Below-the-Line Goes Above and Beyond

Neither the shaky economy nor the threat of war is slowing efforts by the Big Four holding companies to expand their below-the-line offerings. In fact, all of them continue to see nontraditional advertising as a key path to prosperity.

“Their below-the-line positioning is what makes them as competitive as they are,” said John Verret, an associate professor of advertising at Boston University and former vice chairman of Havas’ Arnold.

Below-the-line services—direct marketing, public relations, promotions, event marketing and consulting—continue to account for an ever-higher percentage of annual revenue: 58 percent at Omnicom, 55 percent at WPP Group, 40 percent at Interpublic Group and 23 percent at Publicis in 2002. Those figures are certain to continue their steady rise.

For example, WPP, whose holdings include Hill & Knowlton, Millward Brown and Landor Associates, expects approximately two-thirds of revenue to come from marketing services in five to 10 years’ time, according to WPP CEO Martin Sorrell.

At IPG, “over the next two years, a 50/50 split [between advertising and below-the-line revenue] is a pretty healthy estimate,” said Larry Weber, CEO of Advanced Marketing Services, the holding company’s marketing communications division. Roughly half of IPG’s nonadvertising revenue is generated by AMS, Weber said. The other half comes from nonadvertising units within IPG’s other agency networks. Those units include Marketing Drive Worldwide (within FCB Group) and MRM Partners Worldwide (within McCann-Erickson WorldGroup).

“Because of the complexities corporations are facing right now, communications with the constituents they deal with—government, shareholders and employees—will be more important to their success,” Weber said. He also predicts that marketing communications and PR will become increasingly strategic in nature, rather than publicity-driven, with corporate and digital communications being the fastest-growing segments.

However, “by the numbers, the area that is growing most robustly is direct marketing,” said Tom Harrison, chairman and CEO of Omnicom’s Diversified Agency Services, the parent of more than 100 marketing-services firms, including Rapp Collins, The Integer Group, Fleishman-Hillard and Brodeur Worldwide.

Spending on direct marketing is expected to grow 6 percent a year during the next five years, according to the Direct Marketing Association. The DMA expects direct marketing-driven sales to grow 8 percent a year during that time, reaching $3 trillion in 2007.

Lou Schultz, former chairman of IPG’s Initiative Media Worldwide and, before that, head of Campbell-Ewald’s marcom unit, said that as marketers integrate more programs to communicate with their audiences, the distinction between ad and below-the-line activities will blur. In particular, direct response and advertising will grow closer, he said.

“Everyone’s looking for a return on their investment, and the technology is getting better for measuring it,” he said. “I think 95 percent of all ads by the end of the decade will have direct response built in.”

How well they handle the integration of these disciplines could go a long way toward determining holding companies’ performance levels. “We’ll see a lot more clients looking for total solutions and simpler relationships with their agencies,” said Michael Harris, president of the Boston office of IPG’s Marketing Drive Worldwide, which offers a host of services, from consulting and promotions to event marketing and design. “Ultimately, holding companies want to give their clients ‘best in class,’ and agencies are getting better at working with one another.”

Marketing Drive, for example, works with Foote, Cone & Belding on accounts for JP Morgan Chase and the Environmental Protection Agency.

In last year’s $170 million Bank of America review, the competing holding companies included both advertising and marcom agencies in their pitch teams. IPG eventually prevailed, after harnessing the resources of some two dozen shops, including DraftWorldwide, Jack Morton Worldwide, Weber Shandwick, GlobalHue and R/GA.

WPP uses a client coordination group, which consists of managers from various companies within the holding company. The setup facilitates collaboration. For example, Landor, a design firm, has teamed with Young & Rubicam on Philip Morris, Lincoln Mercury and Jaguar; J.Walter Thompson on Diageo; and Ogilvy & Mather on BP.

“Our view has been that there is no point in WPP existing if there’s no added value for clients or our people,” said Sorrell. “Coordination is key. Having said that, it’s very difficult to do.”

In the wake of its Bcom3 acquisition, Publicis is formulating plans to structure its Specialized Agency Marketing Services division, according to John Farrell, the division’s CEO. The Paris-based holding company’s below-the-line specialists include Frankel, Publicis Dialog, ARC Marketing, Manning Selvage & Lee, iLeo and Semaphore Partners.

The Big Three holding companies beat Publicis to the punch in aggressively acquiring below-the-line shops, which helps explain why marcom units earn a lower percentage of total revenue at Publicis. (Also, Bcom3 agencies such as D’Arcy Masius Benton & Bowles and Leo Burnett tended to build those practices from within.)

Still, Publicis has become a much bigger player in the U.S. “As everyone else grows [below-the-line], they’ll want to grow it, too,” Schultz said.