Results Rule!

Posted on June 1, 1999 by Chief Marketer Staff

It’s a good time for the promotion business.

It’s a time when the deepest of the deep-pocket marketers are embracing below-the-line activities as the bottom-line method of homing in on targets. “The days of putting all our dollars in TV and other advertising are over. It’s not the most efficient way of reaching consumers,” a marketing honcho for one giant packaged goods company told us during our PROMO 100 research. “We’re making a major, major shift in the way we manage our business.”

It is a time when an agency that didn’t exist in name or current philosophy only five years ago – Upshot – is taken seriously in the boardrooms of global, consumer marketing powers. “Most of our clients agree they are operating in a constant state of change. They are looking for marketing solutions, and they are throwing out all notions of the past,” says ceo John Kelley of Upshot, our Agency of the Year.

It’s a time when the brand czars of America are under fire to produce immediate, measurable results for their stockholder lords and masters, and it is promotions, not TV spots, that deliver the goods quarter-by-quarter. That’s why big, national promotion campaigns are no longer the sole province of package-pushers like Coca-Cola and Kraft, but also of Visa, Levi’s, Oldsmobile, Microsoft – even the U.S. Postal Service. “Five years ago, 80 percent of our business was packaged goods,” says Randle Grossman, ceo of Bridgewater, NJ-based full-service agency GWP. “Now, it’s more like 50 percent packaged goods and 50 percent other.” GWP handles Summit Bank and just picked up the Key Bank account.

And it is a time when Wall Street is paying more attention than ever to promotion marketing agencies, the best of which are slobbered over by communications holding companies the likes of Omnicom and Interpublic (see box on page 66). “Agency holding companies love below-the-line marketing companies because they offer better margins [than ad agencies], they’re less cyclical, and they round out their product offerings,” says Peter Nesvold, an analyst for the blue-chip banking firm of Brown Brothers Harriman in New York City, who says he spends half his time following marketing services companies. He doesn’t expect the acquisition binge to end any time soon.

Does that mean we’ll soon be reduced to publishing the promo 75? Not likely. “The great thing is that this is an industry that reinvigorates itself,” observes Nesvold. “An agency gets bought, a group of creatives not happy with the corporate structure go form their own agency, and five years later they sell it for $15 million.”

ONE HUNDRED STRONG Indeed, the High-Flying Hundred is testing the stratosphere. Only three years ago, total net revenue of the PROMO 100 agencies was still a hair below $1 billion. The 1999 list combined for net rev of $1,636,958,435, a dizzying 31-percent rise from last year.

Agencies looking to make the list were asked to supply the front pages of their tax returns for 1996-98. If they wouldn’t or couldn’t, a signed letter from an outside accounting firm verifying their stated figures was required.

Submitted qualification forms were checked thoroughly by magazine staffers, who personally called chief executives or chief financial officers at more than half of the applying agencies to check discrepancies with previous years’ figures, or numbers that didn’t seem to conform to accepted industry norms.

Once again this year, promo used as a guideline a 1997 member survey by the Association of Promotion Marketing Agencies Worldwide. The group established that the average net revenue per employee among its member agencies came to $110,000. promo staffers applied that number to weed out suspect applicants or to procure explanations as to why certain agencies’ averages far exceeded or undershot the APMA norm (see box below). As a service to readers, each agency’s per-capita net revenue appears in its listing.

It must be emphasized that the PROMO 100, unlike lists such as the Fortune 500, is not a ranking based on straight revenue. Net revenue and two-year revenue growth percentage have equal bearing on where an agency is likely to be placed on our list (see How We Did It on page 65). That’s because our aim is not just to shine a spotlight on size, but also on spectacular recent performances by up-and-coming shops.

And so you will find a Robinson & Maites, with net revenue of $4.9 million, nestled in between Frankel & Co. ($86 million) and Wunderman Cato Johnson ($140 million) on our Top 20. Our goal is to point out that R&M doubled its size in the past two years, a development worth noting.

Conversely, it could be a mistake to read too much negative into a precipitous drop in the ranking of an established agency. Louis London, for instance, sank from No. 20 last year to No. 38 this year, even though it posted a respectable 15-percent growth in net revenue to $26 million. It’s not often that large agencies put up triple-digit increases.

Other highlights among the PROMO 100:

* DraftWorldwide knows how to make a grand entrance. It weighs in at No. 1 in its first year on the list, with net revenue of $177 million and two-year, acquisition-bolstered growth of 216 percent.

