MARKETING SERVICES UP 21%, TO $3.9 BIL: ACQUISITIONS AND REGROUPING BUILD GLOBAL PRESENCE FOR SHOPS

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Like a scene from a time-lapse movie, marketing services agencies from Aspen Marketing Group to Zipatoni have been coming apart, re-grouping and growing during the past year.

Large and complex though these shifts may seem, the reason is simple: finding the shortest distance between product and purchase.

Among 205 U.S. agencies with direct marketing and/or sales promotion revenues -- the two marketing services specialties covered in Advertising Age's Marketing Services Report -- these two specialties grew a collective 20.8% in U.S. revenue to $3.92 billion. Their non-U.S. growth, even larger at 25.9%, pushed worldwide returns from these specialties to $5.10 billion, up 22.1%.

The U.S. and worldwide growth is the largest measured in the decade and outpaces the 14.7% advance in U.S. revenue of the U.S.'s top 500 agencies recorded in the Agency Report (AA, April 19).

BRANN EXPLODES ON SCENE

The prime example of the regrouping and recasting is Brann Worldwide, Cirencester, U.K., the newly created subsidiary of Snyder Communications. Brann, the largest marketing services agency in the report, is the result of Snyder's consolidation of several direct response and sales promotion acquisitions. Its leading U.S. revenue tally of $287.6 million was up 33.7% for the year.

Diversification, though, isn't the end-all at Snyder: It's how everything is put together. Very little of Snyder is tied to media advertising, but concentrated at reaching a final sale, whether it be in medicine or package goods, says Snyder's President Michele Snyder.

"Of course, we can do media placement as needed," she adds.

Yes, the largely domesticated U.S. sales promotion and direct marketing pros now are flying to foreign horizons.

NEW CUSTOMERS

The search is for both new customers and new companies, says Howard C. Draft, chairman-CEO, Draft Worldwide, Chicago, which recently acquired nine companies in Europe and one in Canada.

"Why all the acquisitions? We want to be dominant in marketing services in Europe, and we wanted to add to the system," he says. "For example, we're now the largest marketing services agency in Belgium -- we call it relationship building marketing services."

Draft's U.S. revenue rose 36.3% in 1998.

Young & Rubicam's $175 million acquisition of KnowledgeBase Marketing, Chapel Hill, N.C., the largest in Y&R history, feeds the global strategy pursued by Wunderman Cato Johnson, New York, the direct/sales promotion unit of Y&R.

GLOBAL PLAN

"We're building in non-traditional ways around global priorities in four areas -- the Internet, TV, database and consulting," says Steve Silver, WCJ exec VP for business development. Know-ledgeBase is a marketing services company with database and consulting capabilities.

The KnowledgeBase acquisition, no doubt followed by others, will move Wunderman Cato Johnson from product perspective to customer perspective, a goal expressed in several ways by various agencies in this report.

HA-LO FOLLOWS CARLSON

Ha-Lo, largely sales promotion, notched No. 3 on the list behind perennial leader Carlson Marketing Group. Ha-Lo is a Niles, Ill.-based brand-marketing organization that includes promotion agency Upshot and five other divisions in brand, event and relationship marketing. Since 1996, Ha-Lo has bought 20 companies in the U.S. and abroad.

Acquisitions are the high road to some, but the garden path to others.

"We have found the acquisition market to be overheated," says Edward R. McNally, Jr., president of Rapp Collins Worldwide, New York, which rose 18.1% in 1998 U.S. revenue. "Prices have lost touch with reality. We elect to build from within."

Taking a different tack, MacManus Group is knitting together a new relationship marketing agency, Dialogue Works, New York, by joining Ayer/Deare & Partners, New York, the former direct marketing division of N.W. Ayer & Partners, with the client base of Clarion Direct, a unit of Greenwich, Conn.-based Clarion Marketing & Communications.

Contrary to acquisition or clumping trends, long-time sales-promotion leader Frankel & Co., Chicago, is splitting itself into two pieces. From the side that will maintain its classic promotion business, Frankel is cutting the "& Co." to leave just Frankel as its corporate name, while adding a new unit, New Ventures, to seek new fields of business and growth. David Tridle is chief operating officer of New Ventures.

