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TOTING THE BAGGAGE INTO 2002: The Agency's Opportunity
Editor's Note: On November 26, five noted agency executives were asked to predict what 2002 holds for the Denver advertising industry. In a focus group type setting, Terri Maize, Resonant Research, moderated and the group made their predictions. The one-hour session was edited to fit in the magazine. Participating in the prognostication were: Stacy Lewis, Senior Vice President, MGA Communications; Pocky Marranzino, President, Karsh & Hagan Communications; Glenn Morey, President, Morey Mahoney Advertising; Rip Ripley, COO, Brozena, Schaller, Menaker and Ripley; and Bryan Thomas, President, Thomas & Perkins. Following are their thoughts that mostly deal with the baggage that everyone must carry forward from 2001.
What are your expectations for the next year.? How is the business likely to be?
Bryan
Let's hope it's a hell of a lot better year than it was this past year. I think we would all echo that. What I'm seeing with the clients and the prospects that we're pursuing is that they all want it better, faster, and cheaper. That's sometimes a little bit tough when you're developing partnerships, but even clients in strong relationships with their agencies are asking for that, and technology is allowing us to do that. But I think we're also looking for more accountability from the agencies. Agencies are going to be reclaiming the ground that they've lost to consultants on the business ground where they've just become executors of the advertising, or, at least, perceived as that in the past. Agencies are now becoming more entrepreneurial in their client's businesses and getting into the business issues rather than just the advertising issues.
Stacy
I'll build on accountability. I think there's a much stronger tie between advertising, marketing, and sales. Almost a direct tie to a bottom line deliverable. They want it faster, cheaper, and they want it better in the sense that they want a direct customer to result from the effort. So there's a lot more emphasis on return of investment, putting a dollar value to it, and that puts pressure on the agency to have the right people who can think faster and better for the rate that you have adjusted to meet the need of demand. I think it's an interesting dynamic in terms of looking forward, not only what the market is looking for, but how the agencies are trying now to adjust with resources to meet the demand out there. That's been very interesting. That'll be as much of a challenge as finding the business and keeping the business. It's not just how are you going to do in terms of finding the business and keeping the business, but how are you going to adjust your business practice so you can do both of those things at the same time.
Rip
I think that's the basis of what all of us have been doing. I don't see a lot of change in terms of clients doing more with less. What we're seeing with our clients is that we're having a much bigger role in terms of the marketing side of it as opposed to just the marketing communications side of it. As you said it's accountability and we really do about 50% traditional advertising any more, but we do a lot of marketing communications. We do a lot of media. We really try to integrate all of it. And so we're involved earlier, we're involved further up in terms of product development and it's been great for us. I think Bryan's right, the consultants have sort of come into our business and we're telling the agency people what to do. And I see a lot of that going away. I think our clients value the relationships that we've had. They value the experience and the background that we bring to them. I think there's a gap right now on the client side in some cases. Where a lot of the people who were classically trained in terms of strategy development, in terms of marketing have sort of gone away, and they've come to the agency side. I think it gives us a great deal of more value overall. I like coming in earlier in the process,.
Pocky
I think it's going to be more conservative. I'm seeing a lot of conservative things going on. There's a confidence issue in terms of what's happening, or what has happened, not only with the September 11 situation, but also the economy, and that was probably going to happen anyway, it just happened quicker. The bottom line with 2002 is the client wants to know what's going to happen when they do all this advertising. And it's going to be a little bit more arm twisting to get them to advertise more than they have been. Some clients have cut back, other clients that were going to venture into these big uncharted waters are like, "I don't know if I want to do this." Part of it is the residue we got from the whole dot com situation with the $3 million Super Bowl spots and nothing happened. It's a return to advertising as part of marketing, and so you have to look at the whole nut. But the two C's would be conservative and confidence levels in terms of what are consumers going to do. Right now people are really watching their pocketbooks and judging what they're going to spend on and what they're not going to spend on.
Glenn
I think in 2002 we're going to have to be really good at what we do. We're going to have to be better in 2002 than we've ever been, because potential clients will be hotly pursued by anyone who can. I think that we will compete with, that not just each other. Throughout the back half of this year we regularly competed with agencies from both Coasts. It's kind of a tough competitive year, and it's forced us to look at ourselves in the mirror and say how can we, as an agency, be a better agency. How can we improve the quality of people that we can provide our client. How can we improve the breadth and depth of the service that we provide to our clients. It's forced us to be as good as we can be. 2002, it's just going to keep ramping up. That's a tough catch 22 because being good is expensive. The better people you hire the more you have to pay them. So the question is, how do you reconcile that with tough economic times and shrinking budgets. You have to be very very smart in the way that you apply the disciplines of the agency to its client's need.
