Outlook: Agencies Paying More Attention to DM, Thanks to ROI

ROI will be the most popular acronym in advertising this year.

As consumer confidence grows and the market recovers, agencies will recoup limited capital to spend. But budgetary constraints will linger, forcing the issue of appropriate allocation of marketing dollars for a better return on investment.

“Agencies will continue to manage the challenge of doing more with less but, at the same time, both clients and agencies face increased pressure to show their own top- and bottom-line growth,” said Malcolm Speed, chairman/CEO of Rapp Collins Worldwide, New York.

Direct shops, which often have a challenge to differentiate themselves in the market, will have to combine their experience and marketing knowledge with new tools and technology to deliver ROI.

Senior management on the clients' side will expect data with marketing insight as consumer loyalty is tested from competing offers, advertisements, wants and needs.

So it is safe to say the skills and techniques of direct marketing will gain wider acceptability this year and beyond.

“Corporate and marketing management are demanding better accountability from their marketing investments, particularly as TV ratings continue to drop when rates continue to rise,” said Larry Kimmel, chairman/CEO of Grey Direct, New York. “As such, agency holding companies, most of whom grew up as advertising agencies, are naturally paying more attention to DM.”

Bob Lieber, chairman/CEO of LLKFB, New York, notices that phenomenon, too.

“We're seeing a lot more marketers using traditional media vehicles in more of a direct response way,” he said. “If you're spending money on TV, there's more interaction involved.”

The new era of accountability cannot do without frequent testing or technology. Clients will expect more analytically driven media optimization modeling to boost the weight, sequence and timing of marketing across channels at the cost-per-sale level.

Agencies have many tools at their disposal. One is the marketing dashboard to offer clients real-time access to campaign performance analysis and statistics. Other desktop tools will run multiple, variable what-if scenarios disclosing the bottom-line effect of changes in media spending.

“In 2004, clients won't have to guess how their sales might be affected if, for example, they shifted $500,000 from direct mail to banner advertising for various amounts of time,” said John F. Jastrem, chairman/CEO of Rapp Collins' Dallas office.

More Dollars for Targeted Marketing

Based on the encouraging experience of last year, agencies will continue to gain new business activity from companies shifting more dollars to targeted marketing.

“At the executive level within many client organizations, there is an increasing demand for 'double-duty' advertising that primarily drives sales results but also builds the brand,” Jastrem said. “In order to meet that challenge, direct marketers must have a seat at their clients' executive level and have their voices heard at the top of these organizations.”

Of categories increasingly relying on DM, consumer packaged goods and pharmaceuticals come to mind. They will spend more in building direct relationships with their end customers as a way to overcome the challenges posed by the retail channel.

Indeed, mass-merchandise chains like price-focused Wal-Mart Stores Inc. give reason for worry. Their growth comes not just at the cost of fellow retailers like malls and department stores, but also manufacturers under threat from private-label brands.

“There are fewer giant players in the retail business, and they're really making the packaged goods industry insecure about their own ability to own their customer relationships,” said Barry Kessel, president and managing director of Wunderman New York.

But those DM efforts will require finesse to avoid antagonizing the intermediaries. Wal-Mart, for example, accounts for roughly one-fifth of Procter & Gamble Co.'s revenue.

The presidential election — accompanied by a slew of federal, state and local polls — will drive more money into the market. A large chunk of it will go to marketing, especially to mail and also to telemarketing since politicians are exempt from the federal no-call restrictions. Television will get the largest share of budgets. Add to that the impact of the Summer Olympics.

Those two events embolden agency holding firms like Britain's WPP Group PLC to predict that its “prospects for 2004 remain better” than last year. WPP owns agencies like J. Walter Thompson Co., Ogilvy & Mather and its OgilvyOne direct arm, and Young & Rubicam and its Wunderman unit.

Agency holding companies themselves are recovering after a buying spree in the 1990s. DM shops now figure more prominently in agency rankings under new holding company reorganizations.

Another event that has agencies salivating is the new telephone number portability law, which lets consumers switch their number among cellular carriers and carry a landline number to cell phone. So, add cellular services to the broadband Internet access, cable connection and long-distance phone marketing wars. Verizon Wireless, Cingular Wireless, Sprint and T-Mobile will intensify their use of direct response-led newspaper ads, TV and radio spots, online offers, telemarketing and mail.

“It's going to get wild out there. Everyone's going to try to get each other's customers,” said Fred Rubin, director of iDeutsch and directDeutsch, divisions of Interpublic Group of Companies Inc.'s Deutsch, New York.

Agencies on those accounts will bank on consumer dissatisfaction with their cellular service provider.

But agencies and their clients will have plenty of reasons to be uneasy. For example, agencies can expect increased pricing pressure as procurement departments within marketers lead and negotiate contractual relations.

“Marketing is one of the last areas to be addressed by procurement professionals, and they will become a significantly greater presence and influence on the agency-client selection process and ongoing relationships in 2004,” Rapp Collins' Jastrem said.

Recruitment Efforts Will Intensify

Personnel management is another issue that will come to the fore. After a few years of purging and attrition to other industries, direct marketing agencies will have to get aggressive in recruitment.

“The focus on employees was underdeveloped in recent years during the economic slowdown,” said James F. Lyons, president of Rapp Collins' New York office. “As the market picks up in 2004, there is potential for employee churn as they are faced with new opportunities at the growing agencies.”

Perhaps most important of all, anti-spam and privacy legislation will change the rules of marketing. Modifications to the marketing mix will occur as the effect of new telemarketing and e-mail laws are felt. Agencies may suggest more mail, for instance, instead of outbound telemarketing.

Consumers clearly are touchy about their personal data and its use in marketing. Agencies will have to revisit the issue of relevance of communications.

“Consumers are saying, 'Don't communicate with me just because you can, [and] don't pretend you have a relationship with me — don't,' ” Kessel said. “There's an overabundance of e-mail and mail. So we're being legislated into a corner.”

That said, agencies will have to display the courage of their convictions. Now more than ever, candor with clients may pay off. Ad executives must stand up for their agency's creative and strategic work or even challenge clients, when necessary.

“They need to encourage us to take more risk on their behalf,” Kessel said. “There are more clever ways to solve marketing problems than we're usually allowed. We get boxed into the No. 10 mail package. We've been doing it this way, but we must test our way into better results.”

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