Dimac Direct last year isolated its internal operations (printing, database, production company, etc.) at its St. Louis base, and created another company, DMW Worldwide, based in Wayne, Pa., for its four direct marketing units: McClure Group, Philadelphia, the original core company; Dimac Direct, St. Louis, a general direct marketing shop; Dimac Direct, Boston, which handles fund raising for non-profits and public TV; and Wilcox Associates, New York.

NEW ATTRACTIVENESS

Growth in revenue, aside from mergers and internal manipulations, is still a function of the attractiveness of marketing services to customers. Industry executives like to say the industry provides objective, measurable results, a good return on investment.

There is one thing for sure, marketing services are moving faster by their convergence with interactive media and new databases.

By definition, direct response is interactive, says Mr. McNally, who predicts interactive will pass both mail and telephone as direct tools. It is his company's fastest growing direct program.

"Most of our client relationships over the past 21/2 years have expanded into work on the Internet," states Jim Ryan, president of Carlson Marketing Group. "We have a whole staff to build that kind of program for a client."

"The Web is the perfect DR medium," asserts George S. Wiedemann, chairman-CEO of Grey Direct, New York, which handles direct advertising on the Internet for Lucent Technologies, Chase Manhattan Bank's Visa and MasterCard credit cards, and Proteam.com, licensee of sports gear for professional baseball, football, basketball and soccer.

Interactive promotions take a variety of forms. At HMG Worldwide Corp., New York, formerly Howard Marlboro Group, promotions may be an LCD on a laptop computer or a CD-ROM or video or, in more elaborate form, a kiosk connected to the Web, says Robert Cuddihy, chief operating officer.

Frankel has flashed its Siren digital P.O.P. messages onto supermarket screens for two years, and has just introduced Brand Guard, a double-purpose system that, for example, sends management instructions to a fast-food restaurant as well as menu and price changes. The system allows the local restaurant staff to create its own messages for display to customers.

In March, Gage Marketing Group, Minneapolis, announced a partnership with Imaginet, a Minneapolis Internet production studio that Gage combined with its own interactive group.

LIST POWER DRIVE

List power is driving much of the acquiring and partnering going on in marketing services. In February, the mother lode envisioned in sharing databases pushed Harte-Hanks Direct, New York, and Abacus Direct Corp., New York, to strike an alliance. Database strategies are calling the charge of marketers such as Snyder Healthcare and Rapp Collins' Acuity HealthGroup, both focusing on moving over-the-counter and prescription drugs directly to consumers.

Special needs of selling insurance urged the acquisition of Customer Development Corp., Peoria, Ill., by ChoicePoint, Atlanta, developer of risk-management lists for insurance companies. CDC's largest market is the insurance industry.

Insurers will use information from the databases in getting and keeping customers, says CDC Chief Operating Officer Tim Strunk, who notes ChoicePoint's huge databases on moving violations and claim histories will help insurers screen applicants.

The tried-and-true, face-to-face persuasion of field marketing with-a-twist notched 200% growth in revenue for U.S. Marketing and Promotions, Torrance, Calif. The twist for the company is "Retailtainment" -- jugglers, musicians, Harmony Snacks' Gummy Palooza theater, Hormel Foods' Stagg chili mobile show, the Dr. Scholl's mobile units, field kitchens and the like at venues.

EVENT'S 'FRESH AIR'

"If you were a brand marketer planning to spend $100 million in the traditional buckshot approach, the dollars spent on event marketing would look good -- and you always get a breath of fresh air talking to the customers," says Michael E. Napoliello, president, who expects another big field marketing jump in 1999.

The A-to-Z changes affecting marketing services hit Aspen Marketing Group and Zipatoni, too.

Evergreen, Colo.-based Aspen in the last two years has cobbled together a huge sales promotion combine that now houses Creative Marketing International, Chicago, Hanig & Co., Mt. Prospect, Ill., MAP Promotions & Incentives, Culver City, Calif., and Schmidt-Cannon International, Ontario, Calif.

Zipatoni, St. Louis, just sold 49% of itself to Lowe Group, New York, a unit of

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