Bryan
Playing off of Glenn's comments, I agree, too that there's going to be higher demand. This is all implicit in what we've all stated, but integration will continue to play a very important role whether it's B to B or B to C. I think that they'll be looking for multi-disciplinary approaches for sales promotions, to direct, to retail, to interactive. How you balance all that out in the context of the amount of resources that you can afford, while at the same providing services that your client wants and needs.
Terri
Rip had said that the use of consultants seems to be going away somewhat. Is it part of this integration trend? They do want to come to one structure?
Bryan
I think that has more of an execution feel to it. I would say the late '90's ad agencies really lost a lot of ground to major consultants. I think you're starting to see the pendulum swing the other direction as agencies get more up to speed on the business of the clients rather than just saying, where do you want me to put this ad campaign, or how do you want me to execute against that in an ad, solving it with an ad advertising solution. I'm seeing that in our own context here, I've seen that nationally, and from what I'm reading, and what I hear from my peers that are outside this market. Ground Zero which is an agency out of L.A., do that quite well.
Pocky
I think it's a cost issue. There's less money to go around, there's less flesh, so you don't need 38 people telling us what to do. I'm going to go to one shop that I think is reputable that can give me this choice of marketing needs, and you don't have to pay Arthur Anderson x dollars to do that for you. Plus... no offense on Arthur Anderson, but some of the studies I've read out of these consultants are very questionable in my opinion because these people got their MBA's and all of a sudden ended up in marketing, telling these big companies what they're supposed to be doing.
Rip
We're seeing something very similar. What's happened with a lot of the clients now is that they have done everything that they can do to be more efficient internally, and that's really where a lot of the consultants came to them. I really think that one of the things that I see happening in 2002 and beyond is value being placed back in marketing and marketing communications, and people who have experience in doing that. Who have been around a little while. It's kind of nice to see that people with gray hair are going to be valued when it comes to having some experience in marketing. For example, right now, economically we've got a downturn. For a lot of our clients this is not necessarily the first one they've ever been in. I think that's a fault of the dot com people as well. They've never seen a down market, and all of a sudden it was here and they didn't know what to do. We've been through these before, we know what to do. I think marketing is going to come back to the forefront now that you've cut as many people as you can cut. You're as efficient as you can possibly be. You're manufacturing at a level that's as high as you can manufacture. What's next? You come back to sell the products, and that's really what we do best.
Glenn
Economic pressure is an amazing thing, because it really transforms to a way that clients approach partnering with all the various kinds of people they need to partner with in order to market. Right now there is a premium on action, and so you've got to find a partner who can effectively marry, think and do. That's what agencies are good at doing. You can't make up the difference in the marketplace until you are in execution, and no one gets execution better out of strategy than an ad agency. One of the very first things, I think, that Bryan said is exactly right. I hope that the year 2002 will see the resurgence of the full-service advertising agency and what that means to a client that really needs to get from point A to point B, and needs to do it effective and efficiently.
Terri
What are your thoughts in terms of valuing of experience?. Stacy, any comments on that?
Stacy
I'm Chairman of the Ad Federation this year. We're 900 member, so I look at it as a sample of the talent. Who you have as your senior level as well as how you have them blend better with younger people who really can do. It's the thinking and the doing. The thinkers and how the seasoned experienced will be able to look at something very quickly and say, here is what you need to do and maybe create an action plan. I've seen more reliable, the doers who are the younger folks... and I say younger, under 30. Early 20's even. These are the folks who are doing the action marketing. The interactive Web-based marketing that will create, perhaps, a more effective result because they know that much more about it. I think direct mail is pretty standard but I think that the more you get into some of the new mediums that are out there, it is a fact that younger folks are growing up with these technologies so bridging that gap. Even at a small agency level it's becoming an interesting dynamic for Presidents and HR folks because they speak languages, they have different needs, they have different work styles. They have different work ethic. I think there's no doubt that having more senior level managers who have a lot of experience is going to be a refreshing change because I think there's more methodology to the way they approach things than what we saw in the last 5 years with the younger dot com movement. But I think bringing in the doers is going to be the critical part of value. That's where you're going to deliver the results to the client. And so marrying those two processes is going to be very interesting.
