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Advertising To Improve In 2002

Still bruised by a 13% drop in business last year, local advertising industry readies for a recovery in the second half of 2002.


May 2, 2002
Copyright © 2002 CARIBBEAN BUSINESS. All Rights Reserved.

Going up? Ad industry hopes to catch up, keep up, and emerge triumphant

A result of the economic slowdown-turned-recession was that the local advertising industry ended last year nearly 13% down compared to 2000. But hopeful ad agency executives say the industry is poised for a 10% growth this year.

According to Mediafax figures—which are based on one-time rate card rates—advertisers supposedly invested nearly $1.73 billion in media last year, a 3.6% increase from 2000, when companies spent $1.67 billion. According to Mediafax, categories such as magazine, TV, and cable television appear to have experienced investment increases of 2%, 7%, and 23% respectively, while radio and press had decreases of 5% and 4% respectively.

But that’s a far cry from the reality actually experienced by the industry last year. First because Mediafax figures do not include discounts resulting from negotiations and frequency discounts. Traditionally, these discounts range from 35% to 40% in most cases. Second, perhaps more importantly, because last year these discounts increased up to 50% and even 66%.

That being the case, that $1.67 billion spending Mediafax reported in 2000 goes down to a more realistic $1 billion [a 40% discount excluded]; while the $1.73 reported by Mediafax in 2001 shrinks to $877.9 million [a 50% discount excluded], a 12.8% decrease from 2000.

That 12.8% figure is consistent with earlier reports (CB Dec. 27, 2001) that the local advertising industry’s media sales last year dropped between 10% and 15%, according to ad agency executives.

"What happened last year—and this is true in all media, perhaps more in some than others—is that, as demand for advertising started to shrink, rate cards didn’t get adjusted downward, but the discount increased," said Bill McKenna, president of Mediafax.

McKenna referred to the immediate discount ad agencies receive from media companies when placing ads, which is not necessarily linked to the volume discount [the agency reward system for having met a particular level of spending in advertising].

An industry source told CARIBBEAN BUSINESS that last year, local TV stations did indeed increase their discounts to the agencies up to 50% and even more than 65% in some cases. Ad agency heads privately admitted that immediate ad placement discounts last year increased to more than 50%.

Other media industry sources admitted hearing last year that "ads were going for unheard-of [low] prices." Some stations even gave advertisers the option to place an ad and get the second placement free. In other instances, stations even offered two free placements when buying one.

Although all media redoubled efforts to increase revenue, TV stations were the most aggressive in sustaining their business volume. They tried everything from immediate media placement discounts to bonuses to advertiser logo inserts in their programming, the source said.

While ad industry players attributed discount increases to the poor economy, Luis Roldan, president of Telemundo (WKAQ-TV Channel 2) in Puerto Rico said, "Discounts were down due to cost savings at the stations."

In either case, ad industry experts agree that 2001 was the year that pushed ad agencies further into diversification in order to meet their clients’ goals and demands.

While juggling with tight–and in some cases greatly reduced--budgets last year, the agencies concentrated on special events and promotions rather than launching big advertising campaigns in an effort to do more with smaller budgets. Advertisers were skeptical and some even afraid of big losses. And it all got worse from Sept. 11 on.

But the trend towards more special events and promotions promises to continue and to grow more this year, even as signs of economic recovery appear, according to McCann-Erickson Puerto Rico President Miguel Escobar.

Both advertisers and ad agency executives apparently took to heart the studies and opinions from marketing experts that to reduce advertising when consumers have developed an awareness for a specific product can be as devastating as having no advertising at all.

Thus the old myth that advertising is considered an expense rather than an investment seems to be fading toward extinction as last year companies invested more than $63 million over 2000 to boost their presence in the media and extend the life of their brands.

Last year, ad spending in the U.S. dropped 4.1% to $233.7 billion, from $243.7 billion in 2000, and promises to increase only 2.4% to $239.3 billion in 2002, according to Robert J. Coen, senior vice president and director of forecasting at Interpublic Group of Companies Universal McCann New York.

