Wish You Were Here

As the economy made its barely perceptible turn to recovery, brand marketers continued to shift spending from media advertising to promotional marketing in 2002. As brand executives insisted on greater ROI measurability for their marketing dollars, agencies that provided integrated marketing, event marketing and related services reaped the benefit.

As reported in the 2003 Annual Report (PROMO April), combined spending in 14 categories of promotional marketing grew 9.7% last year, and agency net revenues grew by 14.8% to $3.2 billion. While this didn’t compare to the high-flying late ‘90s — net revenue grew a red-hot 31.7% in 1998 — it was a clear improvement over agencies’ 9.4% growth reported for 2001.

In a turnaround from two years ago, a full 76% of the agencies polled by PROMO researchers for the Annual Report said that they had maintained or grown their businesses in 2002. Typically, it was the smaller shops (with revenue under $1 million) that saw the healthiest growth across the three years measured here, jumping by an average of 20.5% in 2002. Mid-sized agencies (revenue from $1 million to $10 million) averaged 18% growth, while the largest firms (revenues over $10 million) reported growth closer to 15%.

The growth statistics are less dramatic among the companies included in this ranking, mostly because the majority are among the larger shops. For the companies ranked here, growth averaged 3.8% in 2002 (reaching $2.5 billion), as compared to — 0.04% (when revenues dipped to $2.4 billion) for those same companies in 2001. The doldrums of 2001 held over into the first half of 2002, but agencies reported a steady increase in RFPs from June 2002 on.

For a lot of these agencies, the much-needed revenue boost came from new business, as several major accounts shifted during the year. For example, DVC grabbed Nestlé, Britvic, Nokia and Sony Ericsson (for more on our Agency of the Year, see p. 44); 360 Youth won new business from Procter & Gamble’s Old Spice; PowerPact brought in work from YUM! brands, FX Network, Clorox Automotive (STP and Armor All) and Mattel. Of course, most new-account wins meant a loss for some other agency in the industry.

For all the shifting, a growing percentage of promotion firms were designated AOR for assorted brands: Eric Mower & Associates won AOR status from Fisher Price for its work on the Little People account; DVC won Gillette; The Guild Group is now AOR for Maxwell House Coffee, General Foods International Coffee, Starbucks and Warner Bros. Feature Films, among others; Diageo named CoActive AOR for on-premise events, while Kikkoman made the agency its AOR after seven years of project-based work.

In fact, advertising agencies are reportedly losing retainer status with brands and finding themselves shifted to project work. (P&G and Unilever have done this with several niche lines; for example, P&G’s Daily Defense shampoo and conditioner was shifted earlier this year from Publicis Groupe’s Kaplan Thaler Group to Barefoot Advertising of Cincinnati, which got the account as project-only.) The opposite seems to be occurring with promotion firms as they gain the long-term confidence of more clients.

That was good news for agency executives, and perhaps even better news for their staffers in all levels. The layoffs seen at large and small agencies during 2001 had cut deep but leveled off during 2002. In fact, there were several anecdotal examples of shops ramping back up within creative and operational divisions.

Conspicuous absence

But there are several major agencies that either couldn’t or wouldn’t share the specifics of their good news this year. In fact, you may notice if you flip ahead to the chart that ends on p. 80 that we didn’t include a full 100 companies in the PROMO 100 ranking this year — we stopped at 96. Never fear, though — we discuss far more than 96 agencies in this issue.

We began our research for the ranking back in January. In March, as qualification materials began to come in from several long-time participants, we started to realize we weren’t hearing from other industry leading agencies — all of which were affiliates of large publicly held corporations. When asked, the executives at those firms described new corporate policies that reined them in from disclosing any company financial data to the business press under the accounting reform law known as the Sarbanes-Oxley Act of 2002. That law requires publicly traded firms to publish or release company statistics that are accurate, but it does not forbid such disclosure. (For an editorial perspective on this interpretation, see this month’s Editor’s Note, p. 6). Nevertheless, companies that had been ranked by PROMO for many years were told by their corporate parents that there would be dire repercussions for giving financial data this year.