Pocky
What's really nice is being an "older agency" around town. Karsh & Hagan is 25 years old. It is now back in vogue again to go to a traditional... but what I was hearing was, 3 or 4 years ago, it's like well I want to do this, and I want to do that, and it's kind of like value in investing is back in. All of a sudden I'm having people that I'm interviewing saying, "I'd really like to work for a stable, traditional..." And I'm thinking this ship passed me by. Now I'm back going, this is great.
Bryan
It's amazing to see how quickly the market changed. A year ago, even at this time it was difficult to find people, junior or senior. Everyone was either off to dot com land or to pursue their treasures... their perceived treasures. But now with the downturn in the economy which immediately had an impact at the agencies, it's a buyer's market, I guess. We've made reference to the economic woes, how much do you think that is a result of the September tragedy, and how much was in effect well before that just magnified and intensified what we're seeing now?
Pocky
I think it was coming. It was sped up by September 11th. We had 9 great years from 1990 through 1999, even 2000 was a good year. 2001 is going to be a good year, 2002 is a big question mark in my mind, but you can't do that forever, so if you believe Warren Buffet the market is going to return 6% to 7%, which means I go back to my earlier statement about conservative. I think companies and individuals are going to be much more conservative with their dollars.
Rip
I think that's true. Economically we were headed south long before September 11th. I think that what they've been doing on the other side of September 11th in terms of cutting the interest is actually going to push the recovery faster. I'm much more optimistic about 2002 than most anyone else I've talked to. With the cost of money where it is, if you look at the base of our business-to-business clients, they have to take advantage of some of the financial opportunities that are there. I think economically a lot of what's being put in place now is going to bring us back faster than we might normally have come.
Terri
Anybody else have comments on the economy and recovery?
Bryan
I find it interesting. I gripe about this all the time at the agency where Wall Street pretty much has dictated... I plu down here... but they have taken away the ability of major companies to really plan their future, and to take risks, and to do things that make great companies. They really erred if anything on the conservative side. What that means for us as agencies is that now we are somewhat handicapped. Stuck with some clients that are doing absolutely nothing, other clients that are filing Chapter 11. Other clients that are merging or being acquired, or acquiring, and it raises hell in our environment as we try to establish relationships and build meaningful approaches to whatever the marketing focus is for that company. It derails CEO's from looking at what's in the best interest of the company as opposed to what's in the best interest of the stockholders, and I think those two are sometimes at odds.
Rip
We've seen a lot of managing for the shareholder. It's been awful. And it's short-term. It used to be that you looked at the next quarter and now it seems that you're not even looking at the next quarter actuals, you're looking at what you're going to report, what your anticipating reporting in the next quarter, which means that everything becomes even more compressed. And you're not looking at even a 3-month environment, but you're looking literally week, to week, to week. And a lot of decisions get made in that environment that are very detrimental in the long-term. I think Wall Street has way too much involvement in the conducting of American business. When you're trying to satisfy someone who's never seen a down market, even analysts in a major firm who's 26, 27, or 28 years old and have never seen anything like what we're going through right now, and you've got long-term CEO's that are managing that person's expectations, it takes away from the overall success of the corporation. It makes it awfully hard to do what we do.
Pocky
The bigger no-no is that... we're so global now that if you look at the Fortune 500, most of the companies have at least 50% of their sales or 50% of their manufacturing outside the U.S. So then you have to go back to what did September 11th do to that in terms of confidence and what's going to happen to sales. And what happens if these companies get cut off, or these companies start getting hit by other terrorism acts and other things like that outside the U.S., because this thing ain't over. So there's this huge question and cloud out there of, where do you deploy your money? That's why there's this flight to safety because there's just this big unknown.
Terri
I'd like to know what you plan in 2002 that's different than what you've done in the past. For example, accountability. What will you be doing differently in the near future than in the past as it relates to that, if anything?
Glenn
I think accountability is only fair and true when the agency has the ability to participate in those things for which it's theoretically being held accountable. What happens as an agency becomes more accountable to a client its responsibilities tend to broaden because the agency refuses to be accountable for things that it can't control. We broaden our responsibilities and we broaden our role with that client, and we deepen our role with that client. And in the process of doing that become more than we ever would have envisioned the traditional agency would be.
