More and more traditional advertising agencies want to compensate for declining BBE with dialog marketing activitiesBy Luca Aloisi The BSW ranking shows it clearly: while the revenues of traditional agencies fell by an average of 5.6 percent, dialog marketing agencies recorded impressive growth in the crisis year 2001. And the forecasts are still good. However, more and more traditional advertising agencies are breaking into the market.
Anyone who calls the Foundation for Consumer Protection to order an advertising stop sticker for their letterbox is referred to the SDV. At first glance, it is surprising that the Swiss Direct Marketing Association, which organizes the unpopular direct mail advertising agencies, is responsible for the so-called Robinson list of advertising refusers and the mailing of advertising stop stickers (Mach Basic 2001: 24.7% of all Swiss households). However, self-regulation is only one indication of the efforts being made to show how serious the direct marketing industry is about getting away from its dirty image.
The BBE growth rates for this advertising sector were more helpful in this context. Although they are not systematically surveyed by the association, it can be concluded from observations of the advertising environment that they have risen more sharply than those of traditional agencies. Perhaps this development explains why the battle for prestige and reputation around the "waistline" of the advertising industry has subsided. The below-the-line scene, often ridiculed as hard sellers, has been able to make steady gains at the expense of the "top-heavy" above-the-line agencies.
And so, despite the economic downturn and dotcom bankruptcies, it is not only in Switzerland that an increasing share of the advertising budget is rolling into the DM agency coffers. One downer for SDV President Heinz Rohrer, however, is the fact that he is unable to document the boom: Because Swiss Post has not kept statistics on DM matters for a good five years, reliable figures are not available.
The sector can consider itself more fortunate in Austria, where, according to the industry association DMVÖ, a survey by the postal service and the industry is planned from mid-2002. The situation is most transparent in Germany. There, the German specialist Oneto one.de, based on Deutsche Post's DM Monitor, has identified a clear shift in the media mix over the past few years.
Whereas just five years ago, a good 70% of advertising expenditure was spent on traditional media, today an equally large proportion of expenditure goes on non-traditional advertising. In turn, clients invest a large proportion of their marketing budget in direct dialog with customers and potential customers: 21 billion euros compared to 32 billion euros spent on traditional advertising.
The German Direct Marketing Association (DDV) reported at the end of February that the majority of direct marketing companies recorded rising sales even in the weak economic year 2001 and started the new year optimistically. "Due to strong cost pressure and falling communication budgets, companies are increasingly focusing on efficient customer dialog," says DDV Managing Director Holger Albers.
"The future belongs to brands that are capable of dialog. Brands that bundle their budgets into TV commercials, for example, will have a very difficult time in the future," continues Albers. This is why Karen Weisshaar, Head of Communications at DDV, sees the market situation as a "historic opportunity to drive DM forward".
In Switzerland, where every second advertising franc is already spent on dialog communication, dialog marketers have seized the opportunity. DM is no longer limited to letters, reply letters or coupon mailings, but uses a multi-channel system that has made dialog even more targeted and efficient thanks to state-of-the-art communication technology - and not just online.
Heinz Rohrer, who presides over the 150-member industry association, mentions the buzzwords: customer relationship marketing (CRM), permission marketing, cross-media packages and interactive marketing. "We have gained importance right up to the boardroom level," Rohrer explains confidently.
Although he has no reliable statistics, Rohrer is certain: "The weighting has shifted in favor of dialogue marketing by an average of 5 percent annually in recent years." The DM associations cite tougher competition as the reason for this shift in emphasis, which has brought the targeting of target groups and the measurement of advertising effectiveness to the fore.
The constellation could not be better thanks to new media
Rohrer has also noticed an increase in customer retention marketing methods, which have become more important than acquiring new customers. Experience shows that acquiring a new customer is around seven times more expensive than maintaining an existing customer. And because the argument of minimizing wastage is once again gaining in importance when budgets are tight, the logical consequence for many advertisers was to reallocate their budgets. Lowe Direct, for example, takes this attitude into account and recommends doing one without leaving the other, because "5 percent greater customer loyalty brings 25 to 125 percent greater returns".
However, it is above all mobile communication technologies and the increase in online dialog components in the
B-to-B and, somewhat more slowly, in the consumer sector, which, according to the SDV President, will ensure that development remains dynamic in the coming years.