Of course, current revenue achievement and three-year growth is a major portion of the PROMO 100 ranking formula (see sidebar on p. 50). If the editors could not develop financial rankings, the PROMO 100 would be stripped of all but the creative achievement scoring.

Some companies offered a compromise, and agreed to submit their creative work for consideration (one-third the score). PROMO drew upon its archives to develop a revenue growth history (another third). Finally, the editors reviewed the past year for each agency and developed an estimated revenue figure for 2002 (the last third); such estimates originate with PROMO and are noted as such in the summary charts that follow.

There were still, however, some important agencies that refused to participate in the ranking this year. A brief review of their performance in 2002 follows:

BEN Marketing Group: WPP bought this firm through its Ogilvy & Mather North America division in September 2002, following a disastrous year in 2001 for BEN parent Panoramic Communications. BEN kept its name and management team, founder and CEO Chuck Nardizzi and Co-Presidents Chris Milhous and Bruce Perlman. BEN’s own revenues had been up 75% over two years (2000-2001) to $16 million, on billings of $60 million. BEN’s client roster is topped by Coca-Cola.

Beyond DDB: This Omnicom Group agency demonstrated healthy growth from 1999-2001 (from $23 million to $43 million), based on work for such clients as the Chicago Bears, ExxonMobil and American Airlines.

The Botsford Group: A division of The Interpublic Group of Cos., which reported a net loss of $8.6 million or ($.02) per share for the quarter ended March 31, 2003, compared to earnings of $59.8 million or $.16 per share in the year-earlier quarter. Revenue at many IPG operations continued to reflect weak demand for services, while costs increased, in part due to higher severance expenses. Despite an ongoing effort to reduce headcount worldwide, IPG’s salaries and related expenses for the quarter nevertheless increased 4.5% to $908.2 million, thanks partly to an increase of $13.8 million in severance expenses, compared to the year-earlier quarter. At the end of the quarter, IPG’s worldwide headcount totaled 49,400 compared to 50,800 at year-end and 53,000 in March 2002.

Botsford’s sister agency, Draft, agreed to submit creative material this year, but it too was not allowed to disclose statistics.

Einson Freeman: A strong proponent of integrated marketing initiatives, this WPP affiliate underwent a significant re-deployment of management talent this past year, promoting company veteran Jean Mojo to the role of president and CEO. She winnowed middle management ranks and brought on a new COO and senior partner for business development.

Euro RSCG: While most of its focus has been on media advertising, this subsidiary of Paris-based Havas has been broadening its focus to more generally defined marketing services for such clients as Volvo, Nestlé and Danone.

Marketing Drive Worldwide: “Due to corporate restraints, we regret we are unable to participate,” this Interpublic-held agency replied to the ranking invitation. Too bad, because it has begun to deliver on the promise of its acquisitions in event marketing and build on its traditional strengths. Revenue jumped from $39.9 million in 1999 to $89.7 million in 2001.

Promotion Group Central: After dropping from 22nd in 2001 to 66th place in the 2002 ranking, this firm has made few headlines since early last year, when it spearheaded an on-pack partnership between JVC and Midas mufflers. Its client roster, however, still includes such big players as Chevrolet, Coca-Cola, Discover, ConAgra and General Electric.

To these and the handful of other companies that were barred from this year’s PROMO 100 ranking, we missed you — and hope you can come out and play next year.

HOW WE DID IT

Qualifying agency quality

The editors of PROMO use a time-tested method to arrive at the PROMO 100 rankings. It has been refined over the years, but, in its essence, agencies must agree to be evaluated both quantitatively (for their revenue results) and qualitatively (for the creative merit of three campaigns conducted during the year). For the first measure, a company must submit either a copy of its corporate tax return or a letter from an outside auditor certifying its gross billings and net revenues (gross billings minus charges passed-through to clients, such as premiums or printing) for the years 2000, 2001 and 2002. In some cases, a letter from the chief financial officer of an agency’s parent company is accepted.

