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MADISON, Wis.-Five years ago, the leaders of Towell Advertising faced the grim fact: Billings were in a steep decline and the ad agency was headed for oblivion.

They responded to the crisis by reinventing the agency, founded in 1923, as a promotion shop that would never make another TV commercial. Reborn as Towell Promotional Services in June 1991, the agency has since developed a reputation for being highly unconventional, prompting one leading ad industry executive to recently dub TPS' president "the Jay Chiat of the promotion agency world."

Since its reincarnation, the shop's billings have more than doubled to more than $5 million, with mushrooming business from Oscar Mayer Foods Corp., Quaker Oats Co., Stokely USA, S.C. Johnson & Son and Stella Cheese, among others.

Despite its modest size, clients and marketing industry executives say TPS' decision to focus on the promotional services end of the business represents a growing trend as agencies adapt to meet the fast-changing needs of marketers.

"Agencies specializing in certain areas within the promotion equation are becoming essential to marketers, and TPS is one example of a new type of hybrid promotional services agency coming to the fore," said Arnie Freeman, a staff executive with the American Association of Advertising Agencies.

The new breed of promotional services agency is willing to create and also execute promotions in-house, right down to fulfillment of mail-in premium offers. All of that's generally considered "dirty work" by many mainstream promotional agencies, said William A. Towell, 36, TPS' president and grandson of its original founder.

Not only is TPS unconventional in its versatility, but the agency's working style and operations are also unusual, including its refusal to call itself the agency of record for any clients.

"We don't want to be their agency of record-it's the kiss of death these days. We don't want to live with the fear and threat of losing that account," Mr. Towell said.

From its offices inside a converted railroad roundhouse, TPS conceives and creates promotions ranging from contests and sweepstakes to point-of-purchase events and in-store sales materials.

It also helps clients with database management and will fulfill promotion offers with premiums on the premise, from its on-site warehouse.

The agency has copywriters and art directors creating print advertising and newspaper free standing inserts, and increasingly it's being called on to produce promotions for clients that are integrated from start to finish.

"Some of the projects we do, like mail-in premium offers and in-store, are best done on a one-stop shopping basis with a project agency because we need it done quickly," said John Sottile, senior VP-marketing for Stella Cheese, Lincolnshire, Ill. "When we want to react quickly to something in the marketplace, we don't want to sit around with an agency strategizing for five years."

Even though TPS sometimes pitches ideas for promotions directly to Oscar Mayer, the shop isn't viewed as a threat by Chicago-based FCB/Impact, which shares the promotion agency of record status for Oscar Mayer with Market Growth Resources, Wilton, Conn.

"We do the strategic planning, and some of these other shops come in and do the execution better than we ever could," said Impact President Joel Flanagan. "We don't want to fulfill premiums or run events and contests-we leave that to other folks, so we can do the concept thinking and farm out the execution of promotions."

TPS often executes strategies devised by other agencies. But increasingly, it's being asked to devise promotions from concept through fulfillment, including print advertising.

Traditional promotion agencies might eventually see maverick promotion agencies like TPS as direct competition, Mr. Towell said, but it's not happening yet. "Mainstream promotion shops are in the habit of farming things out," he said. "But one of these days, their clients might begin asking them exactly how and where their budgets are being spent, and they'll have to find more efficient ways of doing things."

"More and more, TPS is developing its own ideas for promotions we're using, and our door is always open for ideas, wherever they come from," said Dave Rizzo, consumer promotion manager for Oscar Mayer.

Like many of the clients TPS serves, Mr. Rizzo said about 80% of his company's promotions are planned in advance but "about 20% comes in over the transom."

TPS said the quick-turnaround nature of its operations, made possible by 20 full-time staffers, from copywriters to designers, plus a crew of 12 part-time staffers and warehouse workers, is unglamorous but cost-efficient.

A strategic partnership forged with Bob Lanier Enterprises, Milwaukee, makers of the promotional products used in many of the agency's premium incentive offers, is another way TPS keeps its promotion costs low.

"Reliability is crucial on premium fulfillment, where one small mistake can cost you millions, and strategic relationships help us make sure we provide good teamwork and smooth results," said Lanier President Mike Price.

Many clients prefer working on a project-only basis with promotion shops "because I know what I'm getting and what I'm paying for," said Patrick Riha, national marketing manager for Quaker's in-store bakery division, which uses TPS and other small promotion shops for POP materials.

Even without frills, Mr. Towell believes in making the most of his facilities, which include an old-time caboose "lounge" for visiting clients and a conference room fashioned from a converted railroad boxcar. The agency also features an in-house basketball court and fitness equipment for use by any employee; the dress code is casual and the agency closes for an hour every day at noon.

"We work very hard, and we believe in relaxing, too," Mr. Towell explained. "We don't want to grind people's spirits down at work."

Another unique feature is a prototype "supermarket" set up in one corner of the agency, where staff members experiment with various marketing tools, including POP displays, mobiles and wall hangings.

"Our offices are a playground," Mr. Towell said, "where we want clients to feel as at home as we do."

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