ASSET BUILDING
Miller Brewing Co.’s Joe Jones says he likes his ad agencies to have spoken with promotion shop The Zipatoni Co. before they make a pitch.
You’ll find that comment, and others like it, in our Agency of the Year story on Zipatoni. Want to know why we selected the St. Louis agency as the best of 1999? Read that comment again. It says everything about Zipatoni’s abilities, and a great deal about the advantageous position in which promotion agencies now find themselves.
“They are truly a strategic partner in our marketing department,” says Boise Cascade Office Products’ Kevin Koertje about St. Louis-based Momentum (another shop we’ve profiled this year), adding that the product supplier didn’t even have a marketing department until it began working with the former Louis London agency five years ago.
“We ask them to be part of the team, and they bring a lot to the whole marketing effort,” says Dole Foods Marty Ordman about Flair Communications, Chicago, with which the packaged goods company has worked for more than a decade. Ordman notes that Flair doesn’t get upset if the company occasionally works with another shop “because they want to do what’s right for our business, too.”
The Age of Technology is giving marketers an unprecedented ability to reach consumers, which is decidedly both a blessing and a curse: a blessing because it makes the potential customer easier to access with increasingly more sophis ticated tools; a curse because the competition is employing all those same tools.
The Age of Technology is also the Age of Glut. And when it comes to reaching consumers in ways that make them take notice – that make them respond – no marketing discipline is better suited for the task than promotion.
“Brand-building was never about advertising. William Shatner can help get the word out, but he can’t sell a brand.” So said Priceline.com founder and vice chairman Jay Walker, while addressing a group of advertising, promotions, and p.r. executives last month during Richmond Events’ Marketing Forum, held aboard the Queen Elizabeth II. The comment elicited quite a few harumphs from the audience.
Walker’s main point was that advertising on the Internet “is a transient phenomenon” that “can’t possibly be sustained.” Marketing messages within the online network, which is destined to unite people (and, therefore, unite people and brands) in ways never before possible, will have to provide consumers with something that they need, be it information, entertainment, or a sense of community. “Marketers are writing the code for Internet activity,” Walker says.
And it looks like the key to that code will be promotion.
CHART BUSTERS
Maybe that’s why revenues among the promo 100 agencies have risen astronomically in the last two years. After jumping 31 percent in 1998, the combined revenues of the group soared 49 percent to $2.44 billion last year. It took these promotion agencies decades to reach a collective $1 billion in revenues, a plateau not surpassed until 1997. It has taken them only two more years to double the figure.
There are several bookkeeping reasons for this phenomenon. For one, the increased focus on promotions in the latter half of the 1990s has brought bigger players to the table: The 10 largest agencies in 1993 (the first year of the promo 100) had a combined $272 million in revenues. This year’s top 10 earners account for $1.3 billion.
In addition, the importance of the promo 100 in attracting new business – brand managers consult the rankings to help select new shops – often makes agencies pass on entering when their revenues take a downturn. (For more on that topic, see Basic Instincts.)
The list therefore presents a slightly rosier picture of the marketplace than is actually the case. The financial realities of the times – brands want better marketing strategies, but also demand greater cost-efficiencies – means that promotion agencies have to consistently earn their keep to gain a piece of the market’s overall growth.
Make no mistake about it, though, this market is growing rapidly. About 43 percent of marketers who responded to promo’s Promotion Trends 2000 survey, conducted in conjunction with the Promotion Marketing Association earlier this year (May promo), say they increased promotion expenditures in 2000. (Only 13 percent say they cut spending.) And the typical increase among respondents was 12.5 percent. Meanwhile, McCann-Erickson is projecting an 8.2-percent rise in U.S. ad spending this year.
Among the agencies who benefited most from promotion spending growth:
U.S. Marketing & Promotions, Torrance, CA, has seen net revenues skyrocket from $11.5 million in 1997 to $96.3 million last year as leading consumer packaged goods manufacturers – and a bevy of dot-com start-ups have hit the road for face-to-face meetings with consumers.