Rip
I think our clients are becoming more economical internally as well. I'm seeing a lot better tracking. I'm seeing a lot better management of corporate knowledge assets in terms of databases and really understanding more and more of what their customer relationships are like. We're seeing now, clients that can come in... again on a B to B environment where we will sit and plan a new product, for example, and we'll have at least enough information to be able to fairly well and accurately predict what the response are going to be to different types of communication. We're seeing a much more broad role for ourselves with our client companies. They expect that the strategy doesn't encumber everyone, but that they are better equipped to give us the results. And much more comfortable with sharing that with us. There are few clients that are still uncomfortable with that, but we're all in this together, and I think that's the key to this thing is to say, look, our business is to make sure that your business is successful.
Bryan
If I heard your question correctly it was what are we doing to be accountable. I think training is really important. I would dare say that account management over the years has played less of an important role in that area. From our standpoint we're trying to bring in some champions of certain functions or certain disciplines within the agency and then train downward, and get the kids, the younger people in the agency to understand that and to think like a client so that they know what's expected of them.
Terri
Getting back to the thinking, bringing in that expertise. Pocky, is the same kind of dynamic going on in your group? Or are you thinking about bringing in the seniors to help?
Pocky
Because we were sold to the Omnicom Group, and Integer is owned by the Omnicom Group, we have access to senior research account planners, etc., so we're lucky in that regard. It goes back to the experience. You can't make a lot of mistakes in this economy. As far as accountability goes we're not doing anything differently now than we have in the past. Accountability is really a case-by-case basis for each client because there's so many variables that enter into it that you have to just sit down with them before you start the process and come up with a way that's agreed to on how are you going to measure this thing. It's almost like you've got to take some of it on faith. And there's two types of companies. There's a company that believes in advertising, there's a company that doesn't. I guess there's some in the middle. But we try to deal with those people who believe in marketing because you've got a tough sell with the ones that don't. John Wanamaker said, "I know that half of my advertising is wasted. I just don't know which half." We're getting away from that now because we know that we can segment it pretty much to where it's not totally wasteful, but there are fringes where you can't. So you have to take that to the bank and say, you either believe in this thing or you don't. That's the bottom line.
Terri
Client confidence. What might you be doing to build their confidence in this economy as we go into the next year?
Rip
I think that, in a lot of cases our clients froze on September 11th. A lot of people did. They wanted to see what was going to happen. I think in these ensuing months after that they're starting to thaw a little bit. Specifically, what we're doing... again because of our approach to be more expanded we're providing them with as much information as we can from a resource standpoint. What's going on in terms of trends. We're doing a lot more secondary research in terms of providing them the information about what's going on in their market and markets that affect their markets. We're really trying to provide them with the information that they need to make intelligent decisions. We've taken that role on and we're trying to give information for them to make an intelligent decision.
Glenn
I think that actually many clients are perhaps even more aggressive now than they were because there is a whole class of clients that, if they don't survive and create tremendous traction for themselves over the next 12 months, and create tremendous progress and productivity within those 12 months they won't be here. And that's the nature of this economy. This economy is consolidating companies very very quickly. We've had at least a half dozen clients just in the last 6 months get bought by other companies. The truth is that even in a merger somebody wins, and your client, if they're going to be participating in a merger, they want to go into that with as strong a position as possible. I also think that there's a whole class of clients that are kind of waiting to see what happens over the next 12 months, and they're being very, very, very cautious.
Pocky
The bottom line is that 2002 ad spending is actually projected to be down about 4% to 5%. I think time heals all. If everything was frozen on September 11th we're now in the microwave and it's starting to thaw out, but I don't see anything going on heavily until probably third quarter. I think it's going to take 6 months of next year to get back to normal and that's, God forbid, that there isn't another big problem out there.
Terri
Do you feel that Denver's growth would be any different than the national average in some way?
Pocky
Denver has always been opposite the national market, frankly, so I think that what the '90's have done for Denver is put us on a balanced economy in terms of having enough high-tech... it was really oil in the '80's. I went through this in the '70's, 80's so it was oil. And all the oil companies shut down and moved their regional headquarters out about '83, '84, and then the resolution trust came in. I think Denver, knock on wood, is going to be okay. I think that we're a growth market. The west is going to continue to grow. Our style of living is one that is good. If we all get through T-Rex, we'll be fine.
