Whew! Agency Execs See Signs That Last Year’s Ad Spending Slide Is Over
By JENNIFER BELLANTONIO
Unbuckle your seat belts: the worst is over.
That’s the consensus among Orange County’s advertising executives, who say the first quarter shows some signs that the economy is coming around.
“Right after the first of the year (2001) it was like the spigot got turned off,” said Steve O’Leary, president of The T & O; Group in Irvine. More recently, he said, “We’ve gone from drip, drip, drip to a nice steady flow (of new business inquiries)” which historically is a “precursor for increased spending.”
There isn’t a mad rush of companies suddenly looking to re-hire marketing folks they’ve laid off (see the Q & A; on page 23), or dramatically amp their ad spending.
But O’Leary and others say clients are starting to move forward,albeit slowly.
“We’ve seen clients increasing their investment across many fronts: production, new brand activity, public relations, new media,” he said, noting that includes “clients who were somewhat dormant.”
Ray Baird, president of RiechesBaird Advertising in Irvine, said he’s starting to see clients move ahead with programs and products that were delayed after Sept. 11.
But, Baird said, “there is a strong sense of caution and increased pressure to demonstrate a return on investment.”
As a result, no one in 2002 is expecting to see the double-digit gains in overall advertising spending they witnessed a few years ago.
According to Taylor Sofres Co.’s Competitive Media Reporting, a New York-based company that tracks media spending, total ad spending is expected to rise a mere 1.5% in 2002, to $96.1 billion.
The company projects that spending will remain soft for the first half and rebound somewhat starting in the third quarter.
It’s not a dazzling forecast, but it would be a far cry from what happened in 2001 when ad spending fell 9.8% from the 2000 total, “the worst year-over-year showing within the past 10 years,” according to Competitive Media.
Orange County ad agencies, many of which downsized last year to weather the slide, have brushed themselves off and are cautiously optimistic. But they aren’t really sure what to expect.
“When it comes to ad spending, there has not been a consistent theme with our clients. A couple have actually quadrupled their media spending, a few are flat compared to 2001 and a couple have cut (budgets), one rather dramatically,” said Joni Brice, chief executive at Heil-Brice Retail Advertising in Newport Beach.
Lynda Lawrence, chief idea officer at Newport Beach-based Lawrence & Ponder Ideaworks, said she thinks this year could be “a bit better than our projections, because I’m starting to see clients spend again.”
Still, the agency continues to feel the effect of last year. One undisclosed client is reducing spending about 20% from 2001, she said, and the agency’s state contracts were cut by 15%.
David Murphy, chief executive of the Y & R; Cos.’ Irvine office, OC’s largest ad shop, said “automotive is still holding up, albeit with the help of incentives.”
Client spending is still cautious, Murphy said, with an emphasis “on producing measurable results.”
Eyes remain on the stock market and consumer confidence,key indicators of an economic rebound.
“Generally speaking, an increase in ad spending follows an economic recovery by a quarter or two, due to a dependence on corporate profits,” said Jim Harrington, president of Foote, Cone & Belding Southern California in Irvine.
While initial budgets for 2002 have remained flat or decreased, Harrington said, FCB expects spending to “increase during the second half of 2002 as the economy continues in recovery mode and consumer confidence gets back to historical levels.”
Indicators are out there that this already may be happening.
“Segments such as network television are at near-sold-out levels for second quarter,” said Tim Blett, president of W.B. Doner & Co.’s Newport Beach office. Things also are picking up in network cable, spot TV and radio, he said.
“Segments that seem to be recovering at a slower rate are magazines and newspapers,” Blett added.
Where is the life coming from?
The bag is mixed, according to ad executives.
Toni Alexander, president at Inter-Communications Inc. in Newport Beach, said the housing industry in Southern California is going strong and resort markets, such as Hawaii, are picking up.
FCB’s Harrington said, “consumer priorities have noticeably shifted to family and home” since Sept. 11 so “retail and related market segments will likely benefit.”
“Other areas to keep an eye on are automotive and travel, as both these segments have heavily utilized incentives to stabilize consumer spending,” Harrington said.
But ad agencies are still in a wait-and-see mode.