Other media and advertising experts consulted say last year ad spending in the U.S. mainland dropped more than 9%.

Hope or wishful thinking?

Asked what to expect this year after surviving a year of economic turbulence, local ad agency heads think 2002 will be better, although not much better. But hope doesn’t seem to bring immediate results.

Right now, most ad agencies are working on a month-by-month budget schedule. Many clients have not yet approved a budget for the full year but it is expected that increases in budgets will emerge over the next few months.

"This year promises to be very interesting. Because of the behavior of the economy during 2001, it’s almost impossible to predict what the trends [in advertising] will be," said Ricardo Lozada, senior vice president & managing director at Lopito Ileana & Howie (LIH) Inc.

According to McCann-Erickson’s Escobar, the local ad industry will most likely experience a 10% growth over 2001. "Most of the clients who were skeptical are now becoming more confident. Still, there is a tendency toward saving a percentage of their advertising budgets until the 2002 business perspective gets clearer," said Escobar.

Hector Ortiz, vice president & general manager of WING Latino Group, shared Escobar’s opinion. "Our clients are optimistic. But some of them even have a stockpile of money, waiting for the right moment," said Ortiz.

"I think 2002 will be as difficult as 2001. There is a positive attitude among industry players but there is also uncertainty," said Jorge Rodriguez, president of mfpw / J. Walter Thompson (JWT).

According to Advertising Age reports, 55% of U.S. mainland ad agencies feel advertising budgets will decrease in the next 12 months. Meanwhile, at least 50% of them have said it will be at least two years before spending returns to 2000 levels.

"It’s still too early to tell what’s going to happen for the full year, but all signs indicate that spending is coming back, that retail is stronger than people had predicted, and there’s no reason, given Puerto Rico’s dependence on a consumer economy, that we should not experience a revival of the ad industry this year," said Mediafax’s McKenna.

But other executives still believe the industry is in for a bumpy ride. "The turbulence isn’t over," noted Hector Negron, president of ad agency Marksell Inc. "I think the first two quarters of 2002 will be as difficult as the last two of 2001. Consumers have to regain confidence in the economy and that doesn’t happen in one day."

"Both advertisers and agencies have to be cautious still—maybe even until late 2Q 2002. Some advertisers plan to wait until there are sufficient data to prove that the economy has improved significantly before investing," added Edwin Miranda, president of KOI Integrated Communications.

"Our clients in healthcare, casual dining, and housing developments are planning to become more aggressively in their ad spending by mid-May and will be back to full strength by July," added Miranda.

Circulo Lowe Lintas President & CEO Cesar Cienfuegos shared the opinion that most clients will be prudent about advertising and will wait for the economy to recover before investing heavily.

In McKenna’s opinion, it would have been unrealistic to assume that 2001 would have been a major growth year—even without Sept.11. "I am cautiously optimistic that ad spending will revive as we go into this 2Q. I think if we see a revival we’ll see it as we go into May with Mother’s Day, then Father’s Day, and summer," he said. Still, McKenna was more negative than the advertising agency executives and predicts it is unlikely that 2002 will end even with either 2000 or 2001.

The new business quest

In a time when advertisers are not behaving as usual, the ad agencies search for new business opportunities.

"We have been very active in the new business arena in the last three months. However, compared with the same period last year, the industry is slower. I think consumers are still in the process of understanding the effects of a slow economy," said Carmen Cedre, vice president & general manager of Foote Cone & Belding (FCB) Puerto Rico.

"The closing of factories has also caused consumers to remain cautious," she added.

Other agencies have also been active making new business presentations since the beginning of the year. Those include WING Latino Group, McCann-Erickson, mfpw / J. Walter Thompson, Burson-Marsteller, Radames Rosado & Associates, De la Cruz & Associates, and Premier EURO RSCG, among others.