For the second measure, an agency must provide art, mock-ups, text descriptions and results associated with three campaigns that best reflect the quality of work and level of success the agency provides its clients. PROMO’s editors then assign a numeric value to each campaign; these are tallied to create the qualitative score of the work.

PROMO then ranks each qualifying agency in three ways: per its 2002 revenue, per its net revenue growth rate from 2000 to 2002, and per its combined qualitative score. Each sub-ranking was added together and calculated as a third (33.3%) of a given agency’s total final score.

When determining the final positions of the top 25 agencies, PROMO’s editors also considered such additional factors as recent account wins and losses, industry awards during the past year, management stability, average length of service with clients and agency-of-record status, and breadth of marketing services.

‘REASONABLE RANGE’

The Marketing Agencies Association Worldwide (MAA) has estimated that the average net revenue per employee within a promotion agency is $130,000. With the varying focus on differing subsets of the promotion discipline (creative, execution, events, fulfillment, etc.), MAA has allowed that a variation of 25% above or below that benchmark is still within the “reasonable range” of revenue productivity per employee in such an agency.

Agencies reporting results outside this range should be viewed as either questionably high or inefficiently low, the MAA suggests. To facilitate such comparisons, the PROMO 100 ranking chart (beginning on p. 76) includes per-employee revenue figures (full-time staffers) for each agency; such information, however, does not have any impact on the rankings.

RANK BY GROWTH

All in the Family

The following are among the largest agency conglomerates, typically consisting of both promotion and advertising agencies. Agencies that opted to participate in the PROMO 100 ranking are listed in italic.

ALLOY

360 Youth, Marketplace Media, Target Marketing and Promotions, YouthStream Media

INTERPUBLIC

Adair Greene, Botsford Group, D.L. Blair, Future Brand, Marketing Drive Worldwide, Momentum Worldwide; also partners: Draft, Zipatoni

HAWKEYE

Cohesion, FFwd, Mosaic Marketing, Stellus

COACTIVE MARKETING

Inmark Services, Market Vision, Optimum Group, U.S. Concepts

OMNICOM GROUP

AdPac, Alcone, AWE, Beyond DDB, GMR Marketing, Integer Group, Integrated Merchandising Systems, InterOne Marketing, The Marketing Arm, Millsport, Pathways Marketing Consultants, The Promotion Network, Radiate Group, Tracy Locke Partnership, U.S. Marketing & Promotions

CORDIANT COMMUNICATIONS

141 Worldwide, Bates Worldwide, Zenith Optimedia

EQUITY MARKETING

Equity Marketing, Upshot, Logistix Kids Worldwide

GEM GROUP

Corporate Marketing Associates, Lang & Associates, Vertical Mix Marketing

HAVAS

Arnold Brand Promotions, Brann Worldwide, Euro RSCG

PUBLICIS SA

ARC, Burrell Communications, Creative Promotion Partners, Frankel, Gramercy Group

WPP GROUP

BEN Marketing Group, Einson Freeman, Maxx Marketing, Wunderman

RANK BY REVENUE

Flying Under the Radar

The following firms also opted out of the PROMO 100 this year, each for very different reasons. They were quietly active, nevertheless.

ASPEN (Chicago) This once high-flying consolidated private firm hit rough weather in 2001, due to both fiscal instability and mismanagement. It continues to support a roster of mostly automotive (Ford) and retail clients (JC Penney), and has economized by closing its New York City and Irvine, CA, offices.

COLLE+MCVOY (Minneapolis) While it has traditionally focused on advertising accounts, this agency has been coming on strong with loyalty work for such clients as Honda and pro bono projects for The Nature Conservancy. The firm claims 28% growth in 2002, with combined billings across disciplines of 193 million.

EASTWEST CREATIVE (New York City) This group developed award-winning creative (three 2003 EMMAs) for clients Kia Motors America, Kraft Foods and Warner Bros. during the year, but was shy with its financials.

JAVELIN (St. Louis, MO) has been entertaining possible buyout offers, and was unable to provide our editors with any financial data due to its “quiet period” requirements during the due diligence process.

RANK BY CREATIVE