*PROMO 100: Strategic Planning

Posted on June 1, 2001 by Chief Marketer Staff

PROMO 100 TOC:

Media advertising has taken a beating lately.

With the ecomony faltering and brand marketers looking for more efficient ways — both in terms of cost and response — to reach consumers, the effectiveness of media advertising is criticized on a near-daily basis. (We’ll ignore the irony that much of the media-bashing is coming through, ahem, the media.)

Not that promotion marketing has escaped unscathed. Sluggish sales at the start of the holiday 2000 shopping season sent most retailers scrambling to reduce prices. The tactic worked, as it so often does. But it also forced more than a few public companies to blame their fourth-quarter profit declines on “heavy promotional activity.” You live by the discount, you die by the discount.

That equation of ‘promotion’ with ‘price discount’ is a perfect segue into a discussion about the state of the industry. Because the industry’s growth in recent years has been fueled by an increasingly sophisticated view of promotion as a dialog-inspiring, brand-building strategy rather than as a price-reducing, equity-diluting tactic.

Net revenues among the agencies in this year’s PROMO 100 did not increase 12.9 percent to $2.73 billion because promotion is just a short-term sales builder or because it’s a long-term customer acquisition and retention tool — but because it’s both, and therefore is at least twice as effective as traditional advertising.

To be honest, that 12.9 percent increase in net revenues doesn’t quite stack up to past years: PROMO 100 agencies posted a whopping 49 percent increase in net revenues in 1999, and an equally impressive 31 percent in 1998. But the industry was changing rapidly in those years: Acquisition-minded companies were snacking on their U.S. competitors and establishing formal connections with overseas affiliates, so much of the growth came through acquisition and expansion; this year’s increase is more representative of an actual rise in business.

Meanwhile, U.S. advertising agencies posted a similar 12.4 percent rise in gross income to $259.3 billion, according to Advertising Age’s annual Agency Report. But that total includes a significant amount of revenue from promotion and other marketing services, because ad agencies now consider themselves marketing communications companies.

That trend, of course, takes its lead from client-side, where marketers are increasingly looking for better results from their efforts. “What clients used to want is a great idea and a fun ride,” says Jim Holbrook, president of outgoing Agency of the Year Zipatoni (No. 23), St. Louis. “What they want now is to not get fired.”

A recent study conducted by Westport, CT-based Reveries.com/IntelliSurvey for Veridiem, Inc. found that 66 percent of marketers from brands and agencies believe that a program focused primarily on mass media is no longer feasible for most brands. Forty-five percent of those respondents said they’re spending more of their budgets on promotion and p.r.; 50 percent said their spending on TV advertising has decreased.

“The truth is, we don’t make a distinction between advertising and promotion. Our job is to leverage our clients’ brand equity in whatever way we can,” professes Mark Shapiro, ceo of Momentum (No. 5), PROMO’s Agency of the Year for 2001. But Shapiro didn’t make those comments recently. He made them back in 1995, when his shop — then called Louis London — received the same recognition.

Momentum was the most talked-about agency in the industry last year in large part because it puts Shapiro’s past thoughts into currant practice: Develop a discipline-blind plan of attack that brings a brand into meaningful contact with consumers. (For the full Momentum story, see pg. 56.)

So this confluence of marketing disciplines is nothing new. But it has picked up extra steam now that technology practically demands it. Passive acceptance of brand communications is over. Consumers need — in some cases, are even demanding — a good reason to pay attention. And marketers are now fully prepared to give it to them — to develop what Procter & Gamble ceo A.G. Lafley calls “personal relationships.”

“We’re not keeping track of disciplines here,” says Daniel Morel, new ceo at Impiric (No. 10). “We’re looking at the business from the point of view of the client.”

Here’s to the Winners

With acquisitions slowing, growth among the PROMO 100’s larger agencies declined. Last year, 13 of the 25 fastest-growing agencies had net revenues greater than $10 million; this year, only seven of the 25 do. (See pg. 104.)