This year, ad agencies are poised to be more aggressive in helping existing clients meet their goals while they work at earning new advertising assignments.

"Beyond good advertising campaigns, clients want results. And it is our job to help them establish short- and long-term plans. It isn’t about changing the media mix, but developing new strategies and techniques that suit the audience and the situation in which we're living," said Edward (Kit) Benavent, managing director at Leo Burnett Inc.

LIH’s Lozada believes clients and agencies will be more involved in short-term advertising initiatives during the first six months of the year or until consumers regain confidence in the market.

"Studies indicate that while some [companies] hide their heads like an ostrich, those who hold their heads up are noticed and remembered. Recession brings a great opportunity to stand out and gain market share," added Cesar Cienfuegos, president of Circulo Lowe Lintas.

Whatever the advertiser or agency case be, ad industry players are ready to catch up with the economy, regain that which was lost, and emerge reborn. All agree that this is the time to do whatever it takes to stand out and get back to the top.

Small agency, big growth

While most of the big advertising agencies and networks suffered the effects of budget cuts from clients—both locally and in the U.S.—some mid-size and small agencies had their bonanza.

Agencies in general had less revenue in 2001 than the previous year. Some small and mid-size agencies clearly had a good year, not necessarily because they spent more but because they acquired new accounts, which came from bigger agencies in many cases.

"2001 was a great year for us. The agency grew 74%. This was due to a diversified client roster in whose some categories were not directly affected [by the behavior of the economy] and therefore increased their advertising budget in some cases," said Luis Fernando Rodriguez, president and founder of 29.2 (Veitinueve de febrero).

Other agencies that experienced growth are Leo Burnett Inc. (20%), and Circulo Lowe Lintas (15%).

According to 29.2’s Rodriguez, some agencies were fortunate that their clients launched the larger part of their campaigns early during the first two quarters of 2001, which helped accomplish their goals before the recession was officially identified, and even before Sept 11. terrorist attacks.

Although television remains the preferred mass medium followed closely by print and radio, outdoor advertising continues to expand while fighting media clutter. Advertisers are now also considering other alternative media such as billboards, bus shelter & gas pump ads, aerial signs, animated screens on supermarket shelves, and even cars wrapped in advertisements.

Although industry observers say the radio was one of the mass media vehicles that experienced growth last year due to its lower advertising rates, Mediafax reports indicate that local advertisers spent nearly $5 million less in radio advertising than in 2000 ($111 million in 2000 versus nearly $106 million in 2001).

The Internet is another medium that is increasing in terms of both usage and understanding. But ad agency officials claim some clients are not using it because of the lack of ways to measure its effectiveness.

Online advertising up

GartnerG2, a research service from Gartner, Inc. estimates that e-mail in the U.S. mainland advertising revenue will reach $1.26 billion in 2002, up from $948 million in 2001. By 2005, e-mail advertising revenue is forecast to total $1.5 billion.

Gartner analysts say e-mail marketing campaigns have proven to be more efficient, and their success can be measured more easily. On average, it takes four to six weeks to complete a direct mail campaign vs. just seven to 10 business days for an e-mail campaign.

"Advertisers must begin to incorporate these types of personalized e-mail strategies in conjunction with their traditional direct mail efforts in order to maximize the reach, penetration, and effectiveness of their campaigns moving forward," said Garcia.

Both locally and in the states, the Internet has received such a warm welcome among advertisers and marketers that the Internet Advertising Bureau (IAB) is actively and constantly issuing updated guidelines for advertisers to follow.

According to Ernesto Gonzalez, president of e-marketing specialized firm GTA & Associates, the purpose of these rules is not to regulate the Internet industry, but to provide some guidance in an effort to unify the ways of online advertising.

Guidelines include suggestions about the right size and shape of banners as well as other considerations. Full guidelines can be found at IAB’s website at

Government ad expenditures slightly down

One source of advertising revenue the industry can count on during the upcoming fiscal year (FY)–although somewhat lower than last year–is government ad expenditures.

