Given the general economic malaise and the economic and psychological impact of Sept. 11, it was not surprising that marketing services should decline, only that it should drop so far.
Last year was only the second time since 1990 that marketing services dipped beneath the growth of advertising, which met decline as well-a 2.2% drop beneath 2000 levels, according to Ad Age's Agency Report (AA, April 22). Only in 2000 did advertising, up 22.2% that year, outgrow marketing services, also a high-climbing 17.2%.
Marketing services, defined as direct marketing and sales promotion returns, registered $5.32 billion in total U.S. revenue in 2001 compared with $14.1 billion in U.S. advertising. Within the marketing services totals, direct marketing fell 4.3% to $2.96 billion and sales promotion lost a whopping 12.4% to $2.36 billion.
STILL, THERE IS OPTIMISM
Many working in these specialty areas view the decline as an aberration, the poor results hardly dampening the industry's charge to deliver faster sales and direct results. Part of the reason for those executives' optimism are changes already afoot to integrate marketing services, indeed all ad-related functions.
Such integration of functions is already bringing greater permanency to agency/marketer relationships and changing work from a project basis to a negotiated fee.
Projects are more easily cut than planned media-related spending in a sluggish economy, and marketers cut projects left and right in 2001. Ad agencies were less affected by the down year because most have turned to fee payment as means of remuneration. Those fees were negotiated in the fourth quarter of 2000, a much less stressful time than in 2001, and were paid with reduced workloads in 2001.
Digitas, the direct-interactive agency, in fact no longer seeks business on a project basis, says David Kenny, chairman-CEO of the No. 3-ranked marketing services agency.
Ad holding companies, the so-called ad organizations, obviously can't lose faith in marketing services-the area of growth for most recent years. From just its direct marketing and sales promotion returns, Omnicom Group drew 32.8% of its U.S. revenue in 2001. Havas Advertising pulled 28% of its U.S. revenue from these specialties; Interpublic Group of Cos., 24.7%; WPP Group 20.1%; and Publicis Groupe 7.2%.
Perennial marketing services leader Carlson Marketing Group remained atop this year's list at $274.7 million in revenue, down 11.3%; its direct marketing slipped 0.6% to $81.3 million and sales promotion plunging 15.2% to $193.5 million. Jim Ryan, Carlson's president-CEO, projects the agency will stair-step back to 2000 levels though not all at once.
The top-ranked international marketing services agency, WPP's OgilvyOne Worldwide, No. 7 in U.S. marketing services returns, gained 2.4% in revenue abroad while dropping 2.2% at home-indicating more intensely felt recessionary pressure in U.S. versus abroad. Leading U.S. marketing services shops saw a 4.8% gain in revenues from business outside the U.S.
Merger and acquisition tremors affecting such marketers as PepsiCo, General Mills, Quaker Oats Co. and Pillsbury shook hard at the agency level in 2001. Gage, down 4.7%, and Omnicom's Alcone Marketing Group, down 31.3%, were affected by big account shifts produced from such mergers. Certain industry feeders of marketing services like financial services and travel proved particularly vulnerable during 2001, affecting returns at agencies like Digitas, big in both sectors. Digitas fell 18.3% in revenue in 2001.
Surprisingly, the anthrax postal scare did not seem to bash the direct mail industry, according to surveyed agencies. "We saw no impact from anthrax in our direct mail program," reports Carla Hendra, president of OgilvyOne, North America. This observation was echoed by Patrick O'Rahilly, president of Aspen Direct, a unit of Aspen Marketing Group. Aspen does extensive mailings in automotives and electronics.
BIG INTERACTIVE LOSS
Interactive, shirttail cousin to direct and promotion, particularly as an execution tool, was down 7.7% to $597 million among agencies with marketing services returns. It fell by double-digit percentages at Carlson and Interpublic's DraftWorldwide, stellar by comparison to the 144.1% decline at Ryan Partnership and a 204.3% plunge at Interpublic shops Hill, Holliday, Connor, Cosmopulos and Marketing Drive Worldwide, down 607.2%.
Gage cross-pollinates its big promotion programs with direct to drive customers to the Internet and respond with orders. Omnicom's Rapp Collins Worldwide, wholly direct, does 20% of its business on the Internet. OgilvyOne's direct marketing is 40% online and 60% offline. The growing strength of interactive probably means the days of massive mailings are over, says Hal Brierley, chairman-CEO at WPP's Brierley & Partners: "e-mail costs 1/100th the cost of surface mail. You get half of the responses in 24 hours; and" 75% of responses within 48 hours.
Indeed, with the growing influence of interactive in the business, and other specialties such as customer relationship marketing, marketing services has become integrated marketing, a melting pot of services difficult to segregate. Many agencies in this report could not provide specialty splits because their accounting systems categorize agency work only by brands and not by specialty. Integration has become a kind of Hammurabic Code for marketing services.
Interpublic's FCBi is primarily direct, but it's really the holistic sum of its three Ds: direct mail, database and digital, the latter including online ads, Web site development, direct mail, telemarketing, direct TV, e-mail, database development and measurement, says John Penberthy, managing director.
The integration factor is a reason why Burger King Corp. in August 2001 named Howard Draft, chairman-CEO of Interpublic's DraftWorldwide, to take central responsibility for integrating the work of three sibling companies within the holding company-DraftWorldwide, Campbell Mithun and McCann-Erickson Worldwide. DraftWorldwide, the No. 2 marketing services shop in the U.S., comes from a long tradition in direct response, but now provides brand advertising, promotion and digital as a part of direct.
Technology and science are getting a bigger office at the agency as marketers seek better ways of finding customers, clinching sales and holding on to the business. Math threatens to supplant creativity. Data from the U.S. Census Bureau is being used to produce good predictive models, says GSP Marketing Services President Richard Grunsten. He says as processing data has become cheaper and faster, marketing services is more predictable than ever, and advertisers are saying, `"Let's cut back on TV-we know what works!"'
Beyond DDB uses its Matrix econometric modeling program to measure the rise and fall of attendance at Busch Gardens in Florida. Using behavioral and emotional studies, OgilvyOne spots the "Bonded Customer"-that long-loyal customer, truly connected to the brand. Grey Direct Marketing Group builds marketing effectiveness by cross-wiring together its print, TV, e-mail, and online databases so that they talk to each other in a system called Hot-Rod-holistic optimization technology-results on demand.
Marketers are encouraging agencies to ratchet up the load on their promotional and direct tools. "Promotion is the frontier between disciplines," says Wunderman Worldwide Chairman-CEO Daniel Morel. "To introduce a new product like an automobile you use your database, bring people to the event, manage the event, then add to your database to communicate more about the product."