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Advertising: The Big Question, Where Are We Going?

The advertising industry is reassessing its tools and techniques as budgets remain unsettled and clients seek new approaches.


March 29, 2001
Copyright © 2001 CARIBBEAN BUSINESS. All Rights Reserved.

Where are we going?

Media buying agencies, cost-cutting measures, Internet, and other advertising innovations are on the horizon

After 10 years of non-stop growth, the local marketing industry appears headed to a slowdown.

A week away from closing the year’s first quarter, clients, advertising agencies and media remain uncertain as to what the rest of the year will bring. Consequently, most advertisers are either cutting back budgets–some by as much as 50%--or just not approving final budgets at all.

By now it is textbook wisdom that the last 10 years witnessed the longest period of sustained economic expansion in U.S. history. For most local companies, that economic bonanza meant consistent revenue growth projections and, consequently, expanded advertising investment budgets.

Over the last decade, according to earlier CARIBBEAN BUSINESS estimates, total marketing expenditures in Puerto Rico–including real media expenditures by advertisers net of frequency discounts and discounting of rates, plus promotions, public relations, cinema, outdoor advertising, direct marketing, and market research expenditures–grew a whopping 60% from $628 million in 1990 to more than $1 billion in 1999, an average 6.6% per year.

The growth trend of the ‘90s continued last year. According to Mediafax--a market research company that conducts syndicated research on local media companies--local advertising expenditures in media placements at rate card rates reached $1.07 billion in 2000, a 6% growth from $1.01 billion reported in 1999. The totals include advertising expenditures in television, radio, cable, print, and magazine categories.

Not this year. Whether or not a possible economic recession is staring us in the face, the fact is that 2001 advertising budgets are either being cut back or kept at last year’s level.

Asked what to expect this year, industry sources have an invariable answer: it’s too early to tell. In the next few months a clearer picture should emerge as to whether we’re facing a belt-tightening period or an outright recession.

Uncertainty in the local market is consistent with stateside economic trends. According to an Advertising Age report this month, year 2001 marketing expenditures are still a big question mark. According to the industry’s leading national publication, some advertising agency executives privately admit many clients are cutting budgets, and some are not even setting budgets at all.

In Puerto Rico, meanwhile, local industry sources try their best to put a positive spin on what undoubtedly must be an unnerving uncertainty with three months of the year already gone.

"Budget reductions force the agencies to be more creative. We face the challenge of developing advertising initiatives that help meet the clients’ goals and expectations with fewer resources," said Carlos Carbonell, general manager at Young & Rubicam.

"The danger is that, if a recession comes, consumer behavior becomes unpredictable; that’s the tough part because suddenly you don’t know where the money will go," added Carbonell.

But a recession would only affect some advertisers, while making others stronger, according to Carbonell. "For example, exclusive restaurants and high-end fast-food outlets may experience a revenue loss, while the lower-end fast-food restaurant category may increase sales. All of the sudden, we have a situation that may be as bad for some clients as it is good for others," he said.

And while most sources confirm that projecting a dollar figure for 2001 local advertising expenditures is virtually impossible, all agree this year the industry will experience significant developments that are likely to change its nature forever.

Media buying agencies

The creation of local media buying agencies--already common in the U.S. and Europe-- promises to be a significant development in the local advertising industry this year.

"Media buying is an area that has been ignored for many years and, ironically, that is there where clients invest most of their money," said Jorge Rodriguez, president of Marti Flores Prieto & Wachtel (MFP&W).

Rodriguez said that international media buying companies such as Carat and Media Planning have been trying to enter the local market in recent years. In Puerto Rico, a few such companies have recently specialized in media services.

A media buying and services agency offers media research, planning, placement, and negotiation, as well as strategic consulting. Media agencies also help clients view advertising as an investment, and counsel them on the most effective media in which to advertise a specific service or product.

In January this year, Cleve Langton--chairman and founder of the American Association of Advertising Agencies (AAAA) New Business Committee--visited the island to address local ad industry professionals. According to Langton, media buying is an integral part of the new business process, a recently coined phrase to describe the evolution of the way the advertising business will be conducted.

"Media buying is coming, so you better make plans," said Langton, in reference to the creation of local media buying agencies as well as the arrival on the island of international media placement firms.

Ad agencies are reacting to the trend by strengthening their media departments. McCann-Erickson Puerto Rico is in the process of giving birth to Universal McCann, an in-house unit in charge of all media-related tasks, including media planning and media buying.

According to agency president Miguel A. Escobar, McCann-Erickson decided to form this in-house agency as a strategic reaction to the trend towards the proliferation of local media buying agencies.

The art of saving money

While some advertisers are resorting to media buying agencies in search of reduced commissions, others are deciding to take the function in-house. For clients, the bottom line is the same; squeeze the most out of every advertising dollar.

Today more advertisers are handling their own media placements, limiting the use of traditional advertising agencies to creative talent and production.

Pueblo International, for example, recently chose a new advertising agency --McCann-Erickson--to complement its internal advertising and sales promotion unit AdTeam. Headed by former Young & Rubicam General Manager Melissa Lammers, AdTeam will serve as Pueblo’s internal agency to handle the supermarket chain’s media placements.

