levels behind the totals for the two years are not directly comparable, however, because this year's data are just returns from agencies dominated by the three disciplines, forgoing the practice in the past of gleaning integrated data from ad agencies as well.

The big advertising organizations continue to dominate the charts. Of the nation's four leading ad organizations-Omnicom, Interpublic Group of Cos., WPP Group and Publicis Groupe-their integrated agencies claimed 44.2% of direct marketing revenue, 43% of sales promotion and 24.8% of interactive. By contrast, their ad agency subsidiaries generated 53.4% of the nation's total advertising and media, according to Ad Age's 59th annual Agency Report (AA, April 21).

Ad Age combined these disciplines this year because integrated marketing has become a natural extension of these multiple services. In the mid-1990s, direct marketing and sales promotion became two faces of the same coin, but by the turn of the century, agency businesses were becoming increasingly digitized through new interactive capabilities. Their harmonic convergence has been in customer relationship marketing, the mantra in the industry for enhancing customer loyalties among brands and services.

While interactive may be the fulcrum that is integrating services among agencies, it threatens to become a lead weight if it can't beat the spam rap. Virginia lawmakers this month cracked down on spam generators. Congressional action may not be far off. Spam accounts for an estimated 35% of e-mail, according to Larry Kimmel, president-CEO of Grey Direct Marketing Group, a New York-based unit of Grey Global Group. Digitas has stopped letting clients do Web-only projects. "E-mail for customer acquisition is dead," says Bob Cosinuke, president-global opportunities at the Boston-based agency. "If we don't clean up interactive, Washington and the states will do it for us," adds Carla Hendra, North American president of WPP's OgilvyOne Worldwide, New York. Some, though, still see a value to spam. "Everyone hates spam. It's irrelevant, intrusive and interruptive in our lives, but we use it in driving awareness," says F. Peter Kovak, president-CEO of NKH&W, Kansas City, Mo.

Executives interviewed for this report make it clear there are important options they want on the integration model now rolling out. They want immediacy of information and measurability of results, and the kind of real-time closeness that comes from seeing and talking to customers and having a good read of their data right now. In short, they're looking for consolidation, accountability and customer closeness. The impression from these executives is that the ideal integrated agency is a single pipeline from the front door to strategic, creative and billing, and out back to the shipping dock.

A single agency entrance and consolidated processing are standard operating procedures at many integrated shops. OgilvyOne clients are served by one person, a 360-degree leader, says Ms. Hendra, identifying this person as an in-depth specialist who connects client needs to agency resources, whether interactive, CRM or loyalty programs.

"The real value of integrated is having a wide array of solutions and a single-point-of-entry team that will balance the best solution against the highest return on investment for the client's money," says CEO Patrick O'Rahilly of Aspen Marketing Services, West Chicago, Ill. He notes that key to integration success is ending the profit-and-loss barriers, common in holding companies, "that work against integration."

MARKET'S MELANGE

Indeed, few agencies are mono-disciplinarian anymore. "Draft is no longer direct," says Howard Draft, chairman-CEO of Interpublic's DraftWorldwide, Chicago. "We're experiential; we take promotion to the street. This is the way marketing should be done."

To get a tight grip on expected return on investment, Norcross, Ga.-based Euro RSCG Impact, part of Havas, puts prescription pharmaceutical promotions on wallboards in the waiting rooms of top prescription-writing physicians. "You can measure the ROI very precisely. Statistics show patients spend 6 minutes reading the promos, and 38% of those buy the product," says Impact CEO Jeff Lamkin.

METHODOLOGY

Ad Age submitted questionnaires to agencies appearing in last year's reports on these agencies, requesting revenue and billings data that conformed to Ad Age's methodology. The questionnaire is online at adage.com/arq. Actual conforming data were used where received.

In mid-March, top executives of agency holding companies, citing the Sarbanes-Oxley Act, said they would not provide data for this year's report. Passed in July 2002, the act was designed to tighten rules on disclosure.

For the agencies that did not return the questionnaire, Ad Age used its own calculations to estimate revenue. Further, for comparison purposes, Ad Age restated the 2001 revenue of these non-reporting companies using the same Ad Age procedures. For the publicly held advertising organizations, estimates were based on composite returns for their integrated marketing units.

Agencies with at least 75% of total returns generated by the three integrated marketing components are shown at 100% of returns on the Top 50 Integrated Agencies chart (see Page S-2). The rankings for the three integrated disciplines (see Page S-4) are solely by returns from those disciplines.

Staff for this report

R. Craig Endicott, Kevin Brown, Scott MacDonald, Mark Schumann, Brittany Abbate, Jennie Sierra, Philip Montgomery-Fleming, Ken Wylie, Riki Jill Altman.

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