The greatest gains of the year came among event marketing specialists, led by New Berlin, WI-based GMR Marketing (No. 2), which has more than doubled net revenues since 1998 to $44.4 million as more brands have chosen to take their messages out for a spin. But GMR didn’t take the ride alone: Smaller event-focused agencies such as Creative Alliance Marketing & Communications (No. 41), Marketing Werks (No. 60), Momentum Marketing Services (No. 60), and Javelin (No. 79) have all doubled revenues since ‘98.

Among other industrious growers:

— Chicago-based 141 Communicator (No. 6), which had its name changed yet again last year, saw revenues rise 163 percent to $22.4 million as the erstwhile Davidson Marketing became the centerpiece of a marketing services consortium created by Lighthouse Global Network. (More on them later.)

— Marketing Drive Worldwide (No. 3), Wilton, CT, completed its merger of the numerous promo shops assembled by parent True North and saw a 173-percent jump in revenues to $84 million. (More on them later, too.)

— Promotions.com (No. 13), New York City, had the second-fastest growth on the list, and thus served as a prime example of the Internet’s agony and ecstasy in 2000: Revenues soared through most of the year, even as the public company’s stock price plummeted. By the end of 2000, the company had slashed its work force in half. And while its core agency network was gaining steam as an online partner for brands and other agencies, its cash-cow Webstakes.com began to deflate.

— Noble & Associates (No. 11) parlayed its skills in the food service arena to nearly triple revenues to $8.1 million. (Yes, more later.)

Who’s Buying Now?

Acquisition activity cooled off somewhat, although just about every major industry consolidator scored itself an event specialist during the year: Omnicom Group bought U.S. Marketing & Promotions (No. 8), DraftWorldwide (No. 1) acquired Group III Promotions, Aspen Marketing Group (No. 9) purchased M3 Marketing Group, and Marketing Drive picked up Event Management & Promotions.

The biggest news was generated at the top of the industry, where the consolidators themselves began to converge. Chicago-based Lighthouse Global Network, which had put together a $159 million network in just two years, surprisingly sold to U.K.-based Cordiant Communications. That alliance brought together the aforementioned Communicator with Cordiant’s 141 Worldwide.

Lighthouse principal Terence Graunke, however, jumped right back into the game in October by acquiring Morristown, NJ-based DVC Group (No. 35) and promising to build a network around it.

Soon after news of that deal broke, Los Angeles-based Aspen announced that it would explore “strategic alternatives.” Having spent four years compiling 13 different agencies, Aspen decided that “the wave of consolidation is kind of hard to ignore,” according to ceo Neal Vitale. (They should know.)

The biggest deal happened in early 2001, when New York City “marketing communications” networks Interpublic Group of Companies (Draft, Momentum) and True North Communications (Marketing Drive) unveiled merger plans. Expected to close later this year, the deal will put one-fifth of total PROMO 100 revenues, or $552.4 million, under one umbrella. In comparison, Omnicom’s various interests (see chart) total $356 million, or 13 percent.

And there are plenty of deals in the wind, both of the big and small variety. New York City-based Grey Advertising, owner of J.Brown/LMC Group (No. 34) is expected to be one of the next major ad agencies to be sold. And at least two small (but high-profile) independents on our list are in play. Los Angeles-based Equity Marketing (No. 18) is on the acquisition hunt, and executives at Wakefield, MA-based Cyrk, Inc. — which sold its name along with its corporate promotions division in March — are still “exploring options” for kids and entertainment marketing unit Simon Worldwide (No. 30), Los Angeles, according to a spokesperson.

The agency everyone expected to be sold, Chicago-based Upshot (No. 15), however, remains under the control of Ha-Lo Industries, Chicago. Although the 1999 Agency of the Year was shopped around in the second half of 2000, “I don’t see anything happening in 2001,” says ceo John Kelley.

David vs. Goliath

Consolidation isn’t for everyone, as the Cyrk and Ha-Lo examples prove. But many global brands are demanding global capabilities. “Clients want to have one or two points of contact around the world” for large-scale relationships that can bring cost efficiences, says Morel.

But for every story like the one Momentum or 141 Communicator tells, in which corporate ownership brings a wealth of resources and business opportunities, there’s a tale of woe (told off the record, of course) about network life bringing nothing but unreasonable profit demands and squelched creativity.

