Nontraditional marketing services are finally getting the credit they deserve
If the industry’s last major wave of acquisitions was largely about adding scale, the current phase of consolidation is putting new emphasis on functional diversification. Three weeks ago, in announcing WPP Group plc’s acquisition of Young & Rubicam Inc., holding company chief executive Martin Sorrell emphasized its nonadvertising assets–as well as its flagship agency network–were the major draw. In February, when Havas said it would pay $2.1 billion for Snyder Communications, the French agency justified the hefty price tag because of the U.S. company’s nonadvertising assets.
The ’60s era of Madison Avenue’s dominance with packaged-goods marketers looking for national media solutions gave way, of course, to globalism and the expectations of public shareholders in the ’70s and ’80s. Holding companies scrambled to add agency assets to keep pace with multinational clients traversing the globe and to appease investors. Both were looking for constant profit growth in a business with restraints on organic growth, thanks to client conflict strictures. While agencies tinkered with coordination of nonmarketing communications, they may have promoted the concept to their clients too soon. Now that’s changing.
Last week, Interpublic Group new president/chief operating officer John Dooner announced an overhaul of IPG’s nonmedia marketing-services unit, which signaled the importance of those businesses in the company’s future growth. While IPG derived just 20 percent of its revenue from that area five years ago, it expects to increase that level to 50 percent by year’s end.
Larry Weber, who headed IPG’s Weber Public Relations Worldwide, was named the new chief executive of Allied Communications Group, the subsidiary that contains these specialized marketing companies. He intends to build top management and acquire additional resources in operations like data-base management, Internet marketing measurement, proprietary messaging and management consulting.
“It’s not the information economy we’re in; it’s the communication economy,” says Weber. “We’re in an era of integrated branding. Everything is about conducting a dialogue with the customer, whether it’s through traditional advertising, the Web, PR or a big event. “
The Internet is speeding up industry change already in motion. Driven by media and consumer fragmentation, the rise of relationship marketing and the decline of media-based compensation, the communications industry is being transformed by marketers seeking integrated solutions.
“In London in the early ’80s, I tried to sell one-stop shopping and kept hitting a brick wall. We got nowhere,” recalls Saatchi & Saatchi North America’s chief executive, Jennifer Laing. “Now the pressure is coming from clients who want us to forge one strategy, one brand equity, one voice, using whatever weapons are most effective. It doesn’t matter, it shouldn’t matter, where the spend goes.”
Nonmedia marketing communications is comprised of a wide-ranging group of disciplines, including direct, promotions, digital, public relations, branding/identity, sponsorships, event marketing, contract publishing, recruitment, merchandising, medical, ethnic sand sports marketing and entertainment. By some estimates, 70 percent of all marketing dollars is now spent on nonmedia communications, a reverse proportion to a decade ago, when media advertising dominated
The Saatchis, like their English peers at WPP, were early, vocal advocates of recommending their “below-the-line” services to clients at their ad agency holdings. U.S. companies were packaging their own multidisciplinary resources as well. Young & Rubicam called its offerings the “Whole Egg.” Ogilvy & Mather referred to its approach as “Orchestration.” As other agencies considered similar monikers and ways to promote “cross-selling,” it became apparent that such terminology may have sent the wrong signals.
” ‘Orchestration’ was met with skepticism because it sounded like we were talking about ourselves. What we meant was something that was really about how do you create an experience that reaches the consumer wherever they are?” explains Bill Gray, co-president of Ogilvy, New York, whose agency now calls such solutions ‘360 Branding.’
Adds Omnicom evp Tom Watson, who co-founded the company’s 14-year-old Diversified Agency Services unit: “When people talk about cross-selling, it doesn’t imply value for the client. It implies value for the seller. Integrated brand solutions help clients understand there is value added to media advertising.”
At its formation, DAS was a dicey mix of marketing- service companies and small agencies bringing in $100 million. Now it’s Omnicom’s largest global unit, bigger than either of the company’s star agency networks in the U.S.–BBDO and DDB. The explosive growth of DAS has become a benchmark of industry diversification in holdings. DAS’ success helped propel its then-low profile-chairman/CEO John Wren to the top of Omnicom.
“Below-the-line marketing has been growing faster than traditional advertising for the past decade and has higher margins,” says Wren. “There’s been so much media fragmentation. There’s no longer a national media. Ten years ago, the three networks had a 76 percent share of the market. Now that’s a 50 percent share. More and more concentration of money is going into these [nonmedia] disciplines because that’s where the audience is.”
Sorrell concurs, adding that his current bid for Young & Rubicam reflects a common philosophy shared with and Y&R: “The companies are a great fit, culturally and strategically. Y&R was the first company to think comprehensively about integrated multiplicity of services with [now chairman emeritus Ed Ney], buying Wunderman and Cato Johnson, Landor, Burson-Marsteller and Sudler & Hennessey and creating the ‘Whole Egg.’ [WPP unit] Ogilvy followed with ‘Orchestration,’ which is now ‘360 Branding’ and JWT with ‘Total Branding.’ “
Other companies have rushed to catch up, making the pursuit of such diversified marketing services a key acquisition focus. IPG has been the most aggressive in doing so.
