Marketers are increasing their focus on promotions. Agencies and suppliers are flourishing despite shifts in the industry’s composition. And the Internet is being billed as the vehicle through which the discipline of behavorial marketing becomes central to all marketing strategies.
Oh, what a time to be in promotion.
The number of promotional messages presented to consumers is increasing wildly. Consolidation among marketers and suppliers alike is threatening small businesses, intensifying competition and putting industry control in fewer hands. And the Internet is threatening to usurp many of the traditional delivery methods and strategies that have been the industry’s foundation for years.
Oh, what a time to be in promotion.
Revenues in the promotion industry jumped 9.4 percent to $93.4 billion in 1999, as spending in eight of 14 categories tracked by promo rose by 10 percent or greater. In comparison, ad spending rose 6.8 percent to $215.2 billion in ’99, according to McCann-Erickson’s yearly report.
Segments showing particularly strong growth during the year included fulfillment (which increased 20%); games, contests, and sweepstakes (15%), which were broken out as a separate segment for the first time this year; ad specialties (12.1%); and sponsorships (11.8%). The common growth factor among these segments was the Internet, which produced thousands of “new” marketers desperate to attract customers – and using promotion to do it.
Not surprisingly, spending on Internet promotions increased faster than any other segment, jumping 95 percent to an estimated $926 million. Flat spending on telephone-based promotions, however, slowed overall growth in the interactive segment to 44.2 percent.
Meanwhile, revenues among promo 100 agencies went through the roof, climbing 49 percent to $2.18 billion. Top-ranked agencies benefitted from the consolidation of business from traditional packaged goods companies and an influx of new business from other industries. But they also grew by gobbling up smaller agencies in a bid to offer greater breadth and depth of services.
The impressive growth posted by the industry in 1999 doesn’t represent the highest increase this decade. (That came in 1997, when total revenues jumped 11 percent). But it is perhaps the most significant, for the value of promotion marketing has never been clearer than it was in 1999.
A New York Times article last summer reported that Conde Nast’s Glamour had set out to prove that advertising in its pages worked. The magazine’s strategy? Launch a coupon program and host mall events. Correct us if we’re wrong, but that sounds like promotion.
So forget all that nonsense about consumer promotion being the ugly stepchild to advertising. Promotion should more appropriately be considered the maturing younger brother, the one who’s been working out at the gym and isn’t so easily pushed around anymore.
“Increasingly, the gimmicks are gone. We must all step up to the challenge of adding real, brand-building value with promotion – the kind that sparks genuine consumer, retailer, and client interest.”
That comment was offered by a respondent to Promotion Trends 2000, a first-of-its-kind survey conducted in February by promo in conjunction with the Promotion Marketing Association, New York City. The survey of promo readers and PMA members sought to better ascertain the state of the industry. Brand marketers and promotion agencies/suppliers received different questionnaires, although they were queried on many of the same topics.
The survey’s results offer a few surprises and confirm several undeniable trends. They suggest a bright future for a discipline that is increasingly gaining the respect of brand managers (and other marketing-services sectors). But they also uncover some issues that must be addressed for that promise to become a reality.
ALLOCATIONS ARE RISING
Advertising dominated the budgets of marketers responding to the survey, who represented a broad range of product and service categories including consumer packaged goods, retail, telecommunications, consumer electronics, entertainment, financial services, travel and tourism, and real estate. Ad spending accounted for nearly half of all spending at 46 percent, followed by trade promotion at 29 percent and consumer promotion at 25 percent.
Those results differ from traditional industry studies, which have found spending on trade promotion to be the largest piece of the pie. The variety of categories found in the responses – which included some e-commerce companies that have no relationships with retailers – is believed to be the reason for the disparity.
While spending on consumer promotion still lags behind the other two segments, it’s growing at a faster pace.
About 43 percent of marketer respondents said they had increased consumer promotion spending in 2000, while only 29 percent said they had boosted trade promotion spending (see chart).
Of respondents who said they had increased consumer spending, the typical (or median) increase was 12.5 percent. That compares quite favorably with McCann-Erickson’s projection for 8.2-percent growth in ad expenditures this year.
One of the survey’s more significant findings was that marketers are devoting 23 percent of their ad budgets to fund promotion-driven messages in 2000, up from 18 percent in 1999. That’s 10 percent more of the total marketing budget that can be applied to consumer promotion, putting it at roughly the same level as advertising. (Stepchild, indeed.)
And, more than 40 percent of marketers said they had reallocated advertising dollars to fund Internet-based promotions (see chart, pg. A6)
PUT UP OR SHUT UP
Funding allocations aren’t the only thing shifting; perceptions are changing as well. Asked what statement best described their use of promotion, 56 percent of marketers said they employed an equal mix of tactical and strategic initiatives. Only 17.1 percent said they used promotion primarily as a tactical tool to increase sales, while 23 percent said the primary function was brand building.
