Agency Net Revenues: New Ballgame

AGENCY NET REVENUES: $2.6 BILLION

Promotion’s enhanced status drives agency revenues up 20 percent.

The momentum continues.

The dot-com crash and an impending economic slowdown did little to hinder growth among promotion marketing agencies, which posted a 20-percent gain in net revenues to $2.6 billion in 2000, according to PROMO estimates.

[Editor’s Note: In a change from past annual reports, this year’s revenue estimate was determined using information from 115 agencies in a survey conducted by PROMO and the Promotion Marketing Association in January 2001. Past revenue estimates based on the PROMO 100, which ranks agencies on financial performance, tended to inflate yearly growth estimates.]

The growth is being fueled by a continued drive toward more effective, more measurable, more interactive forms of marketing than the passive, image-focused media advertising that has always dominated budgets. The catalyst of that migration is two-fold: on one hand, product and service companies are looking for better ways to not only reach customers, but to get them to respond in a variety of ways; on the other hand, technological advancements such as the Internet and interactive TV are giving control of media to customers and practically forcing brands to incorporate response-driving messages into advertising.

In the aforementioned survey, nearly one-third of brand marketers said that promotion was the core component of their marketing plan, while 51 percent said it was an important part of their integrated plans; less than 14 percent said they used promotion as a stand-alone component of the mix.

This elevated status has brought more competition, as everyone from ad agencies on one end and tactical suppliers on the other vie to become strategic promotional partners for clients. In the survey, 94 percent of supplier companies said they are at least sometimes involved in the promotion-planning process.

Unlike the last few years, when widespread industry growth gave a boost to the majority of promotion agencies, last year’s gains did not benefit all. In fact, 38 percent of surveyed agencies said revenues stayed the same or decreased in 2000.

And it wasn’t just large companies that benefited. For every Interpublic (which now holds more than $1.3 billion in promotion revenues) or Aspen Marketing ($250-plus million) leveraging promotion’s rising status, a handful of small shops have emerged to win business with creativity and hunger.

M & A

On the big side, Interpublic retained its status as the largest of the industry consolidators this spring by acquiring True North Communications — which itself had been gobbling up shops for its Marketing Drive Worldwide operation. Two-year-old consolidator Lighthouse Global Network ($159 million), Chicago, got an offer it couldn’t refuse from Cordiant Communications last summer, although Lighthouse principal Terence Graunke was back on the acquisition hunt by fall after buying DVC Group. Aspen, which has pooled 15 agencies since launching in 1997, is now entertaining offers. “The wave of consolidation is hard to ignore,” says Aspen ceo Neal Vitale.

Such networks do have their advantages. Although the official word was “merely coincidence,” Burger King selected Chicago-based DraftWorldwide as promo agency of record in January largely because it was part of the Interpublic Group, which had just won the QSR’s two ad accounts. Dallas-based TLP, Inc. earlier this year joined with BBDO Chicago, a sister in the Omnicom family, to develop the first “fully integrated” marketing campaign undertaken by Wm. Wrigley. Jr. Co.

The industry isn’t completely devoid of Davids, though. America Online, whose recent merger with Time Warner makes it one of the biggest companies in the world, recently signed one-year-old San Francisco shop Seismicom as AOR.

The consolidation wave is far from over. Promotional products supplier Ha-Lo Industries, which itself had sought to become a “full-service” marketing partner, in early April was reportedly days away from announcing the sale of Chicago-based Upshot. Wall Street woes at Cyrk, Inc. could bring a new owner for its Los Angeles-based Simon Marketing unit. And at least three other shops in the 2000 PROMO 100 are currently in play, according to principals who spoke off-the-record with PROMO.

“The big just seem to be getting bigger,” says Mark Shevitz, ceo of still-independent SJI, Inc., St. Louis, which uses its in-house fulfillment operation as a point of difference from the networks. (There’s that “full-service” strategy again.) “We’re going after the same [business] that the big boys are, but we may have to settle for the truffle.”

There still seems to be plenty of snacks to go around

SNAPSHOT:

• Agency net revenues jumped 20 percent to $2.6 billion.
• Consolidation continued, as larger agency networks began to merge.
• Ad agencies, p.r. firms, and suppliers are all adding strategic-promotion capabilities.