T & O;’s O’Leary said that the two-year downslide has made companies slower to act. Reviews that normally take three months are now averaging six months, he said.
“The selection cycle has lengthened dramatically in the business process,” he said. “The cutbacks have really hampered the marketing departments (at corporations).”
Ad execs say things will continue to take time to heal.
“I don’t think anyone realized how far we fell how fast,” O’ Leary said. “The advertising industry isn’t really anticipating spending increasing. We’re hoping to get back the levels of two years ago.”
Is it possible?
“I think it’s possible. It all depends on how robust the return is,” O’Leary said.
The New Reality
By JENNIFER BELLANTONIO
Advertising agencies long ago waved good-bye to the fat budgets and frivolous spending of the late ’90s.
In 2002, executives say, they’re staring at a new reality, where clients are more demanding and want measurable results. It is one of the many changes that have reshaped the ad industry as a result of a two-year economic downturn. And more may be coming.
“It’s going to put more pressure on advertising agencies to be more results-oriented,” said Steve O’Leary, president of Irvine-based T & O; Group. “I foresee an increase in incentive compensation,” where an agency’s pay,all or some, may be dictated by performance.
“This trend really hasn’t hit the U.S., but it’s been starting to happen in Europe,” O’Leary added. “I think it’s going to find its way to the U.S.”
The ad landscape began changing in 2000, when times got tough and many companies began cutting back on marketing. Many then slammed on the brakes after Sept. 11, and the ad business hit bottom.
The experience has changed everyone, according to ad execs.
“As an industry, this has been a real wake-up call,” said Ray Baird, co-founder of Irvine-based RiechesBaird Advertising. “The demand is that agencies change their structure and their approach to meet the changing needs of clients.”
And budget-conscious companies, which are using more direct-response campaigns for immediate results, are moving slowly, with a real emphasis on getting the most for their buck.
“I see that everyone is being a little more cautious about spending money,” said Lynda Lawrence, chief idea officer at Lawrence & Ponder Ideaworks in Newport Beach. “They want to see a real return and they’re not running ads to stroke egos.”
If people are moving ahead with plans, Lawrence said, they’re being bolder with their creative than before.
The mentality is, “‘If I’m going to spend the money, my ads better stand out.’ It’s part of a cycle that I’ve seen at least three times over the years,” Lawrence said.
Added Dominic Symes, partner at Irvine-based NuVisions Inc.: “The creative needs to be brilliant in order to stand out. Not good, but brilliant.”
The pressure is on for agencies to “reinvent” themselves, according to ad execs. They say they have to be clearer and more defined in their strategies, take better care of clients and be more efficient.
“Clients themselves are facing more accountability for their budgets and programs, and we’re establishing new models to validate their investment,” Baird said.
Billy Fried, president of the Orange County Ad Club and Spasmodic in Laguna Beach, said he sees clients holding more reviews and scrutinizing agency fees closely.
“Agencies will have less time to build brands and see a strategy through,” he said. “They will be under the gun to deliver results quickly.”
He said “this will make (agencies) more disciplined and focused in some ways” but “in others it will be detrimental because clients will buy their business one day at a time,a far more costly proposition than building a trusted brand over time.”
The economic downturn also has caused consolidation within the industry.
Tim Blett, president of W.B. Doner & Co.’s Newport Beach office, said media departments from some of the top agencies merged in order to “combat some of the intense economic pressures that were caused by the economic downturn.”
“This type of consolidation is all in the hopes of increasing the efficiencies and effectiveness of every client dollar that is spent,” he said.
And, there’s some more good news for clients, who were facing exorbitant prices for radio and TV time back in the late ’90s: There has been a correction.
“During the boom of the dot-com craze, double- and triple-digit increases were commonplace. The markets have had a chance to adjust to a more normal level,” Blett said.
Despite all the turmoil, agency executives say change isn’t necessarily bad.
Chris Epting, president and creative director at Surf City Advertising Co. in Huntington Beach, said that in the long haul clients and agencies will be “smarter” because they’re being forced to consider alternatives.
“Everyone is being forced to produce the same results with typically less resources and out-think the competition because outspending may no longer be an option,” Epting said.
