The buzz has worn off at Orange County ad shops.
A year or two ago, everyone was heady on dot-com dollars and savoring the flavor of a robust economy.
But the spring crash of the Internet market followed by prospects of tighter consumer spending and talk of a slowing economy since have cleared the way to a more sober reality.
“Certainly we’ve been riding a huge wave over the past couple of years,” said David Murphy, president of Y & R; Advertising in Irvine. “It may soften in 2001.” Y & R;, like other OC ad shops, is starting the New Year with guarded optimism and caution, as things are, well, turning back to normal.
The marketplace is no longer described as “frenzied” and “out of control”,terms that have faded faster than the dot-com stars. After years of large increases, growth in online advertising spending is expected to level off in 2001. Total advertising spending is predicted to grow this year, albeit more slowly than it did last year.
So far, OC ad shops aren’t anticipating any major cutbacks as most of their non-dot-com clients are holding steady with their ad budgets.
Still, there’s a recognizable change in the air: pressure.
“Corporate clients are under an awful lot of pressure to make sure they’re profitable,” said Dave Robinson, executive vice president, media director for The T & O; Group in Irvine. “They’re running leaner then ever before.”
Clients, once fueled by easy investment capital, are no longer spending recklessly to promote brands. Now, amid stiffening competition, they’re being more cautious and more calculating, looking for strategic approaches that will maximize the bang they’ll get for their bucks.
Craig Holland, president of NineDots Corp. in Irvine, knows that too well. Recently, he said, the vice president of marketing for a new technology client was particularly interested in tracking ad spending, especially since last year the company spent about $1 million in that area (not with NineDots) and he was hard-pressed to say exactly what the money went to.
“The whole mantra of 1999 and early 2000 was speed-to-market; people were thinking about being first, not about spending money wisely,” Holland said. “Now we’re back to the basics of a sound business plan with an added emphasis on measurement and return.”
That shift became tangible last summer. Increased competition, the need for efficiency and more awareness of strategic planning took hold at many companies, Holland said. This year, it will be even more so, with changes anticipated in the economy, he said.
“There was definitely some contraction in the market the second part of last year,” Holland said. “We felt that in some of our clients. You could just feel the pressure on budgets.”
As dot-com companies struggled to make the math work, ad spending went by the wayside.
NineDots, with 50% of its business coming from technology companies, still didn’t have enough of its business in dot-coms to be hurt by the fallout, Holland said. But the company was affected. Some online clients pulled their ad dollars before projects were started. This year, NineDots is being more selective about who it works with, and requiring that dot-coms pay their bills up front, Holland said.
In fact, most ad shops say they have adapted to the change in dot-com business. In 2001, they see bigger issues pending.
“We’re focusing on what’s happening at the retail marketplace with a laser beam,” Y & R;’s Murphy said. “We know that we have to be a bit more nimble and a bit more responsive, because conditions may change at a moment’s notice.”
Y & R;, whose largest local client by far is Irvine-based Lincoln Mercury, is closely following news reports and anticipates a “softening” in the automotive market in 2001. But Murphy is quick to put that into perspective: “The absolute volume in the automotive category will still be the third-best on record, and our job is to make sure that Lincoln Mercury gets more than their fair share of that robust market,” he said.
Lincoln Mercury and Sony Corp., another significant client, are “very aware that conditions may change in 2001,” Murphy said. Still, their business plans remain “very aggressive,” he adds.
But the temperature is a little cooler at Mendoza, Dillon & Asociados Inc. in Newport Beach, a Hispanic ad shop with clients such as Sears, Roebuck and Co. and Kraft Foods Inc. Last year was the best in the firm’s 22-year history,and will be difficult to top in 2001. This year, some clients have kept their budgets flat and others have slowed ad efforts, according to Ingrid Otero-Smart, president and chief operating officer.
“Our packaged-goods clients are either decreasing activity or leaving the budgets the same,” said Otero-Smart, without disclosing names. “It seems to be a result of tougher goals in a slower economy.”
Still, Otero-Smart expects an increase in budgets later in the year when the results of the U.S. Census Bureau are reported in full and companies realize the effect of the Hispanic population on their bottom lines.
Despite the cooling, RiechesBaird Advertising in Irvine, which focuses on business-to-business clients, expects to keep busy this year. Ryan Rieches, agency partner, said clients “recognize that brand-building must continue regardless of economy.”
“It is a proven fact that companies that continually invest in marketing during an economic downturn take considerable market share away from companies that don’t,” Rieches said, explaining that companies will follow proven media planning techniques rather than “half-baked tactics” to get their names out.
And, as companies face leaner economic times, direct marketing (with targeted audiences and specific messages that can be tracked) become paramount,one reason RiechesBaird has been allocating more to direct marketing, Rieches added.
The coming years also may bring other changes. Ad shops agree that those offering integrated marketing approaches (campaigns involving different advertising tactics like direct response and customer relationship management) will be more successful than those that don’t.
“Advertisers are becoming more sophisticated and understand that brand-building advertising is not enough,” said Jim Harrington, president of FCB Southern California, who also remains “cautiously optimistic” about spending levels in 2001.
There may also be a shift in the media mix, according to Murphy.
“Hypothetically, if the market starts turning down, you may pull back a bit on magazines and maybe do more newspaper to allow you to respond faster to the marketplace,” he said.
And, 2001 also is predicted to bring lower prices for media space in radio or television.
Robinson, who’s also managing director of The Media Strategists, T & O;’s new consulting division, said this year will be a “buyer’s year” for ad shops, where media prices will see single-digit increases as opposed to double-digit runups.
“Ad budgets may stay the same, but we’ll be able to get that much more value for our clients,” Robinson said.
OC ad executives say they are heartened by the recent actions of the Federal Reserve, which cut interest rates earlier this month. They’re betting that the action will spur consumer confidence and keep the economy humming.
“If there’s anything that we should watch for, it is consumers getting a bit anxious, a bit unsure about their jobs or their incomes,” Murphy said. “In times of uncertainty, consumers tend to pull back and question whether or not they need to make a discretionary purchase. But I think the fed action has sent a clear message that they will take an active role in making sure we don’t have a hard landing.” n
