Ad Age DataCenter - 14th Annual Report: Marketing Services

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The signs of marketing services are everywhere. What may look like another piece of direct mail or a pennant over your grocer's cheese case is more likely just the tip of a giant databerg or, as some data slicers prefer, diceberg.

Reason for the data growth is that the marketing services field-sales promotion and direct marketing-is producing bales of information from all its fill-ins and click-ons and universal product codes. It continues to expand faster than advertising, and researchers, clients and agencies are demanding data to get answers to who's attending the events, seeing the promotions and logging onto the Internet.

U.S revenue growth, according to the 14th annual Advertising Age 2000 Marketing Services Report, is up 19.8%, to $5.35 billion from 1999 for the 200 agencies reporting. This compares to growth of 12.4% for advertising agencies (AA, April 23). The two marketing services specialties show comparable jumps, direct marketing rising 20.5% to more than $2.79 billion, and sales promotion, up 18.9% to $2.56 billion.

Growth of direct has never been higher in the past 14 years, and only twice in that period has growth been stronger for sales promotion (20.1% in 1999 and 19.4% in 1995). Power of marketing services is increasingly vested in the big ad organizations. The world's top three-Omnicom Group, Interpublic Group of Cos. and WPP Group-control a collective 41.9% of U.S. marketing services revenues. Omnicom holds a 15.7% share, followed by Interpublic at 14.3% and WPP at 11.9%. Only 39% of U.S. marketing services revenues are in the hands of independent agencies.

Marketing services is paramount in strategies for growth among most ad organizations. Both Havas Advertis-ing and Publicis Groupe are seeking acquisitions in this area. Cordiant Communications Group, acquirer last year of Lighthouse Global Network, has targeted a revenue split of one-third advertising services and two-thirds marketing activities by 2003.

Likewise, a number of ad organizations have sprung up in the past several years whose foundations are almost exclusively tied to marketing services. Maxxcom, Hawkeye Communications and SPAR Group are such companies.

CARLSON RANKS NO. 1

Carlson Marketing Group, which was up 14.1% in U.S. revenues to $309.8 million, again tops the ranking of U.S. marketing services agencies this year. The Carlson mix, mostly aimed at relationship marketing, is about two-thirds sales promotion and one-third direct.

OgilvyOne Worldwide captured the non-U.S. revenue lead from last year's leader Impiric/ Wunderman with $257.2 million in foreign revenue, up 29.3% vs. a more modest growth at No. 2 Impiric of 7.4% to $217.7 million (see chart on non-U.S. rankings, P. 26). OgilvyOne's U.S. tally of $173.5 million in revenue was up a remarkable 44.8%. WPP owns both agencies.

Marketing services' non-U.S. 2000 growth of 19.6% lagged slightly behind the 1999 jump of 21%, but was laps ahead of non-U.S. general advertising growth of 12.4%. Foreign growth for direct marketing agencies was 19.4% in 2000 and 19.8% for sales promotion.

ECONOMY FAVORS DIRECT, PROMO

Will the marketing maxim hold true that says when times get tough marketers look to direct marketing for more targeted messages, and to sales promotion to move brands whose cost-points built through advertising begin to lose favor with cost-conscious consumers?

Seeing the direct portion of the marketing services playing field from a broader view, the Direct Marketing Association reports 2000 direct marketing spending grew 8.5%, and predicts annual increases of 5.4% through 2005 for U.S. direct spending compared to 9.6% rises for direct worldwide.

The more media-bound ad agencies, measured against these increases, aren't expecting much growth at all in 2001 since media spending levels are declining almost across the board.

Marketing services shops also are holding their value better than ad agencies, according to an ad market survey by investment banker AdMedia Partners. It predicts marketing services agencies will sell for 6 to 7 times operating profits this year compared to ad agencies, at 5.5 to 6 times operating profits. Part of the higher sales price is demand. The survey also found 65% of survey respondents planned to buy into marketing services in 2001, highest of any agency specialty.

Growth in marketing services, whatever its size, is tied to how close marketing services can get to consumers. Mining the data lode is certainly the prudent way. "If you're not thinking about what you're doing with all those names in the shoebox, what good are they? Everything we do is based on data, on getting the customer to respond," says David Sable, president-CEO of Impiric's New York office.

AGENCIES RESEARCH-HUNGRY

Marketing services shops are assigning research to special units. Impiric's Strategy Research Group handles research studies in a closed loop: get insights on customers through surveys and focus groups, develop data, make an offer to customer, customer reacts, watch results, get insights. Hawkeye is working with programs for data analysis that give an answer overnight that used to take three to five weeks; from this it projects a possible real-time delivery of information that the customer uses to shop while moving through the store.

This year's survey shows marketing services agencies with very broad bases. Power Creative, a Louisville, Ky.-based specialist in point-of-purchase materials including displays, builds full-scale sets, for example, of kitchens to promote home appliances. "We design the kitchen," says Debbie Cooley, senior VP-finance, "and do the brand strategy and print collateral, and our architectural division also creates historical prints used in promotion."

U.S. Marketing & Promotions, Torrance, Calif., has designed a promotion for on-line music retailer CDnow in which promoters dressed in lab coats and calling themselves "musicologists" sit down with patrons at night clubs or concerts and give "prescriptions" for logging onto CDnow, picking the songs they like, and burning their own custom CDs.

One of the oldest (founded 1909) sales promotion agencies, Einson Freeman, Paramus, N.J., conductor of the famed Miss Rheingold contests for three decades, is handling the concert tour for Latin pop singer Christina Aguilera that is promoting youth apparel in all 800 Sears stores.

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