Kelley says Upshot’s affiliation with Ha-Lo has produced “neutral” results due to the parent’s recent financial difficulties. Principals at Grand Group, Chicago, a member of the 2000 PROMO 100, recently bought the shop back from Toronto-based Wolf Group; Big Fat, Inc. (No. 100) launched in 1999 with seed money from Omnicom that was later returned by principal Jonathan Ressler.

Many agencies feel business partnerships will be crucial to future success. Zipatoni, which kept its independance but gained resources by selling a 49-percent stake to Interpublic, is now establishing alliances with Interpublic units D.L. Blair (for back-end functions) and NFO Research (for evaluation efforts). It is also seeking partnerships overseas (as is No. 16 Ryan Partnership). “We don’t think we’ve lost any business to ‘globalized’ agencies,” says Holbrook. “But we don’t want to end up a regional player.”

Not that a regional focus or niche capabilities are necessarily a bad thing. Just ask Integer Group (No. 19) about the former. And ask Noble about the latter: the 32-year-old shop has done quite nicely handling trade programs for CPG food service units. “I don’t know if I believe in full-service agencies. We look to outsource for different applications,” says Catherine Phillips, vp-marketing at Springdale, AZ, Tyson Foodservice, which has used Noble for more than 25 years.

That’s what makes the promo 100 so interesting. Full-service global conglomerate or a specialized boutique, every shop has an equal chance of looking large.

HOW WE DID IT

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 years 1998, 1999, and 2000. In some cases, letters from the chief financial officer of an agency’s parent company were accepted.

PROMO ranked every qualified agency three separate times — once according to its 2000 net revenue, once according to its net revenue growth rate for 1998-2000, and once according to number of years in business. This process provided three separate numbers for ranking purposes.

Those three rankings were then weighted to produce a 44-36-20 scale in which net revenue became a slightly more important factor than growth rate, and agency age less determinant than the financial data.

Example: DraftWorldwide ranked No. 1 in net revenue, No. 29 in growth rate, and No. 23 for years in business. The net revenue rank was multiplied by 2.2 to produce 2.20, and the growth rate rank was multiplied by 1.8 to get 52.2. These two figures were added to the years in business rank of 23 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 the 25 fastest-growing shops) for those who like their agencies on the rise.

REASONABLE REVENUE RANGE

The Association of Promotion Marketing Agencies Worldwide (APMA) estimates the average net revenue per employee for promotion agencies to be $130,000. Due to the varying nature of business at different types of agencies, APMA determined that a per-employee level 25 percent above or below that benchmark can be considered a reasonable range for a promotion agency.

Productivity outside that range should be questioned, APMA suggests. For the sake of comparison, the PROMO 100 list includes per-employee revenue figures for each agency, although the information does not have any impact on the rankings.

THE MIAs

The list of agencies in the 2000 PROMO 100 that didn’t enter in 2001 is a little shorter than it has been in previous years. Principals at those agencies who were contacted by PROMO provided a variety of reasons for their decision, most of which were related to some kind of change in ownership or corporate structure. One said (on condition of anonymity) that it was in merger talks. Several others cited (also off the record) a decline in business.

The following is a full list of those agencies. Acquisitions are noted below, and agencies whose reasons require a little more explanation are covered in Agencies (pg. 48).

Adair Greene Marketing Communications
Acquired by McCann-Erickson (Interpublic)
b. little & Co.
Carlson Draddy & Associates
Chancellor Marketing Group
Restructured (See Agencies)
Creative Source International
Acquired by Aspen Marketing Group (No. 9)
Grand Group Changed ownership (See Agencies)
Group III Promotions
Acquired by DraftWorldwide (No. 1)
ImageNetwork Acquired by Blue Moon Interactive
M3 Marketing Acquired by Aspen
PremiereGroup Changed ownership (See Agencies)
Prism Marketing & Communications
Publicis Dialog
SJI, Inc.
SPAR Group
Waylon Co. Acquired by Momentum (No. 5)
Wilshire Group Acquired by Gage (No. 51)

INDUSTRY SHAPERS

A snapshot of the companies driving consolidation in the promotion industry. Italicized agencies are in the PROMO 100; bolded companies were members before they became acquisitions.