According to figures from the Office of Management & Budget (OMB), during the upcoming fiscal year 2003 (starts July 1, 2002) the government estimates it will invest $63,588 million in advertising; this is slightly down from FY 2001-2002 when the advertising budget was set at $64,615 million. In FY 2000-2001 the government spent $73,617 million in advertising,

Over the last six years, the Government of Puerto Rico invested between $93.8 million and $73.6 million in advertising [see chart]. According to the Comptrollers Office, advertising services rank among the first 15 services hired by the government.

"The last two fiscal years have been difficult because of to the poor economy. We thought that the economy would improve by August or September last year; but we’re still waiting for the turn around," said Melba Acosta, director of the OMB.

"The governor called all government agencies to cut advertising and any other kind of professional services that the agency can do without and are not essential for the operation of the agency," Acosta said, because of the revenue shortfalls.

That rule, however, does not apply to agencies for whose main purpose is to promote the island’s economic development.

The Tourism Co.’s budget, for instance, will increase from $87.1 million in FY 2001-2002 to $87.7 for 2002-2003. Of that amount, $53.2 million would be used to cover advertising and marketing efforts, $33.3 million in Puerto Rico alone.

The tourism industry’s success is due mostly to advertising. It is important that the Tourism Co. invests in advertising and marketing efforts, especially now when we have to revamp the island’s economy to catch up after the events of Sept.11, according to Tourism Co. officials.

OMB reports say government agencies that will decrease their advertising budgets include the Department of Education (from $274,641 in FY 2002 to $219,713 for FY 2003); the Social Economic Development Administration (from $100,000 in FY 2002 to $75,000 for FY 2003); and the Puerto Rico Aqueduct & Sewer Authority (from $550,000 in FY 2002 to $500,000 for FY 2003); and the Puerto Rico Electric Power Authority (from $3.05 million in FY 2002 to $2.4 million in 2003).

In FY 2000-2001, government advertising increased because of the general elections. This added some $6.1 million, increasing spending from $64.7 million in FY 1999-2000 to $73.6 million in FY 2001-2002 [see chart].

Although advertising and marketing campaigns have reached a limit, there are other expenses—like media placing—that are required by law, and thus remain. These include the publication of auctions, bids, and edicts.

"We have definitely learned to be more moderate in government, with the exception of those agencies that need advertising and marketing to fulfill their purposes and thus contribute to the island’s economic development," concluded Acosta.

. Government is fourth largest advertiser in DR

In the Dominican Republic, private business advertising spending last year was 10% lower than 2000, according the Centro de Monitoreo de Publicidad de Recuento Visual (Revisa), a private company that monitors advertising expenditures.

That means $$46.3 million less was spent on advertising last year. Creative directors of two ad agencies—McCann-Erickson and Staff D’Arcy in Santo Domingo—attributed the decline to the economic slowdown and the increase in taxes, including a first-time 6% tax on advertising.

Both directors agreed that companies usually spend 5% of their profits on advertising but when profits decline, advertising is one of the first budget allocations to be cut.

Of the $424.7 million spent on advertising in the Dominican Republic last year, 57.3% went to televison, 28.3% to print media, 12.6% to radio, and 1.6% to cable TV.

The biggest advertisers in 2001 were telecommunications companies, which spent $27.4 million or 6.5% of the total. Next came the banking industry with nearly $26 million or 6.1%, up $1.5 million from 2000. Third were the largest shopping centers such as La Sirena, and Plaza Lama, which accounted for 5.9% of the ad expenditures.

The Dominican government was the fourth biggest advertiser last year. Government departments spent $21.3 million, $6.1 million more than in 2000. It has been reported that the government increase in advertising was the highest of any sector. The government’s share of the advertising pie went from 3.3% in 2000 to 5.1% in 2001.

- H.B.F

This Caribbean Business article appears courtesy of Casiano Communications.
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