Ad firms change course

Increased marketing budgets are reportedly on the horizon, but local advertising companies are still stagnant at best. Firms are taking on shorter-term projects, cutting overhead and concentrating on less traditional strategies while they wait for struggling clients to start spending again.

Yesterday's four-course meal

Advertising business is no longer "open-ended," said Jeff Johnson, president of The Team Inc. in Ozark. Clients aren't looking very far ahead or committing to long-term relationships like they used to, he said.

"There's a day-to-day watchdogging of the numbers" and nearly every project or campaign has to be individually pitched and approved, Johnson said.

The Team specializes in regional business-to-business advertising and industrial branding for companies such as Prime Inc. and O'Reilly Automotive, but the bite-by-bite business model has been forced on ad firms regardless of their specialties.

Julie Tumy, corporate president for food-centric Noble Communications Inc., said the firm is doing "more project work," too, rather than retaining clients for a specified period of time.

This endless bidding process lessens the security advertising firms feel, as income that previously came in big chunks now has to be earned in small pieces.

"Everyone's having to work a whole lot harder," Johnson said.

Downsizing people, places or things

In a survey conducted by the Association of National Advertisers in February, more than 90 percent of companies said they were planning to reduce their marketing budgets, and almost 40 percent said they planned to reduce budgets by more than 20 percent. ANA also said two-thirds of marketers have shifted their emphasis this year to short-term strategies.

"Overall, advertising is down and under attack," Tumy added.

As businesses have curbed spending, local advertising firms have tried to reduce their overhead.

Dennis Marlin, CEO and founder of Springfield-based The Marlin Network, said he asked his employees to budget realistically at the beginning of the year, then took those numbers down 10 percent across the board.

The Team sold an employee-owned 8,000-square-foot building along U.S. Highway 65, and is now renting a 3,500-square-foot building in central Ozark, 716 N. 22nd St.

Noble has reduced spending by making staff cutbacks. The company went from employing 300 in 2005 to employing 200 in September last year. Since then, they've cut another 15 percent, leaving the company with between 160 and 170 employees.

"We're in a major process of reinvention," Tumy said. "We're watching everything just like everybody, trying to cut our overhead and watch our expenses on a daily basis."

New faces in new spaces

The common theme is that ad firms are making internal cutbacks while trying to maintain client rosters, even if the names on those rosters are changing. Although clients are spending less, more of them are becoming available for the firms that can handle the extra workload amid their own belt-tightening.

"We've got a solid focus on new business," said Johnson, noting that The Team has more clients than last year, though they're working with smaller budgets.

Of The Team's roughly 30 clients, about half are local, and Johnson said more companies are moving advertising dollars to smaller agencies and concentrating on regional markets.

The Marlin Network has nabbed new business from Bush Beans and Blue Bunny Ice Cream.

"Some agencies haven't survived, and those clients need new representation," Marlin said.

Other firms have cut back, and clients then can't get the services they want, he added.

A local example would be Springfield ad firm ACR Nally Communications - the area's eighth largest in 2007, according to Springfield Business Journal research - which closed its doors in June. Owners Mike and Lisa Nally filed for bankruptcy in July, and clients such as LCS Kleen Aire and Springfield-Greene County Parks are without representation.

One less costly direction that many shopping companies seem to be moving toward is the use of social media rather than traditional broadcast and print advertising.

"They all understand the need for awareness, but the dollars are shifting into promotion and digital (advertising) where they can better track return on investment," Tumy said. "Social media and two-way engagement is going to become a big part of the mix."

Marlin also has noticed a jump in online media. The problem is that Web business models are as notoriously shaky as they are popular. Despite heavy traffic and enormous market values, sites such as Twitter and Facebook make little, if any, money for the businesses creating their own social pages.

But, as Tumy noted, the interactive world is getting increasingly bigger, and no ad company can afford not to try for a piece of that pie.

Better times ahead?

The Marlin Network posted annual billings of $44.5 million in 2008, and Marlin said the firm is down about 4 percent. He estimates that business will pick up in the second half and expects it to be a flat year.

"Everyone went through this unknown period where no one knew what to do, and everyone was being conservative," Marlin said. "But we're entering a period where people know they need to do something to generate revenue."

Johnson, whose company recorded $2.5 million in revenue last year, said The Team is just about breaking even with staff putting "a whole lot more effort" into their work.

"The good news, client-wise, is that they're looking to ramp up things again next year," Johnson said, explaining that 2010 budgets suggest local and regional companies will start to increase spending.

National projections are less dire, too. In May, an ANA survey showed that 68 percent of companies are planning for budget increases.

"Some attention is going back to marketing," Marlin said, "but that doesn't mean the floodgates are going to open."