Agencies hope Chicago is their kind of town

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In what may be a sign of Chicago’s resurgence as a b-to-b marketing stronghold, two prominent advertising agencies told BtoB they want to open offices in the city, perhaps by the beginning of next year.

Both Cincinnati-based HSR Business-to-Business and Kansas City, Mo.-based NKH&W are eyeing Chicago. But the two marketing communications firms are weighing different approaches to breaking into the market.

"HSR is looking seriously at establishing a Chicago presence," said Rick Segal, chairman of HSR, which has two Chicago-area clients: Wolters Kluwer’s CCH and a unit of Allianz. "We have not made the commitment yet. … If we decide to move forward, it will be within the next six months."

Segal said HSR doesn’t plan to acquire a Chicago agency. Instead, it would use its own personnel or hire new people to launch the office. "We’ll just set up shop and get to work," he said.

NKH&W, on the other hand, plans to move into the Chicago market by acquiring a local agency. "We need a presence in Chicago, and we are under way to establishing one," said Pete Kovac, NKH&W president-CEO. "It would be an acquisition or an equity partnership or something of that nature."

Neither NKH&W nor HSR are attracted to Chicago by the lack of competition. Chicago, the one-time stomping grounds of advertising legends Leo Burnett and William Marsteller, does not lack for b-to-b agencies.

Plenty of company

Among the Chicago-based firms that won 2003 Pro-Comm Awards from the Business Marketing Association are Davis Harrison Dion, McKinney/Chicago, Mobium Creative Group, Slack Barshinger and TuckerKnapp Integrated Marketing. Another Pro-Comm winner, Bader Rutter & Associates, is located near Milwaukee and has been poaching Chicago-area clients for decades.

"Our immediate reaction was: ‘Welcome to the neighborhood,’" said Gordon Hochhalter, partner at Mobium Creative Group. "Our point of view is that we are a national agency. We’ve come up against them [HSR and NKH&W] numerous times."

"I’m not sure I want to say the more the merrier, but there’s definitely room for other qualified firms," said Gary Slack, president of Slack Barshinger. "We welcome them. We need more BMA members."

"The fact that they are interested in opening offices here is a statement about the size and importance of the Chicago market," added Doug Davis, president of Davis Harrison Dion.

Both Segal and Kovac agree. "Chicago is probably No. 2 on the list in terms of critical mass of b-to-b work in the United States," Segal said.

"We believe we need to be in Chicago because it still is an advertising capital," Kovac said. "It’s the advertising capital of the Midwest in terms of agency billings and talent, and that’s very attractive to us. We believe we need to be there."

Rick Kean, the BMA’s executive director, said: "Chicago’s alive again. There’s an awful lot going on here. There’s an awful lot of account activity."

Large b-to-b marketers with headquarters in the Chicago area include W.W. Grainger and Motorola. For his part, Segal has his eyes on a former Seattle company that relocated to Chicago with great fanfare in 2001. "We like to think that Boeing might be a client of ours one day," he said.

Growth through expansion

HSR’s revenues have been flat for three years, since the dot-com crash, Segal said. He has concluded that, in the short term, growth will have to come from expansion. The firm recently opened an office in Washington, D.C., to woo potential aerospace, defense and homeland security clients. General Electric Co.’s GE Aircraft Engines is a long-time HSR client.

Like Segal, NKH&W’s Kovac is attracted to Chicago by the opportunity for growth. NKH&W’s gross income leaped by about 40% in fiscal 2003, which ended June 30, and Kovac wants to boost gross income by another 100% in the next few years.

"At that point you’ve got a real agency that can compete with anybody, which is why we’re doing this," Kovac said.

Growth by acquisition is necessary to meet this goal, Kovac said. Last year, NKH&W hired Senior VP Henry Corona, whose primary function is scouting potential acquisitions. NKH&W recently acquired a firm in Little Rock, Ark., and opened an office in Tulsa, Okla.

For his part, Segal has wanted an office in Chicago for several years. Slack said his firm and HSR considered merging three years ago but didn’t pull the trigger.

Both Segal and Kovac have pondered different ways to grow their agencies for some time. Both believe the b-to-b advertising marketplace has lacked a dominant, national firm since Burson-Marsteller was acquired by Young & Rubicam in 1979.

In addition, both executives were intrigued by Sean Bisceglia’s 3i Corp. and its efforts to build an Omnicom-style nationwide network of b-to-b agencies. That plan ultimately ran aground last year. The potential moves of NKH&W and HSR to Chicago could be their first steps toward building multi-city, national b-to-b agencies.

"This is the time for the non-holding-company agencies who have built serious mass," Kovac said. "I think it’s the time for them to rise and shine."

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