Terri
There were a lot of heads nodding as you commented on good prospects.
Bryan
I think we'll be ahead of the national average. That's the feeling that we get at the agency. And what we've experienced to date. I think it's good to watch and be very careful. Geographically this is one time where geographics is helpful and not a hindrance.
Glenn
This market has proven that it's very good at creating growth companies, and growth categories even. I think that that's really been beneficial to those of us in the ad agency business because there's nothing better for an ad agency than a company that has a great idea and nothing but a smooth highway in front of them if they can execute that idea. I think that numerous categories over the last couple of years have really hated our ability to broaden this market out and to balance it out so that we're not reliant on any single industry or category.
Terri
Earlier when you were talking about some companies building traction. Is that at all industry-driven, or would you say it's just more a matter of the company status?
Glenn
I think it's completely industry-driven. I think that there is a big line right now between companies that are Internet related and companies who are not. And companies who are Internet related are driven to find traction for their companies. And those who are not, those who are traditionally conventional businesses, they're playing a completely different game.
Pocky
The AAAA's have some studies that show that companies that advertise in a recession recover quicker and gain market share faster than companies that don't. So if you believe that those companies come back quicker. Is it across the board? No. I think there's categories that certain people shouldn't advertise at certain times, others should. Again, it's a case-by-case custom basis. But overall, I think Denver is in a pretty good place to be in terms of where the growth is coming from, and companies and energy, and that whole thing.
Rip
I think that there are a lot of smart business people who reside here in Denver. We are good at starting growth companies and new companies. I look at some of the biotech companies and some of the things that they're going to be doing, and that's an interesting growth category. It's an exciting time to be in Denver. We are growing out of our sort of self-imposed phobia about being a cow town. We have a wealth of smart people that are available. It's fun to watch the companies be successful in doing different and smaller things. More niche things. I don't think you'll ever see us as reliant as we once were on a single industry.
Stacy, what would you say about the competitiveness of the Denver market, and the competition faced by Denver from other parts of the country?
Stacy
Everything said by Pocky and Rip, other people ,outside the market, know as well, out of the market. That's probably one of the reasons why out of market agencies are targeting Denver to get whatever they can. That does put the onus on the local agencies to be at their best game. I also think that in terms of the local competitive market, the top 5 or 8 agencies who, I think, perform at the highest level as any national agency. And the struggle is that we all still have to go after the local market share. To be honest with you, what I see is the top firms in the market going after all of the viable business that we can possibly have.
And I actually am starting to get a sense that more cooperation, more collaboration, perhaps, among those top 5 or 8 agencies could actually create more rewards, not only for them, but possibly some residual rewards for other agencies in the marketplace. I say that after having talked with some folks at the Ad Federation about starting an initiative, working collaboratively. I called Pocky about this, and Cathey Finlon, who is the incoming Chair of the Denver Chamber of Commerce. That's a wonderful coup for the advertising agency community because, in a sense, her goal is to try to bring more outside corporations to Denver and help position Denver, which is obviously a large economic development initiative tied to tourism messaging. The timing is right in the next 5 years to really make some decisions of whether or not Denver wants to make a statement for itself nationally. It's a question of whether or not we want to or feel we need to. That was a conversation that actually ended on September 11th. The task force that we had assembled... it's called the MAP project and it had to put Denver on the map. It ended because we realized that what we need to do is really just take care of our own backyard right now and pretty much fend for ourselves. Many of us were downsizing, trying to figure out how to hold onto business, so it wasn't a question of coming together quite yet. But the idea was an interesting one. To your question I think there's a lot of potential to think outside of the box in terms of the local competitive market. To fight against, perhaps, incoming outside market competition, and also to help Denver get on the map as a vital ad community.
Rip
I think Denver is a tremendous community that should be able to compete almost anywhere. We see a lot of opportunity locally and nationally, and we are taking our messages on the road and pitching a lot more clients out of state than we ever had before. I hope it works.
Terri
Thank you all for joining us in this discussion about the coming year. It is not offen that we are able to get professionals of your caliber together in one room to share your wisdom with our readers. Best of luck as you not only compete with each other, but work to bring more of the advertising business to Colorado.
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