Up and Down the Line

The PROMO 100 has become a moving target, with dramatic shifts from year to year. The biggest reason is fluctuations in quality of campaign work: The shop that hit a home run last year may not have had the assignment (and the inspiration) to repeat that performance. It’s a frustration we hear again and again: Agencies want sexier assignments, more input on strategy, a chance to show their mettle. They want to catch lightning in a bottle.

Our formula measures net revenues, two-year growth and quality of work, in equal portions (See How We Did It, p. 20). This is the fourth year that the Sarbanes-Oxley Act has limited financial data from publicly held companies, compromising the reliability of the data that makes up two-thirds of our formula. This year we have estimated revenue and two-year growth for 22 agencies — 14 of them in the Top 25.

It’s a mixed blessing that PROMO factors campaign work into the PROMO 100 formula (See Rank by Campaign Work, p. 74). The advantage is that we can reflect the scope of each agency’s work, and not rely on increasingly shadowy financials to rank shops. The risk of quantifying campaign work is that it makes agencies’ performance seem inconsistent as they slide up and down the list. Take those shifts with a grain of salt.

That said, here are some details on shops at the top of the list. Most notable is The Marketing Arm’s leap to the top of the ranking in its sophomore year. The agency debuted last year at No. 6, sporting exponential growth from the 2004 merger of four Omnicom shops: The Marketing Arm, USM&P, Davie-Brown and Millsport. The combined firm followed up this year an estimated two-year growth rate of nearly 730%. Impressive campaign work reinforced its standing this year.

NEW TO THE TOP 10:

Arnold Brand Promotions zoomed to No. 2 from No. 30 last year, thanks to top marks for campaign work and solid growth, estimated at 140% over two years. In fact, Arnold is returning to the Top 10: It ranked No. 8 in 2004. Wins in 2005 help mitigate the loss of key client Volkswagen, which left Arnold in December 2005 after 10 years. Arnold started out 2006 strong, with new clients RadioShack, Mobile ESPN and Estée Lauder. (See Agency of the Year, p. 12)

PromoWorks jumps to No. 5 from No. 40 last year, with strong campaign work and solid net revenue gains of nearly 85% over two years. It’s an impressive showing for a specialty shop — PromoWorks’ forte is in-store demos and sampling — and adds yet more evidence that shopper marketing is the “It” strategy now.

Digitas rises to No. 6 from No. 19 on the strength of stellar campaign work and sheer size: It’s the second largest shop (behind Draft) with estimated net revenues of $252 million. That base makes its middle-of-the-pack growth rate, estimated at 22% from 2003, respectable.

Arc Worldwide leapfrogs to No. 8 from No. 15, thanks to award-winning work (think Cadillac Under 5) and size. The agency formerly known as Frankel has found stability under President Marc Landsberg after a strenuous bout with the revolving door in 2004.

Ryan Partnership zooms to No. 11 from No. 48 last year, with impressive campaign work and the respectable size of $50 million — solid enough to weather the 2004 spinoff of its integrated marketing division to form sister shop Catapult.

OUT OF THE TOP 10:

Velocity Sports & Entertainment fell to No. 20 from No. 2, with middling growth and less-stellar campaign work than its 2004 crop.

TracyLocke fell to No. 22 from No. 7, based on lower scores for campaign work and a slightly lower rank for growth.

CoActive Marketing Group fell to No. 33 from No. 10 as its growth rate shrunk by half and its campaign-work scores slid.

The roster of big shops hasn’t shifted much (see Rank by Revenue, p. 19), despite the withdrawal this year of Integer Group (see Under the Radar, p. 24). Among the biggest 25, The Marketing Arm, Alloy, Octagon and PromoWorks rose; DVC disappeared altogether.

Revenue growth has stayed steady across the board (See Rank by Growth, on p. 22). Seventeen shops registered triple-digit growth from 2003 (six of them placed in the Top 25) and 59 saw double-digit growth (18 of them in the Top 25). Ten shops had net revenues fall from 2003.

PLEASE, CALL ME ‘MARKETING SERVICES’

Promotion shops now compete with agencies of all stripes as the line between disciplines blurs, and ad shops troll below the line while promo shops pick up more branding work.

“Competition is coming from all quarters, but I’m bullish on our biz right now,” says Momentum Worldwide CEO Chris Weil. “Our core competencies are needed in today’s complicated marketing environment. The blurring of lines is good for us — but it’s also bad, because ad agencies are trying to get into our space.”

Agencies are learning (finally) how to collaborate with siblings. Witness FreshWorks, a montage of four Omnicom shops set up to serve one client, 7-Eleven. TracyLocke execs lead the group, divvying up the work with The Integer Group, TPN and Dieste Harmel & Partners and sharing one paycheck from 7-Eleven.

