Agency Scramble Slows

Things are looking up at last.

Promotion agency revenues rose 17.9% in 2003 to an estimated $3.77 billion. Revenues should rise another 26.4% in 2004 as business rebounds slowly from the post-Sept. 11 drought. (That’s nearly double 2002 gains of 14.3%.)

“2003 was still tight, but improving,” says CoActive Marketing CEO John Benfield. “We watched costs to be as efficient as possible.”

More shops saw gains (58.9%) than losses (26.8%), and nearly 9% report that revenues more than doubled in 2003, according to PROMO’s January survey of 221 U.S. promotion agency executives.

Integrated planning will help 2004 growth as marketers engage multi-agency teams to set total marketing strategy, then farm out execution to agencies by specialty. “Integrated planning has helped us earn and keep a seat at the table,” says Colangelo Synergy Marketing CEO Rob Colangelo. “Below-the-line marketing is a major part of [clients] delivering their numbers, and [senior VPs of marketing] can’t afford to delegate it to a junior person.”

Eighty-one percent of agencies are “always” (40%) or “sometimes” (41%) involved in promotion planning for clients; 15% of shops say the bulk of their revenues come from execution, and 10% say most revenue comes from strategic consulting. Industrywide, strategy accounts for an average 14% of agency revenue, while execution is an average 23% of revenue, per PROMO’s survey.

Watch for shop-hopping this year: Agencies expect 67% of revenue growth to come from new clients, with only 22% coming from current clients. Agencies project clients’ budgets will rise an average 7.5%.

Still, shops are wary of protracted reviews. A dearth of RFPs in 2003 had execs answering them all, then frustrated by the cost and competition. As business picks up in 2004, shops will be more selective: “We’re doing everything we can to avoid the cattle calls,” says one agency CEO.

Procurement plagued several reviews. Nitpicking on price stifles creativity; “strategic sourcing” handcuffed some marketing departments from choosing shops. Agencies will adapt as negotiations stay price-conscious but concede agencies’ need for profit.

The job market begins to open up as marketers commit more money for 2005. Agency headcount rose an average 7% in 2003.

Watch holding companies invest more in their marketing service units — and squeeze them for more profits to buoy sluggish ad agency sibs. That could exacerbate discontent among promo execs tired of parent-company pressure.

Network consolidation at Publicis Group and WPP reshapes the landscape here and overseas. WPP paired 141 Worldwide with Ogilvy & Mather officres after buying 141 parent Cordiant Communications in August 2003. WPP’s marketing services revenues worldwide hit $3.48 billion in 2003, 53% of total revenues of $6.57 billion, which rose 5%. Publicis’ marketing services brought in 888 million euros, 23% of 2003 worldwide revenues of 3.86 billion euros (up 32%).

SNAPSHOT 2003

• Total revenue: $3.77 billion (up 17.9% for year)
• Revenue could hit $4.77 billion in 2004
• Procurement clouds creative reviews
• Agencies get choosier about RFPs
• Holding companies challenged