IBM puts squeeze on ad budget

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IBM Corp. redefined itself and technology advertising a decade ago with "Solutions for a small planet." Now IBM is working on a sequel: Solutions for a small ad budget.

IBM, long the dominant tech advertiser, has cut global ad spending 20% since 1999 as it wrestles with slowing growth and profit pressures. It dropped last year to third in global tech ad spending and fourth in U.S. consumer media tech ads from the top spot in 1999. Ad expense last year as a percentage of revenue-1.58%-shrank to about where it stood before IBM spending rocketed in 1995 with the "Solutions" campaign. That's less than half the percentage of revenue Microsoft Corp. pumps into ads.

Big Blue has created a more efficient marketing machine, executing a disciplined strategy to take out costs in what could be a blueprint for marketers facing the imperative to do more for less.

IBM's $1.4 billion ad expense last year was down $352 million from the peak in 1999, according to Advertising Age's analysis of 10-K annual reports. The biggest cuts, from 2000 to 2002, were "primarily due to a strategic initiative to consolidate and centralize certain advertising at the corporate level in order to gain additional efficiencies," last year's 10-K revealed.

The marketer, saying ad spending was "a competitively sensitive matter," declined to answer questions about ad spending or strategies, to make executives available or to comment beyond a prepared statement. The statement said in part that "trying to extrapolate from a few lines in an annual report is certain to give an inaccurate picture of a complex globally integrated marketing program."

But a picture begins to emerge from talking with people familiar with how IBM does advertising and marketing communications. IBM's how-to strategy for saving money has included:

* Cutting division budgets as it centralizes more control.

* Shrinking the marketing-communications staff (down by at least 150 people worldwide by one estimate).

* Lowering agency fees.

* Producing fewer campaigns worldwide, gaining economies of scale in production and greater consistency in messages through a program called One Voice.

* Leaning more on Intel Corp. co-op dollars to help pay for ads. By Ad Age's analysis, 92% of IBM U.S. measured media spending for computers in the first 11 months last year was for product lines including Intel chips; many of the ads would qualify for "Intel Inside" subsidies.

* Relying more on targeted communications-customer relationship management, direct marketing, Internet-beyond traditional media.

Hewlett-Packard Co., moving forcefully to plant a new brand image, in 2003 displaced IBM as the top computer company advertiser worldwide. (Its $1.8 billion spending was even with Intel Corp., but Intel distributes much of its budget as co-op dollars.)

HP has the opportunity to snare share of voice from IBM. But IBM can afford to spend less as it reaps rewards from the $14 billion it spent since 1995 on advertising to define itself as the source for business solutions. "There is a case to be made that IBM is playing the smarter game," said one veteran tech-advertising executive. "IBM does have a pretty healthy brand at the moment."

IBM, which has successfully shifted focus from hardware to the wide-open field of business services, last year held at No. 3 on a brand value scorecard by Omnicom Group's Interbrand and BusinessWeek. HP scored No. 12, up from 14. HP, still largely a printer and PC maker, must spend to ensure it's on the consideration set of corporate customers for the full range of hardware and services.

agency fees

IBM consolidated its ad account at WPP Group's Ogilvy & Mather Worldwide 10 years ago this May, and the result has been strong, consistent brand work that sets the benchmark for the industry. But a winning relationship doesn't provide immunity as Big Blue chips away at fees. IBM's procurement force has been pressing agency fees for the past five years, and IBM is known to have significantly cut fees last year at Ogilvy and sibling Wunderman. WPP, Wunderman and Ogilvy declined to comment, deferring to IBM.

WPP revenue from IBM last year was in the neighborhood of $100 million to $110 million, or about 1.5% to 1.6% of WPP revenue, according to Advertising Age's estimate. WPP's IBM revenue likely will fall this year: IBM is said to be looking to save $10 million to $15 million in fees and expenses after shifting global direct marketing in February from Wunderman to Ogilvy's OgilvyOne.

In its statement, IBM said: "We're thrilled that our ongoing agency-consolidation work-and our long partnership with O&M-continues to drive unprecedented efficiencies and generate top-notch creative work." It added: "Creating an impactful strategy, giving it global reach, trumping the competition and doing it all while spending less is called good business." For WPP, doing more for less could be a cost of doing business with IBM.

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