Even some ad siblings are pitching in. Ogilvy & Mather “has opened some doors” for 141 Worldwide, says CEO-North America Jay Farrell: That’s helped 141 branch out beyond packaged goods, and fosters integrated work.

“We’re being challenged much more to plan and better understand channel marketing,” Farrell says. “Our planning department is more robust as we help clients understand where to spend. Core understanding of the consumer, the trade, the brand and the shopper is getting more time and talent from us. So it’s nice to have different groups [of marketing disciplines] surrounding that core to activiate. It’s a 360-degree below-the-line space that lets you be truly media neutral.”

Marketing agencies have also stepped up pursuit of solid consumer research, especially shopper data.

“The new currency is insights. Most CMOs are saying, ‘If I get the retail insights right, I’ll get the creative right, and that’ll ring the cash register,” says TracyLocke CEO Ron Askew.

Alcone Marketing Group is using research to drive consumer pull for quick sales results.

“A dime spent today has got to return 11 cents tomorrow,” says Alcone President Bill Hahn. “With four-week Nielsen data, and some retail accounts looking at hourly and half-hourly sales, the pressure on brands to deliver sales is huge. It’s not just-in-time anymore; it’s right-this-second.”

Marketers’ need for research has shops restructuring to better handle integrated work. Just as 141’s planning department is the hub to marketing-discipline spokes, Alcone’s revamped research division, ConsumerLab, vets multi-disciplined ideas.

“It’s our job to deliver breakthrough thinking that’s not based on one media or discipline, but on insight in consumers,” Hahn says.

It’s the first step towards catching lightning in a bottle — over and over again.

Rank By Revenue

How We Did It

PROMO 100 rank is based on three equally weighted factors: U.S. net revenues, two-year growth and the quality/results of campaign work.

U.S. NET REVENUES

Agencies report their U.S. net revenues for the most recent three years, as verified by an outside auditor or a copy of the agency’s tax return. “Net revenues” are the same as “gross profits” as reported on tax filings; they do not equal total billings, which often include pass-through expenses. Agencies report billings and revenues, but only net revenue data impacts rankings. PROMO uses U.S.-only net revenues and not worldwide figures, in order to more accurately compare U.S. agencies.

This year, 23 agencies did not provide verifiable revenue data. For most, their parent companies — the four publicly held agency networks — forbade it, citing the 2003 Sarbanes-Oxley Act governing financial disclosures. PROMO estimated these agencies’ net revenues using past data and factoring in account wins/losses, acquisitions and spending fluctuations among current clients. Numbers that are not verifiable are marked with an asterisk.

TWO-YEAR GROWTH

PROMO calculates agencies’ growth from 2003 net revenues to 2005; this two-year growth rate is a more even-handed measurement than one-year growth.

CAMPAIGN WORK

Agencies submit case studies of three campaigns from 2005. Each PROMO editor rates each campaign on strategy (and its applicability to the brand), execution, creativity, scope of the work (both breadth of disciplines and number of markets) and — crucial to any promotion — results. Results are often confidential; they are used only for scoring and are not reported in PROMO. Agencies that show strong results for a range of clients using a mix of disciplines tend to score highest. Agencies with unclear results or limited work (all for a single client, or in few markets, or with a narrow range of disciplines, such as sampling or online sweeps only) score lower.

THE FINAL TALLY

Scores for U.S. net revenue, two-year growth and campaign work are added together as equal parts of an agency’s total final score. To determine the Top 25 ranking, PROMO’s editors also consider recent account wins and losses; industry awards; management stability; average length of service with clients and agency-of-record status; and breadth of marketing services.

FYI: PRODUCTIVITY

While they don’t impact scores, we also include per-employee revenue figures in the ranking (beginning on p. 26). The Marketing Agencies Association Worldwide (MAA) estimates that the average net revenue per employee at a U.S. promotion agency is $120,000. MAA suggests that a 25% margin above or below that benchmark is within the “reasonable range” of revenue productivity per employee. Results outside this range may be questionably high or inefficiently low, per MAA.

Rank By Growth

Top Specialists At-A-Glance

Under the Radar

Agencies ranked in 2005 that didn’t enter this year (and reason, if given):

BDS Marketing
Cramer-Krasselt
DVC Worldwide
EastWest Creative (“new strategic direction”)
Eventive Marketing
GEM Group (no client permission to share work)
The Integer Group (dissatisfied with past ranking)
Jack Nadel Inc.
Marketing Connections Group (restructuring)
Marketing Edge Inc.
Mars Advertising
Object 9 (regrouping after Hurricane Katrina damage)
Penn Garritano Direct
Response Marketing
Promote It International (acquired by Active Marketing Group, No. 28)
Saatchi & Saatchi X
The Spark Agency
Three Wide (acquired by Barkley Evergreen & Partners, No. 78)

Rank by Campaign work