Event marketers have been in high demand all around. Road specialists including GMR Marketing, Group III Promotions, and M3 Marketing Group all had strong showings in this year’s rankings. M3 was purchased by industry consolidator Aspen Marketing Group shortly before this issue went to press.
Chancellor Marketing Group, Midlothian, VA, is far ahead of the field of media companies who’ve found full-scale marketing services to be a great way to build relationships with advertisers. The agency’s net revenues leapt from $8.9 million in ’97 to $43 million last year.
Promotions.com, New York City, which is leading the charge to Internet-based marketing strategies, is reaping the rewards of many a new-media start-up with a business model that seeks to embrace traditional agencies as partners, not competitors.
Upshot, Chicago, promo’s 1999 Agency of the Year, proved it was no flash in the pan by posting even stronger growth last year than it did in ’98 by producing stellar results for clients including Coca-Cola and Seagrams.
Creative Source International, Boise, ID, has thrived under a plan to specialize in high-tech clients – so much so that it became one of the latest acquisition targets of industry consolidator Aspen, Los Angeles.
Another high-tech expert, Irvine, CA-based Wilshire Group, was just acquired by Gage Marketing Group, Minneapolis.
Urge to Merge
There are other entities climbing the ranks through aggressive acquisition initiatives. Aspen – which also recently purchased erstwhile promo 100 members Luna Bacardi Group, Los Angeles, and B-12, New York City – continued on its course toward becoming a billion-dollar player. And three new aggregators emerged last year: Hawkeye Communications, Lighthouse Global Network, and Publicis SA.
Aspen has been on its spree for several years now. It consolidated its disparate pieces last summer, aligning business into four divisions: promotions, direct marketing, interactive, and corporate identity. Before that, the company worked on uniting back-end functions such as billing and warehousing, according to ceo Neal Vitale. The next step will be to hire a chief marketing officer who can begin coordinating cross-divisional pitches, Vitale says. “We trying to build an integrated marketing services company. This is where all the action is.”
Although Aspen will consider future acquisitions (it has two unannounced letters of intent right now) based on location or skill sets, “the bigger opportunity right now is in new client sectors” such as healthcare, entertainment, nonprofit, and travel, Vitale says.
Newcomers Hawkeye Communications, New York City, and Lighthouse Global Network, Chicago, are similarly looking to build full-service marketing services operations. Thus far their purchases have been more focused on service companies than agencies – although the former did acquire Dallas-based Marketing Continuum and the latter Davidson Marketing, Chicago.
Paris-based Publicis SA, meanwhile, became an instant industry force when it bought Frankel, Chicago. With Gage already on the hunt and both Flair and USM&P considering acquisitions, M&A activity could be even heavier in the second half of the year.
Promo shops are, of course, also being gobbled up by global ad agencies, who have a dual purpose for the strategy: gaining both the skill sets advertising clients are increasingly demanding and the higher-margin businesses called for by Wall Street.
Thus far, ad conglomerates Interpublic Group of Companies and Omnicom have done little to alter the promotions landscape, because they’ve undertaken little consolidation of their acquisitions – which in many cases are aligned with different divisions within the organization.
Attempting such an effort would be tricky, and could drive away the creative talent that made the agencies attractive acquisitions in the first place. “This is still a people business,” says Aspen’s Vitale. “We won’t do the deal if we can’t keep good people.”
True North Communications has given consolidation a shot, aligning many of its promotion pick-ups into one operating division dubbed Marketing Drive Worldwide, Wilton, CT. (McCracken Brooks Maier, Minneapolis, is part of the division but remains a separate business.)
“We believe there will be an acceleration of consolidation in global sales promotions, and we wanted to be able to truly service clients in that movement,” says True North chairman David Bell of the restructuring. “Marketing Drive is the second priority in our aggressive acquisition program, and it’s first and foremost in my mind,” says Bell. “This is something that I’ve wanted us to have for a long time.”
NAME GAMES
The adoption of the Marketing Drive name points to another recent trend: Changing names. While the advertising and promotions industries have traditionally been dominated by companies carrying the surnames of their principals, the strategy now is to create a “brand” that can succinctly tell an agency’s business story (and which won’t become outdated when the principal leaves). Over the past year, Wunderman Cato Johnson has become Impiric, Davidson morphed into Communicator, Inmark Enterprises repositioned as CoActive Marketing, and Promotion Development Group reorganized as Vertical Mix Marketing.