Generally, advertising agencies fulfill two main functions, the design and development of campaigns and publicity-related initiatives--referred to as the creative process--and media placement.

But bringing the media buying function in-house or negotiating TV commercial production directly are cost-saving strategies available only to advertisers with large enough budgets to justify the expense. So the recipe is not for everyone.

One big company, for example, went the other way. For a while, Sears, one of the largest retailers in Puerto Rico, had its own media placement agency in house, and used De La Cruz & Assoc. advertising firm for the creative work. Now De La Cruz handles both creative work and media placement for the local Sears account.

Although the tendency towards companies handling their own media placements is increasing, some clients prefer to pay an agency that extra 20% placement commission. Handling their own business means more work and responsibilities for the company itself, and the need for more specialized personnel, which for some, is simply not a very practical idea.

As clients strive to escape both high agency commissions and the hassle of handling the business themselves, the industry is moving toward more fee negotiation between clients and agencies. The agencies, on the other hand, are responding to the call in order to keep their clients happy.

"The advertising industry is in turmoil on this matter. Inevitably, there will be more changes in the way the compensation process works between agencies and clients," said Tato Rossy, partner at consulting management firm Edge Consulting Group.

Internet advertising

Besides imminent changes in the advertising industry’s new business process, brought about by tightening advertising budgets, this year will witness the explosion of the newest medium on the block; the Internet.

Partly due to cluttering within print media, as well as TV and radio programming, Internet advertising promises to increase this year, according to Debbie Solomon, senior partner/group research director at MindShare USA, formerly a media department of multinational advertising firm J. Walter Thompson.

Solomon was the guest speaker at the Second Media Seminar held in January by MFP&W.

How much Internet advertising will grow is anybody’s guess, but local Internet-based companies believe it will surpass and even double last year’s investment.

"Local companies invested more than $1 million in online ads last year, as estimated by industry professionals," said Ernesto Gonzalez, president at electronic marketing firm Gonzalez Torres & Associates (GTA).

According to Carlos Maldonado, president and founder of Horizon Multimedia, a company that specializes in web page design and development, top local Internet advertisers include Banco Popular, Cingular Wireless, Triple-S, Banco Santander, and the Puerto Rico Tourism Co. "I know of banks that have paid $100,000 for placing a button on an Internet portal for a period of only six months," he said.

There are no reports on local Internet expenditures to date, but soon there will be at least a couple. Mediafax, for example, is currently working on the creation of Media Insight Buying Systems, a new division to measure Internet expenditures by both local advertisers and ad agencies.

The unit will provide an additional column to Mediafax’s annual agency and advertisers reports, company President William J. McKenna told CARIBBEAN BUSINESS.

Next July 1, GTA will also launch a similar product called ProAdNet, an online service to offer specific information regarding local Internet portals and online advertising expenditures. GTA’s Gozalez said information will be gathered via surveys among Internet users.

It is estimated that there are at least 550,000 Internet users in Puerto Rico and at least 7,000 more people start using the Internet for the first time every month.

Online advertising can be as expensive as it can be fun. Whether it is a button (usually a one inch by one inch graphic) or a banner, costs range from $200 to $5,000 to $10,000 per month, depending on the size of the ad, the time of exposure, and the relevance of the website where the ad is placed.

Although this medium moves thousands and even millions of dollars, some believe there is still a long way to go in Puerto Rico. "The Internet hasn’t yet become the monster everyone thought it would be. I’m sure in the future the Internet will become a marketing vehicle that no one will be able to stop; but it still needs to be developed," said Jorge Rodriguez, president of MFP&W.

Still, the Internet boom has forced ad agencies to create their own interactive divisions in order to offer clients more varied alternatives to suit both technological advances and client needs.

"Clients are now starting to realize the power of the Internet as a marketing tool," said Maldonado. "Clients are constantly asking questions about the medium. They want to have a better understanding of it because, nowadays, the market perception is if you’re not online, you’ll be left behind," he said.

Following this trend, ad agency Lopito Ileana & Howie created a division called Populi; MFP&W established Interactive; and others, including WING Latino Group, De La Cruz & Assoc., and McCann-Erickson Puerto Rico, are also offering interactive services.

Some creative professionals, however, are establishing their own small shops, or boutiques. That’s the case of Grupo Espiral, and Radames Creative Group, among many others, who specialize in promotions, web page development, graphic arts, and even advertising for small businesses.

Many of these businesses are so specialized that even bigger advertising and communications firms subcontract them to develop special projects for their clients, particularly when it comes to adding electronic commerce capabilities.

But e-commerce is frought with other concerns. Books, compact discs, and even clothing, are easy to sell over the net; furniture and cars aren’t. Companies also need to prepare in terms of infrastructure, not only computerized equipment (software and hardware), but also storage and distribution.

"Some retailers have come to realize that e-commerce is not for everyone. Some who become electronic retailers (often called e-tailers) have failed due to lack of understanding. When a company decides to do business over the Internet, it takes more than just having a presence on the web. It is a lot more complicated than that," said Horizon Multimedia’s Maldonado.