ASPEN MARKETING GROUP (No. 9)

B-12
Creative Source Int’l
M3
Norris Sales Co.
Luna Bacardi
Schmidt-Cannon
Creative Marketing
JG Promotions
Hanig & Co.
Phoneworks
Corporate Trademarks
Premium Source Merchandising

HAWKEYE COMMUNICATIONS (No. 21)

Marketing Continuum
Cohesion Marketing
Interactive Media Solutions
Creative Comm. of America
The Convergency
FFwd Precision Marketing
Triplefin
Mosaic Marketing
DPS Creative

INTERPUBLIC GROUP OF COS.

DraftWorldwide
— D.L. Blair
— Group III Promotions
— Sloan Group
Momentum
— Diamond Group
— Waylon Co.
Adair Greene
The Botsford Group
Marketing Corp. of America
Zipatoni (49%)
Campbell Mithun (CME
Promotion Marketing)
Miller/Huber
Campbell-Ewald

TRUE NORTH (merging with Interpublic)

Marketing Drive Worldwide
— Market Growth Resources
— Impact Communications
— Wells Marketing
— The Properties Group
— McCracken Brooks
— Maier Marketing
Imada Wong (49%)

CORDIANT COMMUNICATIONS

141 Communicator
Davidson Marketing
International Sports Marketing
Fantastic Sports
Fitch plc
Primo Angeli
Sports Pro Hawaii
141 Worldwide

OMNICOM

Alcone Marketing
GMR Marketing
TLP, Inc.
Integer Group
U.S. Marketing & Promotions
InterOne Marketing (formerly
Ross Roy)
DDB Worldwide (Beyond DDB)

PUBLICIS SA

Frankel & Co.
Gramercy Group
Publicis Dialog
Burrell Communications (49%)

WPP GROUP

Einson Freeman
Impiric

OTHERS OF NOTE

Of course, not every agency with significant interests in promotion marketing chooses to enter the PROMO 100. The following is a list of noteworthy shops that have not been part of the rankings but are worth a look.

Burrell Communications, Chicago
Minority owned (49%) by Publicis, Burrell specializes in consumer marketing to African-Americans and young urbans.

Carlson Marketing Group, Minneapolis
The direct and incentive marketing giant has promotion revenues in the $200 million range.

Campbell-Ewald, Warren, MI
This Interpublic division generates about $94 million from marketing services, including interactive.

CommonHealth, Parsippany, NJ
A sister to Einson Freeman, with which it operates an EinsonHealth promotion business, this healthcare specialist and WPP unit has net revenue in excess of $200 million.

Imada Wong, Los Angeles
This Asian-American marketer is small (13 employees) but well known as experts in its field. Minority owned by True North.

InterOne Marketing Group, Troy, MI
In its previous life as Ross Roy Communications, this customer relationship marketing agency was ranked No. 1 in the first year of the PROMO 100. It now is a near-exclusive partner of DaimlerChrysler.

Kang & Lee, New York City
This Asian-American marketing specialist is owned by WPP Group’s Young & Rubicam division.

Maxxcom, Toronto
Majority owner of Source Marketing (No. 31), this consolidator also lists Minneapolis-based full-service shop Colle & McVoy among its holdings, and reportedly has been speaking with other promo shops.

Modem Media, Norwalk, CT
Another former PROMO 100 shop, this digital marketer’s net revenues hit $134.3 million in 2000. Partially owned by True North.

The Promotion Network, Dallas
This under-the-radar shop has developed some great campaigns for the likes of Nabisco and Gatorade. It has offices in New York City and Chicago.

Publicis Dialog, Salt Lake City, UT
This p.r. and marketing services unit includes what once was Gramercy Group, a New York City-based promotion shop and PROMO 100 alumnus.

RPMC, Calabasas, CA
This 20-year-old shop specializes in entertainment-based event marketing, and is expert in managing travel-prize packages.

UniWorld Group, New York City
In a relationship similar to Burrell’s affiliation with Publicis, this ethnic marketer is minority owned by WPP.