“We knew four to five years ago this whole area [of marketing] was changing very quickly,” says IPG CEO Phil Geier. “Consumers are relating more one-on-one; communications has to go that way, too. Branding is especially important in this era of the Internet. You have to use the right channel to reach consumers.”
Havas, the parent of Euro RSCG Worldwide, says that after the acquisition of Snyder closes,
60 percent of its business will come from nonmedia marketing compared to more than 40 percent today.
“People who think we overpaid, assume we bought Snyder just to add another ad agency. Arnold [Communications] was the smallest part of the acquisition,” argues Euro RSCG chief executive Bob Schmetterer. “Arnold creates a wonderful second network for us. But this acquisition was very much about the marketing-services business. The timing of our acquisition of Snyder was based on the belief that clients are increasingly looking for companies that can deliver total communications solutions. To do that, you have to have the right assets in place.”
For its part, last month, Grey formed a new holding company, Grey Global Group, that reflects the diversification in its operations. In the company’s upcoming annual report, chairman Ed Meyer comments on its creation: “These changes recognize Grey’s evolution over the last decade from a traditional advertising agency business to a full-spectrum communications company.”
Grey started with public relations and direct in the early ’80s and has expanded into other areas, including entertainment, healthcare and interactive. By 1990, more than 30 percent of Grey’s
revenue came from nonmedia advertising; now the company derives 50 percent from such services. Among the clients most thoroughly integrated through Grey are marketers like Oracle, the New York Lottery, 3M, B.A.T. and Procter & Gamble, for brands like Pringles, Pantene and Cover Girl.
“It goes back to the mid-’80s, when we realized there are many ways clients communicate. We saw it was moving beyond classic advertising,” says Bob Berenson, vice chairman of Grey Global. “It’s all about effectiveness because clients these days are under so much pressure to produce results.”
Berenson notes that more and more clients are showing a willingness to give up control of the integrated process, handing over greater authority to their agency partners.
Bill Whitehead, one of three group presidents at Bates Worldwide, adds that agencies need to be better organized to assume that task.
“You need to create clearer responsibility for overall management of the brand,” he says. “Before, if an integrated solution didn’t work, everyone passed the buck.”
Ironically, Saatchi & Saatchi, the agency whose parent led the charge toward greater communications integration in the ’80s, subsequently drifted from that goal amid holding-company troubles. When Laing and partner Saatchi North America vice chairman Tony Dalton came to the states in 1997, they found that 99 percent of the agency’s revenue came from advertising. “We knew we had to make the necessary changes in order to talk to our consumers whenever and wherever we can,” says Laing.
Laing and Dalton focused their efforts on four areas: They overhauled Saatchi’s Hispanic agency, Conill, adding new creative talent. They created Darwin Digital and acquired a company which became the basis for Saatchi & Saatchi Collaborative Marketing, which fosters retail-focused consumer programs for clients. In addition, Saatchi forged a strategic alliance with direct marketing company Lieber Levett Koenig Fabrese Babcock.
Three years later, Laing says more than 15-20 percent of Saatchi’s revenue comes from nonmedia advertising, with anchor clients such as Toyota, General Mills and Procter & Gamble leading the way. For P&G’s Tide detergent, for example, Saatchi provides collaborative and Hispanic marketing, PR, direct marketing and handles the brand’s Web site–in addition to traditional duties for TV, print and outdoor. Addressing the long-held fear that nonmedia communications will eat into media commissions, Laing says, “TV will always be important. I think we’ll see that a lot of this money is coming from other budgets. For us, this has been incremental income.”
In any event, the industry’s move toward fee-based compensation has helped diminish bottom line concerns and financially driven turf battles within communications holding companies. Commercials–with big production budgets and Hollywood allure–have been the sexy siren of Madison Avenue while nonmedia disciplines were shunted aside as the industry’s ugly stepchild. That may have worked when agencies viewed their mandate as pushing product. Now, communications companies see their role as one of creating results, with fee-based models linking an agency’s reenumeration more closely to results. Agencies are freer to start with an idea as the strategic point of entry and can be less fixated on media executions that have traditionally brought in the profits.
“Integrated solutions are gaining new respect because of the way the business has morphed. Marketing-service companies possess the big ‘A’ word: accountability,” says Omnicom’s Watson. “If before you had turf wars, now agencies are seeing this in terms of competitive advantage. It’s much smarter in new business to talk about integrated solutions.”
Last year, when Omnicom’s Merkley Newman Harty landed the coveted Mercedes-Benz account, the automaker’s relationship with sister company Rapp Collins Worldwide was said to have been a factor in the win.
“Yes, there had been a strong ongoing relationship between Mercedes and Rapp,” says Malcolm Speed, Rapp Collins’ CEO. “To get the most from their marketing dollars, they need to align their strategic partners along the same objective. Clients are dealing with a more limited number of parties. They’re looking first and foremost for partnerships across disciplines.”