2001 industry trends

The change and uncertainty that will characterize the local marketing and advertising industries this year mean one thing for sure. They will not be the source of attractive career opportunities, at least while the uncertainty over a possible economic recession lasts.

One industry source told CARIBBEAN BUSINESS that this year, ad agencies will concentrate on educating current personnel in an effort to handle more tasks with the same number of employees.

Y&R’s Carbonell agrees. He further believes the proliferation of one-man Internet shops will also mark the industry this year. This, he said, will continue to force ad agencies to create or reinforce their own interactive divisions to retain both the talent and the business.

"I don’t foresee an employment increase but there will be more diversification in terms of the type of services that the agencies offer," he noted.

Today, agencies are realizing they have to offer their clients more than just creative, design, production and media placement. Now the trend is to add talent for public relations, interactive, brand-building, direct marketing, and almost anything else a client may need.

Marketing managers--often called business development managers--are feeling the pressure when asked for results even before strategies are implemented. Top executives can’t afford to lose money and marketing managers have the responsibility to deliver results.

"Companies have come to realize they cannot afford to lose even a dollar. Marketing strategies need to be tested before they are launched to have a clear idea of what results they are expected to produce," said Manuel de Juan, president of MarketAccess, a specialized marketing research and consulting firm.

"That old way of doing business; that of launching a campaign to see what happens is not going to happen this year… and maybe never again," added de Juan.

In the process of getting to know consumers better, companies are beginning to establish a stronger consumer/product relationship. This relationship--developed and sustained by the necessity of the product itself--will now become a more personal relationship; based on feelings.

By targeting feelings, it is possible to make consumers identify more with the product. The purpose is to create a debate of need vs. affection. When consumers feel that a specific product targets their interests, they feel bonded to it and they will, eventually, buy it.

Coca-Cola marketing executives, for example, are using this method as the key for the current Sprite advertising campaign Al Reves ¿y que? (Upside down, so what?), targeting youngsters. From extreme sports such as roller blading and skateboarding, to basketball and soccer, Sprite’s ads approach activities that youngsters identify with.

Not only does that give the brand a youthful image, but it also builds a stronger and broader foundation among young people, said Adrian Rivera, district marketing manager for Puerto Rico at Coca-Cola Co.

This year there will also be an increase in the demand for consulting services, which offer clients solutions to succeed. "Consulting services work like a toolbox, offering an array of options and expertise to help clients be successful," said Carlos Rom, Rossy’s partner at Edge Consulting Group.

"We don’t tell clients what they want to hear, but rather what we believe they should consider to make their business plans more effective," added partner Tato Rossy.

Local mergers and acquisitions are also a possibility in the not to distant future. This year began with the acquisition of MFP&W by J. Walter Thompson. "Consolidations are inevitable," said MFP&W’s president Jorge Rodriguez.

"The local advertising industry is going through a period that is crucial. Those who adapt to changes will survive. I believe agencies need to evolve in the way they do business in order to remain competitive," Rodriguez added.

Experts agree that local advertising and marketing firms need to catch up with technological advances and the demands of the market, reinventing themselves more often, preparing to compete on a global basis. Certainly, this is what has been happening for the last few years in advertising agency centers such as New York, Chicago, Los Angeles, and London.

Outdoor advertising: a golden opportunity

In Puerto Rico, outdoor advertising has been a big success--particularly in the last year-- with billboards, banners, and ad screens everywhere.

"This year we expect an increase in sales," said Luis A. Feliciano, president of LAF Communications. "Counting our three divisions—Publitel Inc., Aerial Sign de Puerto Rico Inc., and Window Ads Inc.—we expect to have between $1.5 million and $2 million in sales."

In 1999, $4.8 billion were spent on outdoor advertising in the U.S., up 9.4% from 1998, according to the Outdoor Advertising Association of America Inc. (AOAA). Dot-com advertisers represented $100 million of the total spent.

Feliciano estimates that the industry moves more than $20 million every year in Puerto Rico, a sum that could double in the next three years if it keeps up its pace.

But many of the biggest brands are not yet taking advantage of this medium, since only 58 of the top 100 brands in the U.S. are regular outdoor advertisers, as reported by Advertising Age.

Television, newspaper, and even radio cluttering is one of the main reasons why outdoor advertising promises to grow this year, according to local industry experts.

Local outdoor advertising companies include View Media, Display Posters, Allied Outdoor, City Signs, Bus Shelters Interamerican, Trans Ad P.R. Inc., Tactical Media Group, Zoom Media, Toppi Ad System, Sistemas Urbanos, Ad Time, Outdoor Media International, and Sign Media, among others.

Indoor advertising is also taking its first steps in the ad industry. The interactive stations installed by Digital Image Video (DIVO) Advertising in many of the island’s shopping centers are an example. Stations feature flat TV screens at indoor facilities constantly displaying spots produced by different advertisers.


This Caribbean Business article appears courtesy of Casiano Communications.
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