* Sampling and event monster U.S. Marketing & Promotions gets even scarier, shooting to the No. 3 spot. Its phenomenal rise to $44 million in net revenue from $11 million in ’97 was due to the company’s capture of the bulk of Procter & Gamble’s sampling business. And hold on to your seats: ceo Jason Moskowitz forecasts an equally stupefying increase for ’99.

* Another first-timer, Chancellor Marketing Group (No. 13), signals the dawn of a significant trend: radio networks marshalling their local market clout to enter the full-service agency business. Mirroring the move is the Boston-based CBS Promotions Group, which could not produce the necessary financial verification in time to make this year’s list.

* Market Growth Resources (No. 33) returns to the PROMO 100 after a one-year hiatus. Parent company True North was reticent to break out the agency’s numbers in ’98, but it came through this year.

* The 17-percent net revenue drop at Gage Marketing Group (No. 61) is not due to tough times, but a new direction. The agency cut loose its back-office Marketing Services division to fund new projects and acquisitions to carry it into the new millennium.NO END TO GROWTHAs impressive as is this year’s PROMO 100 showing, there are no signs of growth abating. Established brands keep shoveling more resources below the line (this summer’s Coke Card program will involve creation of the world’s largest voice-mail system), new categories and companies are making marks in the discipline (multiple Reggies this year for the U.S. Postal Service), and the Internet continues to present itself as a promotion marketer’s dream.

“There are big brands being created by the proliferation of Internet users,” notes evp Shireen Moore of Davidson Marketing, one of Microsoft’s lead promotion agencies. “And it’s not only the increased promotional activity they bring online. They need to do offline promotions to get people to their sites. EToys, one of the most successful new e-commerce companies, is using FSIs and direct mail.”

There is also no end in sight to the corporate lust for measurable results that is floating so many agency boats – though the movement has sprung a few leaks that could lead to the scuttling of some strategic relationships with promotion pros. Many large but cost-conscious clients have taken the agency hiring function away from marketers and turned it over to purchasing and procurement agents, who in some cases receive incentives for nailing the best price.

“The reality is that, more and more, we’re dealing with purchasing professionals whose goal is to negotiate the price down, and who don’t understand both sides of the equation,” says Frankel president and chief operating officer Dave Tridle. “We sometimes have to go in and say, ‘Look, here’s the kind of work we do, and here’s the profit we expect to make,’ and walk away if that doesn’t suit them. It’s really hard to buy good ideas by the pound.”

And, judging from the results of this year’s PROMO 100, the price of a pound of prime promotion is on the rise.

In a 1997 survey of its 79 members, the Association of Promotion Marketing Agencies Worldwide found that the average net revenue per promotion agency employee was approximately $110,000. Due to the varying nature of business at different agency types, or allowing for gain or loss of accounts, APMA determined that 30% above or below that benchmark could be considered a reasonable per-capita revenue range for a promotion agency. “Productivity per headcount outside this range,” concluded the APMA study, “should be questioned to ensure valid comparisons.” For comparison’s sake, this year’s PROMO 100 listing includes the average net revenue per employee for each agency.

To qualify for the 1999 PROMO 100 ranking, agencies had 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 less charges passed through to clients, such as premiums or printing) for years 1996, 1997, and 1998.

PROMO ranked every qualified agency three separate times – once according to 1998 net revenue size, once according to 1996-98 net revenue growth rate, and once according to the number of years in business. This process provided three separate rank numbers.

The numbers for net revenue size and net revenue growth rate were then multiplied by two (2) to give the overall ranking a 40-40-20 ratio, making agency age less of a determinant than the financial factors. The three rank numbers for each agency were added together to arrive at a total score on which the final ranking is based.

EXAMPLE: DraftWorldwide ranked No. 1 in net revenue, No. 10 in growth, and No. 25 for years in business. The net revenue and growth ranks were each multiplied by two (2) to get 2 and 20, respectively. These numbers are added to the years in business rank (25) for a total score of 47, 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. Net revenue size and growth rate are weighted higher to recognize older agencies with high revenue numbers and young agencies with high growth rates.

Agencies have lots of reasons for not re-applying for PROMO 100 status – some good, some not so. Having been acquired is a good reason, silence or “We forgot” often indicates a poor year that could cause a steep drop in ranking. Here, in alphabetical order, are 1998 PROMO 100 alumni that didn’t apply this year, followed by the excuses of those who offered them.

Alba Kids

Beyond DDB

Columbian Advertising

Acquired by Ammirati Puris Lintas last fall. Would not break out financials.

D.L. Ryan Companies

D.L. Blair, Inc.

Rolled into parent DraftWorldwide’s listing.

DD&A

Johnson-Rauhoff

Patrick Promotion

Plus Marketing/CBS

Part of CBS Promotions, which didn’t file.