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VOL. 124 | NO. 75 | Friday, April 17, 2009

Survival of the Fittest

Local marketing industry faces economic upheaval

By Eric Smith

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GROUP DYNAMICS: The outlook appears bright at carpenter | sullivan | sossaman, where employees gathered for a staff meeting this week at the 400 Union Ave. headquarters. -- PHOTO BY ERIC SMITH

Conventional wisdom has long held that whenever economic troubles arise, companies should quickly slash their advertising and marketing budgets, allowing them to weather whatever storm is raging.

Not surprisingly, plenty of Memphis-area businesses have honored that adage by shelving their rebranding campaigns or reducing their media buys. Even FedEx Corp. broke a 12-year tradition by refusing to advertise during the Super Bowl because of the dreary economic climate.

Marla Royne Stafford, professor and chair of the University of Memphis’ department of marketing and supply chain management and also editor of The Journal of Advertising, the quarterly academic journal published by the American Academy of Advertising, said companies are indeed cutting back their advertising budgets.

While that’s typical in a struggling market, it also has created a ripple effect among numerous sectors that rely on income from ad creation or placement.

“That’s obviously resulting in reduced revenues for not just the agencies, but in the overall media,” Stafford said. “There’s been a reduction in the industry because that’s the first thing to go.”

Slash and burn

It’s the first thing to go because the perception is advertising is a luxury, something that can and should be dropped when times are tough. Between shedding employees or scrapping radio spots, most company owners will choose the latter.

As CEO of archer>malmo, one of the largest full-service agencies in town, Russ Williams has seen his share of clients feeling the pinch. That, in turn, has taken a toll on the companies that service those clients.

“It’s definitely tough times,” Williams said. “The recessions hit the advertising and media industry usually harder than the general economy, about double the rate of job losses. It’s definitely hit people hard.”

Bill Carkeet, principal and CEO of Oden Marketing & Design, has seen some of his clients affected by the economy, especially in their “ability, willingness and propensity to spend marketing communications dollars,” he said.

Carkeet said the extent of the impact on an agency depends on its client makeup, with stronger portfolios yielding stronger bottom lines. But no one, it seems, has been entirely immune from the downturn, with many companies hesitant to pull the trigger on projects.

“Typically, a lot of projects have either been delayed or put on hold until the economy turns back or until a new fiscal year,” Carkeet said. “Just kind of across the board, our clients are under such tremendous pressure they’re having to get as much out of their smaller or reduced budgets than we’ve seen in a long, long time. That has a trickle-down effect.”

When – and when not – to invest

Williams said one bright spot is that companies haven’t been eliminating marketing and advertising budgets as much as they are postponing them until the second half of the year, when they hope the economy turns upward.

“A lot of the things they want to do marketing-wise, they feel are important and they want to do them,” he said. “But they’re hoping the economy is going to get better and their top lines are going to get a little bit better so they’re back-loading those marketing expenses a little bit.”

Stafford pointed out that postponing projects – and certainly nixing them altogether – isn’t always a wise strategy.

“Many studies show that companies that maintain at least a low level of advertising during a recession often come back much stronger than those who cut it out completely,” she said.

Marketing and advertising professionals throughout Memphis, from small to large firms, echoed her opinion.

Tim Sellers, partner at inferno, said the key is to remain viable in the client’s eyes by providing the return on investment they demand from an agency. That’s the least they should expect, times being what they are.

“Much more responsibility is being put on the agency to come to the table with very intelligent solutions, and much more focused on the communications strategy and the value of that investment,” Sellers said. “You see your clients working harder to justify their programs and the projects that they are trying to get off the ground and promote. That puts the responsibility on us to make sure that the program put in place and the plans that we design are truly effective.”

Lean, mean and creative

Becky West, president of WestRogers Strategic Communications, said clients are more interested than ever in getting the right solutions to their problems and “making sure that whatever money they spend, they spend it as wisely and effectively as they possibly can,” she said.

Moreover, the agency has the increased responsibility of adding value to a client’s marketing or advertising needs, because with fewer companies spending less money, that means some agencies will stand out and others won’t.

“You’ve got to be something that distinctly separates you from the pack,” she said.

Doug Carpenter and Brian Sullivan, managing principals of carpenter | sullivan | sossaman (CS2) advertising agency, set out to distinguish themselves from the pack when they joined forces in 2001.

That’s when the duo – which merged with Sossaman & Associates in 2006 to form CS2 – began concentrating on diversifying their client base, Sullivan noted. That strategy has paid dividends for the company, which is in growth mode as others contract.

“We didn’t have any large exposure to any one particular client or business,” Sullivan said. “All agencies are limited to one client per category or industry, so we didn’t have any real serious exposure in any one industry. They’ve all been hit differently.”

Carpenter went on to say that a bad economy gives agencies the time and opportunity to be “creative and aggressive” with current clients as well as new business efforts.

“We already are well-positioned regardless of the economy to have clients that are committed to communication,” Carpenter said. “And I think they would share our thoughts that this is an opportunity to accelerate what you’re doing and to be more thoughtful and be more diligent and certainly not a time to fade away.”

Darwinian proposition

As for agencies fading away, the biggest blow to the Memphis marketing and advertising industry perhaps came in December when Chandler Ehrlich announced it would close because of the economy.

That happened about a year after Conaway Brown Inc. shuttered its operation. Meanwhile, a host of other companies has cut jobs to save costs and remain solvent.

Williams of archer>malmo said the woes have penetrated into firms of all sizes and profiles, from the small boutique shops to the largest corporations, with job losses “pretty much across the board.”

But, like what’s happening in other industries, the companies that do what’s necessary to adapt to the changing times, that become lean and nimble, are the ones that will come out on the other side.

“Tough times sort out the weak from the strong,” Williams said, “and I definitely think that’s happening.”

Or, as Signature Advertising CEO Mark Henry pointed out, owning and operating a marketing or advertising agency is no longer a matter of producing clean copy and innovative graphic designs for a client. It’s as much about the financial side as it is the creative side.

“When times are good, anybody can run a business,” Henry said. “When times are not so good, it takes two hands on the wheel and you have to pay attention to your profit and loss, your income, these ‘boring’ business things that aren’t creative and advertising-oriented. That’s the key to whoever’s going to survive and whoever’s going to prosper.”

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