Marketing services, defined in this report as direct marketing, sales promotion and interactive, 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, according to Advertising Age's 17th annual Marketing Services Report.
The broad-based industry had declined 6.9% in 2001 revenue 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 as regular as the Capistrano swallows.
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 (see chart at right). Marketing communications-traditional advertising and media, marketing services, healthcare 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 "big shift" in Digitas' services, from direct to interactive, as direct slipped 5.3% and interactive grew 17.5%.
many working models
Any two marketing services agencies in this report are hardly alike. 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 (AA, April 19), 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 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- chief operating officer.
The big holding companies for years have been gathering up 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.
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 agencies with marketing services arms.
By branding its supermarket of services, Havas in effect is replicating the multiple services paradigm employed by most of the agencies in this report.
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.
"Marketing services [as a term] is overused," believes Howard Draft, chairman-CEO of Draft, Chicago, an Interpublic agency. "We're a fully integrated below-the-line marketing agency and call on the ad agencies of Interpublic for their media advertising services." An example of this integration is Draft's Retail Ecology system, which treats the interior of the store as a marketing medium. It uses direct, advertising and digital to create so-called hot belts through which the shopper is moved, motivated to buy and guided through to checkout, payment, and departure.
Omnicom's Rapp Collins Worldwide, New York, a direct response and customer management agency, doesn't believe in the boundaries between specialty areas, preferring to tailor services to the customer's needs. Semantics, maybe not. Caroline Chilvers, exec VP-corporate marketing and communications, says "we 're agnostics about the strict boundaries between services. We use the Internet, print - whatever reaches the customer. And integrate some of each."
Pamela Larrick, president-CEO of Interpublic's MRM Partners Worldwide, New York, a relationship-management, interactive, database, and publishing agency, combines all those services "to give our clients the seamless marketing solution they want."
Hawkeye Group, New York, until 2003 an assortment of marketing services companies under a holding company umbrella, now operates as a more unified whole. "We don't talk about individual agencies now but process for the whole company," says G. Steven Dapper, CEO. Hawkeye, No. 16, is methodically branding under the Hawkeye name its various units, including direct, promotion, database, and customer-management in 11 U.S. and two European locations.
The archetypal sales promotion house, Chicago-based Frankel, is now a keystone operation of Publicis Groupe's recently formed ARC Worldwide, which offers promotion, retail, interactive, direct, and database marketing.
Havas agency Arnold Worldwide, Boston, bundles its marketing services into three related agencies: PR-operation Arnold Corporate Communications; Arnold One, which offers direct and interactive services; and Arnold Brand Promotions, promotion and PR.
"These units operate more as one, singular integrated product under a creative umbrella. An Arnold client for advertising also can buy marketing services a la carte," says Beth Rice, senior VP-director of Arnold Brand Promotions. "Promotion can be bundled with public relations into brand promotion. But promotion is growing quite slowly, while events and others are having double-digit growth. Promotion is better at delivery of results, in measuring ROI."
CRM WITH TWISTS
Much of what marketing services is about, of course, is building a customer base and customer relationships with the marketer. This has led to the broadly accepted area of customer relationship management. By now CRM is as familiar to marketing services agencies as the envelope inviting recipients to accept a financial services operation's offer of a lower interest rate.
CRM uses databases on consumers, households and businesses to acquire, retain and keep customer loyalty. It increasingly operates digitally. "The Internet is one-to-one-inviting the customer to come to the site, make a choice to see, get the product, establish a relationship," says Neil Clemmons, senior VP- strategy at the Chicago office of No. 29 Critical Mass, Calgary, Alberta.
While CRM has been viewed by many as the next great thing, some feel it is fraying a bit. "Most customers don't want a relationship with companies," notes Robert T. Wilke, chief strategy officer at 10th-ranked Protocol Direct Marketing, Deerfield, Ill. "You don't want a relationship with your bank card."
"CRM in our view is a term used by software people. Beware of anyone who talks about relationships but sells you software," says Carlson's Mr. Kust.
LINKED TO TECHNOLOGY
The agencies obviously can't overlook CRM because marketer technology is tied to it, according to MRM's Ms. Larrick.
"CRM has gotten a bad rap because the industry has focused on technology instead of the customer. "The whole idea of data-driven marketing is more about business-to-business than business-to-customer," says David Kenny, chairman-CEO of Digitas.
"In the old days, they called it one-to-one marketing, but customer-centric marketing is back," says Patrick O'Rahilly, president of No. 4 Aspen Marketing Services, West Chicago, Ill.
The human element is the force behind another new wave causing a sea change in marketing services-the great concentration on educating and training marketer and agency employees.
Interpublic's event marketer, Jack Morton Worldwide, New York, is gearing up to put on the opening extravaganza and other shows for this summer's Athens Olympics. CEO Josh McCall is hyper-conscious of good employee behavior at his agency, how they feel about the customers, the Olympics and themselves.