Those partnerships replace adcentric strategies, whose 30 seconds of fame may be up.
“Advertising alone really doesn’t work well these days–it’s harder than ever to move the needle when you’re just using that element,” says Fallon president Rob White. “Clients are looking at how their brands touch their customers at every point, online and offline. In London, they no longer say ‘below-the-line’; it’s ‘through-the-line.’ Just as that distinction is blurring, soon it will be the same with online and offline. With increasing technology shifts in the media world, the boundaries are going to disappear. You’ve got to get your people to believe that unexpected solutions can come from unexpected places.”
Fallon client Nordstrom offers a dramatic example of how a marketing solution did not begin with an ad.
“After we got the business, we said to them, ‘You’re not ready for advertising yet. You need to develop a brand,’ ” White says. The agency conducted a segmentation study and worked with consultants who were looking at profitability. They evaluated everything from Nordstrom store
windows and merchandise to the number of departments and even the sheet music of the piano player entertaining customers as they shop. “We didn’t do any advertising in the first year of our relationship. If we had come out with advertising then, I think we would have failed,” he concludes.
Like Fallon, other agencies are reinventing themselves as more integrated concerns. Beyond DDB, launched in mid-1997 as an independent U.S. string of offices offering multidisciplinary services, is expected to grow 20 percent this year, with revenue increasing to about $26 million. Some 60 percent of its business comes from DDB clients; the rest from nonagency marketers.
“In the ’70s and ’80s, agencies felt promotions were beneath them. But, in fact, in the ’40s, ’50s, even the ’60s, agencies were somewhat flexible in the services they provided to clients. They created things like soap operas and radio shows,” says Ray Gillette, Beyond DDB’s president. “Then they started to lose revenue to things like promotions and freestanding inserts, so they knew they had to participate. Under [DDB CEO] Keith Reinhard, the feeling here is, ‘To think you can do it isn’t enough; you need to have the disciplines to help you execute the idea.’ ”
Beyond DDB may use a single discipline like PR, the Internet, design or collateral on its own or bundle different services. American Airlines wanted to get more of its AAdvantage members to use its Web site. After creating a sweepstakes, Beyond DDB promoted it through online and offline means that included Web links, banner ads, newspapers, magazines and PR. The company also used direct marketing, both through traditional means and on the Internet.
In pursuing new business, Beyond DDB may partner with a fellow Omnicom company or find itself competing against one. In handling broadcast and Web responsibilities for Budweiser’s annual Bud Bowl, Beyond DDB works closely with a third unrelated party which handles promotions. “You look for the best execution wherever you can find it,” says Gillette.
Other agency executives agree.
Last year, Ogilvy announced the formation of The Syndicate, a coalition of seven small, creatively focused independent agencies that work with the bigger network on creative projects for Ogilvy clients and help on new-business pitches.
“When we went to The Syndicate and other brain trusts, it was an example of how we are willing to reach out and work with other people who aren’t captive to our corporate culture,” says Ogilvy’s Gray.
Three years ago, Bates launched 141 Worldwide, a stand-alone, below-the-line sales promotion network that unifies practices and operating philosophies among a collection of affiliates that largely operated independently. In January, Bates also launched a new digital operation called CCG.XM.
“When we demerged, we decided we wanted 40 percent of our business to be below the line. Now with 32 percent, we’re almost there,” says Bates’ Whitehead. “141 is an entry portal in new business for us. You used to transmit messages out there.
Now we’re more concerned about reception than transmission; the axis has changed from the passive to the active.”
B.A.T. has been driving the company’s global integration efforts. For brands like Lucky Strike, Bates has handled everything from point-of-purchase displays, retail and on-premise posters to sponsorships and event management .
At Y&R, direct marketing units like Wunderman Cato Johnson are re-creating themselves as integrated solutions concerns, positioned in much the same way as consulting firms. Earlier this year, the company was renamed Impiric.
“The traditional direct marketing business is growing 50 percent higher than the growth and spending of things like promotions and events. We’re not moving away from direct marketing; we moving forward in other areas,” notes Impiric CEO Jay Bingle.
“CRM [customer relationship management] is getting a lot of attention from every professional-services firm around, from Booz Allen and McKinsey to IBM.
I don’t want them as my client, as an intermediary.
So we’ve built the capabilities to meet them head on,” says Bingle.
Since Bingle–who ran his own consulting firm for 13 years before selling it to Y&R–joined the agency last May, he’s added 1,700 people and expanded the company’s expertise in the Internet, database services and IT consulting. Such nondirect marketing areas will make up 50 percent of Impiric’s revenue this year. It’s the kind of growth rate that is converting even the most traditionally experienced industry executives.
“Anyone who thinks communications is about a commercial or a print ad is nuts,” says Ed Vick, CEO of Y&R Advertising. “And I say this as an ad guy.”
Get Adweek's Brand Marketing Daily Newsletter in your Inbox
Today's highs and lows of creativity