The category grew 3.9% in the U.S. to $5.95 billion in revenue in 2003, the first positive growth since the trio of services advanced a heady 20%-plus in 2000.
Sales promotion agencies are of two types; one is particularly strong in planning and strategic development, and the other pulls most of its revenue from tactical and executional services, such as sweepstakes and games, merchandising, premiums/incentives or fulfillment.
The broad-based marketing services industry had declined 6.9% in revenue in 2001 and a further 3.5% in 2002 as it found itself squeezed by the dot-com bust and an economic downturn particularly hard on the project-related work characteristic of the business. Prior to the decline in 2001, annual gains in marketing services were routine.
The biggest gainer among the three disciplines in 2003 was interactive, surging 10.64% in the U.S. to $1.37 billion in revenue. Direct marketing climbed 4.03% to $2.87 billion. Only sales promotion lagged, declining 1.08% to $1.71 billion.
Despite the overall growth, the three disciplines slipped from a collective 29.5% in 2002 of all marketing communications in the U.S. to 29.2% in 2003. Marketing communications -- traditional advertising and media, marketing services, health care and public relations -- hit $20.39 billion revenue in 2003, up 4.8%. Traditional advertising and media, the biggest segment of marketing communications at 49.3%, advanced 5.6%.
The six largest publicly held marketing organizations contributed $2.67 billion of the $5.95 billion marketing services revenue in 2003, or 44.8% of the total, down from 45.6% of the total in 2002, according to estimates by Ad Age. Omnicom Group, at $845 million in revenue, up 5.1%, bolstered group growth, while tempering the advance were Interpublic Group of Cos., at $587.7 million, down 2.2%, and Havas, at $242.7 million, down 3.8%.
These publicly held companies stopped disclosing individual breakouts on their agencies last year, citing the Sarbanes-Oxley Act. Ad Age estimated revenue for their marketing services segments based on the companies' own segment splits and on historical data.
Carlson Marketing Group, Minneapolis, held its lead as the largest U.S. independent marketing services agency at $234 million in revenue, down 6.9%.
Carlson's sales promotion unit, at $154.2 million in revenue, topped the ranking of independent sales promotion agencies, although revenue slipped 11.4%. Mike Kust, chief intelligence officer at Carlson, attributed the decline to the general economy and to reluctance of companies to take on long-term programs such as employee education and training, the major element in its sales promotion segment. "They want results now."
Digitas, Boston, claimed the No. 2 marketing services spot for independent agencies, at $209.5 million in revenue, up 2.7%. Digitas' direct and interactive splits of $125.5 million and $84 million, respectively, paced all agencies in those categories. These figures represent a shift in Digitas' services, from direct to interactive, as direct slipped 5.3% and interactive grew 17.5%.
This year's marketing services survey shows that just under 20% of the agencies covered in the report are solely direct, promotion or interactive. The rest offer several marketing services. And among the traditional agencies covered in this year's Agency Report, marketing services contributed 14.8% of their revenue in 2003 versus 13.8% in 2002.
Because of their varied makeup, year-end results are as different as the agencies. The state of the economy, as cited in returns by Digitas and Carlson, is about the only common theme.
For example, SPAR Group, the Tarrytown, N.Y., merchandising services company ranked No. 12, slipped 6.8% in revenue, largely credited to Kmart Corp., the troubled retailer that contributed 17% of SPAR's revenue in 2003, down from 24% in the prior year.
The marketing services segment of Los Angeles-based Equity Marketing, No. 21, grew 9% despite reduced business from struggling Burger King Corp., the marketer that traditionally accounts for 40% of Equity's revenue. But Equity's prior-year period included only partial returns from two sales promotion agency acquisitions -- Upshot and SCI Promotion Group -- purchased in mid-to-late 2002. Without these new agencies, Equity's marketing services segment would have declined 2.9%.
No. 3 TMP Worldwide, a Yellow Pages and recruitment agency, declined 11.8% in revenue largely due to a squeeze on commissions by Yellow Pages publishers and marketers, and lower demand for its monstermoving.com, an online marketplace for relocation services.
No. 33 Gage, a sales promotion shop based in Minneapolis, dropped 42.4% in revenue because of the divestiture of two units, one interactive and one point-of-purchase. "Starting in December 2003, we had the first glimmer that the market was coming up from its low performance of the past four years," says Tom Belle, president and chief operating officer.
The big holding companies for years have been acquiring marketing services companies. Marketing services represent a future direction of most of these marketing organizations because of varied services and high margins.
WPP Group, the No. 3 ranked marketing organization by its marketing services total, expects to draw 66% of group revenue from marketing services within four years, according to Martin Sorrell, its group chief executive. WPP's definition of marketing services also includes branding, consulting, research and PR.
Direct, digital, data and drive
Just this year, Havas, the No. 5 marketing organization, created Euro RSCG 4D -- the 4Ds being direct, digital, data and drive (as in retail promotions or merchandising) -- by linking its non-traditional ad units that accounted for 40% of the revenue of agency network Euro RSCG Worldwide. The purpose was to simplify its business for marketers.
Havas hopes the single brand name will facilitate the selling of marketing packages to companies, a new spin on "integrated marketing" in that marketers don't generally buy these multiple offerings by brand, but rather through personal contact and quality of work. Havas counters that marketers haven't been comfortable buying services in one-stop shopping, because what they generally are confronted with are ad agency with marketing services arms.
Executives of these agencies report that marketers increasingly are seeking one-stop shopping for fee-based projects, and this is leading to increased business, especially as the market has begun to improve since mid-year 2003.