Creeping Confidence

It’s always heavily qualified by “Depending on the war situation…,” or ”Barring a double-dip recession…,” but a perceptible note of confidence has crept back into the way promotional marketers talked about their business, especially in the second half of 2002.

While not all promotion segments reported growth, in sum, they grew by a respectable 3.7 percent (if the stock market could only do that, we’d all be happier). Of the 14 industry segments that PROMO tracks, only one (specialty printing) actually declined, and even that was a smaller drop than in 2001, when revenues fell 3.3 percent. Agency net revenues, fulfillment and interactive/Internet marketing, as well as agency net revenues, actually posted double-digit growth, while other segments saw solid single-digit increases (see Chart 1).

The broader news is even better. For the first time this year, PROMO has included event marketing in our annual calculation, and the addition of this blockbuster category has more than doubled our reported size of the industry. In the 2002 Annual Report, we estimated spending on promotional marketing reached $98.6 billion in 2001. This year, we reckon that in 2002 — with event marketing taken into account — promotions reached over $233 billion.

And while promotion practitioners have often thought of themselves as the “Avis” of marketing, the No. 2 fues who try harder, that status is clearly a thing of the past. When PROMO data is weighed against findings generated by Intellitrends in a survey it conducted earlier this year for George P. Johnson Co., promotion actually accounted for more marketing dollars than advertising in 2002 (see Chart 3).

In fact, in the 2003 Promotion Trends study, co-sponsored by PROMO and the New York City-based Promotion Marketing Association, brand marketer respondents said that over 57 percent of their marketing dollars went to trade or consumer promotion, while 37.7 percent went to advertising. Granted, this select group (PROMO subscribers and PMA members) has a predisposition towards promotion, but their response underscores the Intellitrends report. It’s worth noting that Intellitrends found a slightly larger percentage of spending was in consumer promotion last year than the year before (30.7 percent, compared to 29.3 percent in 2001), while trade promotions lost ground (going to 26.6 percent from 29.7 percent in 2001), in part to marketing activity other than promotion or advertising. Reported spending on advertising was basically flat at 37.7 percent.

CEOs are getting it

A more telling indicator of the rising status of promotions as a strategic tool is the increasing involvement of CEOs. Brand promotion is where the brain power is going these days, and CEOs, presidents and company owners are providing more of the juice needed for developing marketing that moves sales and enhances the brand. Marketing executives in the 2003 Promotion Trends study said that 64.6 percent of their top management was involved in marketing decision-making, while 50.9 percent were involved in decisions impacting promotions. However, 31.4 percent said company brass stayed out of the marketing/promotion equation altogether.

Who else gets to call the promotional shots? While 56.6 percent of the time it’s executive management (CEO, president, VP or owner), it may be a director of promotions (40.6 percent of the time), promotion manager (34.3 percent), or brand manager (34.9 percent). Even assistant brand managers (12 percent) and promotion agency executives (18.3 percent) get to chime in.

Few companies use promotions to just move the sales needle. Despite the pressure on sales in the past year, most marketers see integrated promotional marketing as a way to win both short-term sales objectives and longer-term brand loyalty goals. A majority of brand marketers (53.1 percent) reported that they used promotions to an equal extent for both tactical and strategic purposes; another 12 percent predominantly used promotions to further strategy. Only 34.9 percent used them for purely tactical ends.

Among the agency executives surveyed for the 2003 Promotion Trends, 57 percent reported that their clients measure brand awareness when evaluating a given campaign’s effectiveness, while they also noted incremental sales (51 percent) and response rates (45.8 percent) as top priorities.

Given the complexity of integrating such a mixed bag of people, objectives and methodology, it comes as no surprise that a majority (52.6 percent) of brand management respondents plan their promotional strategy from the ground up as part of their overall marketing strategy. Another 16.6 percent develop promotion separately but simultaneously with marketing, while 30.9 percent admit that that promotion comes on their radar screen only after other disciplines (including advertising, direct marketing and p.r.) are locked in.

What was a surprise was the importance these marketing teams placed on the measurement of their efforts last year. Fully 44 percent of survey respondents said they didn’t measure the ROI of their promotions — and this in a discipline that has always prided itself on its quantifiability. Of those who did measure, there was some discontent with available metrics systems; 19.4 percent said they were looking for new methods for measuring their impact in 2003. And two groups said they were planning to use metrics adopted since 2001 (17.1 percent of those surveyed) or even metrics developed before 2001 (another 17.1 percent).

The measurement complacency reported for 2002 may be waning, however, as 70.2 percent of companies said they planned to put ROI on a higher priority in 2003. And 72.4 percent of promotion agencies think it is a high priority for their clients.

Ready for a comeback

If the long-hoped for turnaround in spending began in the second half of 2002, as all of PROMO’S data — statistical and anecdotal — indicates, what’s in store for the rest of 2003?

How much impact, for example, might a war in the Middle East have? Conventional wisdom and history say that a quick victory over Iraq could jumpstart the sagging economy and boost consumer confidence (at least among Americans). But that’s not necessarily so, according to J. Walker Smith, a consumer trends analyst and president of Yankelovich Inc., Chapel Hill, NC.

“It is inaccurate to compare America’s pending conflict with Iraq to the outcomes of the 1991 Gulf War,” Smith said. “The economic landscape is vastly different now. It is up to the business world to actively engage consumers in the marketplace should Congress declare war with Iraq. We can’t pull back. We have to advertise. We have to market. It’s an affirmative obligation we have both to our brands and to the economy in general.”

According to the 2003 Promotion Trends study, marketers are ready and eager to step up to that charge. Of the 220 respondents in the study, 30.9 percent reported they would be increasing their 2003 consumer promotion budget over 2002 spending. That compares to a more cautious 25.9 percent who planned to increase spending in 2002. Another 53.1 percent say they are standing pat in 2003, while only 13.1 percent are cutting into consumer promotion spending this year.

He also serves who stays and promotes.

CHART 1

Promotion Industry

revenues

CHART 2

Slow Growth

history

CHART 3

Promo vs. Ads

total

CHART 4

The Mix

strategies

CHART 5

Allocations

share

CHART 6

Expectations

future