Surprisingly, agencies and suppliers were a little more modest about their clients’ use of promotion. Although roughly the same percentage (55 percent) said there was an equal mix, more said promotion was still being used more as a tactical tool than a strategic initiative – leaving promo editors to wonder why marketing services companies aren’t practicing what they’ve been preaching for the last decade.
`IT’S ALL ABOUT RESULTS’
That’s how one supplier summed up the growing need to produce measurable results for promotion work. Two-thirds (67%) of marketers said the need to show return-on-investment had increased over the past year.
The methods used to measure ROI, however, have not changed much. More than half of agency/supplier respondents said their clients used incremental sales growth as the primary measurement tool. Although other methods including response rates, redemption rates, publicity, and attendance were also cited, none have anywhere near the same impact as sales.
In terms of expected sales growth, most agencies/suppliers said their typical success rate was 10 percent or less. Only a few said they typically generated sales lifts greater than 20 percent.
TRADITIONAL METHODS STILL WORK
Think you’re on the cutting edge with your Internet-based, opt-in loyalty program, which utilizes the latest CRM software to reach consumers in real-time on a one-to-one basis? You might be alone – at least for the time being.
Asked to pick the strategies and tactics that were essential to their overall plans, marketers mostly offered up the basics: Coupons, direct mail, co-marketing, P-O-P advertising, and tie-ins were the five tactics cited most (see chart, pg. s7).
Partnerships with other companies turned up in three different forms: traditional co-marketing, tie-ins, and specifically entertainment tie-ins (mentioned by 11.4 percent of respondents). About 56 percent of marketers said they would increase the number of promotions they ran with brands outside their company in 2000; only 1.4 percent said they would rely less on the strategy this year.
“The key to smart budget and effort allocation is in developing strategic alliances between companies who can trade channels of distribution for mutual benefit,” says PMA chairman John Zamoiski, who has created a distinct alliance-generating division for his own agency, New York City-based Promotion Development Group.
SPEAKING IN TONGUES
Ethnic marketing has been a topic on the minds of marketers and the agendas of nearly every industry conference over the last two years. But despite the recognized need to target the Hispanic-American, African-American, and Asian-American populations that are steadily becoming a more significant force among U.S. consumers, marketers are still not heeding the call.
Asked to rate the effectiveness of their ethnic-specific promotion efforts on a scale of one to six, marketers gave themselves mediocre marks. The average rating was 2.7 for Hispanic-targeted efforts and even lower for programs focused on the other ethnic groups. Agencies and suppliers gave themselves only slightly more credit, averaging a 3.2 response for Hispanic marketing.
“Corporate America is still not paying to play,” says Gregorio Bennett, president of Los Angeles-based ethnic-marketing specialist Luna Bacardi Group, a unit of Aspen Marketing Group. “Marketers need to talk to [ethnic] consumers on a multi-discipline level. But they’re still not committing the resources to do that effectively.”
VIRTUAL REALITIES
Read through this annual report and you’ll think the Internet is the most important thing to happen to promotion marketing since Eve used Adam to prove that the right incentive can definitely influence behavior.
And it just might be. The Internet’s targeting and tracking capabilities are a marketer’s dream come true, providing both the ability to create truly one-to-one relationships with consumers and the technology to make sure the efforts pay off.
Speaking at the PMA Update conference in March, DoubleClick ceo Kevin O’Connor predicted that $10 billion will be spent on Internet promotions in just three years – a ten-fold increase compared with promo’s estimate for 1999. In the long-term, the Internet will become the focal point of the entire promotions industry, asserts Promotions.com partner Steven Krein (who admittedly has a personal interest in that statement coming true).
But the Internet Revolution hasn’t happened yet. Most marketers said the Internet has had little effect on their promotion activities thus far, offering an average rating of 2.9 on a scale of one to six; Agencies and suppliers have felt the impact only slightly more (a 3.4 average) as they develop the infrastructures everyone expects the industry to ultimately demand. “Promotion is almost a meaningless trend on the Internet today,” noted O’Connor.
Still, spending is on the rise. Only one-third of marketers said they devoted more than five percent of their total marketing budgets to Internet-based promotions in 1999. But nearly half will spend at least six percent in 2000.
KEYS TO THE FUTURE
The Internet’s impact is coming, although some basic truths will remain the same no matter what technological advances the future may hold: Asked what three factors were most critical to the future growth of the industry, most marketers identified the Internet and the one-to-one marketing potential that it brings.
But the single most important issue has been guiding marketers forever: consumer interest. The need to keep consumers interested, in fact, could become even more important in the Internet world, according to Rohit Deshpande, another keynoter at PMA Update.
The power that manufacturers long ago conceded to their channels of distribution is now shifting “all the way to the consumer,” says Deshpande, professor of marketing at Harvard Business School. “The metric for performance has changed from the transaction to the relationship.”
“The Internet will complement, not replace” traditional forms of communication. And as electronic modes become standard, the need to reach customers on a more personal level will increase rather than decline, he suggests.
Oh, what a time to be in promotion.
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