“One of the big concepts we push to clients is branding,” says Mickey Jardon, president of Marketing Drive’s Promotion Group Americas division. “To make that relevant and make it believable, we’ve got to have the same name.”
Whatever it may be called, or whichever holding company may own it, a promotion agency’s success is still based on the same factors as always. “An agency needs to deliver sound business results, it needs to be consistent from a strategic standpoint, and it has to be creative,” says ConAgra’s Robert Baker (who recently hired Flair as agency of record for those very qualities). “You obviously need an understanding of new media, but I don’t think the principles have changed that much.”
Growth in the promo 100 is testament to that.
To qualify for the promo 100, agencies were required to submit either copies of their corporate tax returns or a letter from an outside auditor certifying their gross billings and net revenue (gross billings minus charges passed through to clients, such as premiums or printing) for the years 1997, 1998, and 1999.
promo ranked every qualified agency three separate times – once according to 1999 net revenue size, once according to 1997-1999 net revenue growth rate, and once according to number of years in business. This process provided three separate numbers for ranking purposes.
The numbers for net revenue were then multiplied by 2.2 and the growth rate numbers multiplied by 1.8 to give the overall ranking a 44-36-20 ratio, making net revenue a slightly more important factor than growth rate, and agency age less determinant than the financial data.
Example: U.S. Marketing & Promotions ranked No. 6 in net revenue, No. 2 in growth rate, and No. 46 for years in business. The net revenue rank was multiplied by 2.2 to produce 13.2, and the growth rate rank was multiplied by 1.8 to get 3.6. These two figures were added to the years in business rank of 46 for a total score of 62.8, making it the lowest total on the list.
By combining size, growth, and longevity, the promo 100 ranking provides a broader and deeper picture of promotion agencies than would revenue size alone. promo also ranks agencies by revenue size for those who think size does matter more, as well as by growth rate for those who like agencies on the rise.
Agency principals who chose not to re-apply for the promo 100 this year basically offered five different reasons why they chose to lay low:
1. We just got acquired.
2. We’re about to be acquired.
3. We had such a bad year, we’re too embarrassed to enter.
4. We had such a good year, we’re too busy to enter.
5. We’re no longer focused solely on promotion.
– Of those, only No. 1 is verifiable, and we’ve identified these agencies below.
Alliance Promotions
Andover Marketing
B-12 (Acquired)
Co-Options, Inc.
Diamond Group (Merged with Momentum)
D.J. Gorman (Out of Business, See Agencies, p.62)
Daymark (Acquired)
Fusion 5 Innovation Marketing
Highway One Communications
ICE, Inc.
Innova Marketing
Langworth Pantel Group
Luna Bacardi (Acquired)
Maier Marketing (Acquired)
Reach Marketing
Strottman International
WatersMolitor, Inc.
– Only time will tell if those offering the second excuse prove sincere.
– We appreciate the honesty of No. 3 (given “off the record,” of course).
– We’re always skeptical of No. 4, because No. 3 is more often closer to the truth in these cases.
– We’re scratching our heads over No. 5, because we don’t really know of any member of this year’s promo 100 that still considers itself strictly a promotions agency. But hey – to each his own.
Eagle-eyed readers may notice that the revenue total for promo 100 agencies featured in this issue is different than the one reported in our Annual Report of the U.S. Promotion Industry in May.
Why? Until this year, the Annual Report has been published in July – after promo’s editors completed the always arduous task of questioning financial submissions, verifying numbers, haggling with agency principals, and making whatever changes are necessary.
Having moved the Annual Report to May this year, the figure we reported last month – $2.178 billion, for the record – was the total net revenues of the promo 100 agencies before promo’s editors finished verifying all entries. Alas, some agencies’ totals were not quite as high after the tax forms and auditor’s letters arrived.
In addition, promo subtracted a portion of total agency revenues this year to avoid overlap with the new games/contests/sweepstakes segment of the report.
The final number: $2,435,710,888.