Factum Managing Director Valentino Mauriello has his own explanation for the industry's growth: because very few independent DM agencies are connected to functioning international DM networks, they are more dependent on local orders. This leads to more aggressive customer acquisition and retention. "Customers are not shoveled at us," says Mauriello. In his view, independent DM agencies also work in a more success-oriented way because, unlike DM units or traditional agencies, a significant proportion of their income is often made up of performance bonuses.
The Publicis Group, which acquired the industry leader Fisch Meier Direkt (BBE 2001: plus 2.8 %) just over a year ago and thus gained an important DM pillar, takes a different view. "DM agencies usually don't have a mandate like traditional agencies, but work more on a project basis," says Publicis CEO Fredy Collioud, explaining the different composition of income.
He also does not share Mauriello's point of view when it comes to local business: "A good 85% of the major Swiss agencies work for national clients that they acquire themselves. They have never been able to grow beyond the clients brought in by the network." Co-owner and management board member Gilbert Fisch takes the same line: "It's illusory to believe that you can go to a client with a dialog label and get a budget. Those days are definitely over."
Guido Wietlisbach, founder and Managing Director of WBO OgilvyOne, confirms that the ongoing professionalization of DM agencies has also increased client demands. Thanks to the acquisition of Swisscard, his agency believes it will be able to maintain its previous annual growth rate of 20 percent on average in the current year. Lowe's DM business unit, which was founded two and a half years ago (2001: plus 10 %), has also been hit by growth fever and has only unofficially achieved its goal of becoming one of the top five Swiss DM agencies. Managing Director Christian Hansen is planning to set up his own company this spring. Even if their BBE then continues to flow into the parent company, Hansen hopes that as a DM agency, they could aim for a "legally valid" medal position in the BSW ranking. The chances are good. "We expect growth this year to be on a par with last year," says Hansen.
Swiss DM crack Fisch stays sober even during the boom
Gilbert Fisch is not blinded by the boom euphoria and claims provocatively: "DM is growing, but most of the new volume is bypassing the DM agencies." Many companies produce DM in-house or with less professional partners; efforts are often abandoned after a few failed attempts, he explains. In addition, all catalogs and household scattering, including production costs, are still added to the DM measures. "However, none of these expenses go to the agencies. And this will not change."
In addition, the term dialog marketing is being stretched to the limit. "For me, advertisements with a domain address or telephone number have nothing to do with dialogue unless a clearly recognizable offer triggers a reason to act. These communication tools still belong to the classic ones," says Fisch. He therefore believes that the SDV is deluding itself and choosing the wrong optics. He bets: "If we have five DM agencies in a few years that generate over 15 million francs in BBE like the traditional large agencies, then I'm wrong."
The second strongest dialog marketing agency, the owner-managed Alex Schmid AG, can look back on a "very successful business year", according to management member Marie-Françoise Ruesch. The agency attributes the steep drop in BBE (2001: minus 46 %) at the Swiss Draft Worldwide agency to the spin-off of its subsidiary Art Direct. New impetus at Alex Schmid AG was provided by an increasing number of brand development orders and integrated, multi-level dialog concepts.
The brand credos of DM agencies such as "We create results", "Whoever is number 1 has a conviction" or "Customers through dialog" reflect a central need of many advertisers: In uncertain times, short-term customer response seems more urgent than long-term image cultivation. The unwritten law that DM has hardly any image potential has also been shaken.
Creativity and dialog are not mutually exclusive
Ruesch sees the fact that established DM agencies were overtaken by the units of traditional advertising agencies at last year's Swiss DM Award as an organic process. Rather, this is the result of new jury regulations that value creativity more highly in order to position the competition itself more attractively. Ralf Doller, member of the management board of Alex Schmid AG, was not surprised that mailings aimed at gimmickry, which were barely integrated into the overall communicative concept, received several awards.
Nevertheless, the playful approach was a lesson for the DM industry. "Dialogue agencies have improved their approach to brands in recent years because they have also noticed that creative DM measures that cover the broad brand mantle of a creative image campaign are more successful," explains Doller. There is a growing realization that creativity and dialogue are not mutually exclusive and that the rule that only classic advertising is image-building often proves to be wrong. Fredy Collioud also sees DM as an increasingly important element in brand management. "We wouldn't be able to work with a DM agency that only does technology and response at the drop of a hat," he says.
The rethink not only led to budget reallocations, but also increased the self-confidence of dialog marketers. Many are therefore convinced that traditional advertising media will increasingly take on the role of flanking measures.
However, the gold-rush mood has the "flaw" that it calls new competitors to the marketplace. Valentino Mauriello is amazed at the sudden DM competence that some traditional advertising agencies are claiming, because "until recently, selling was a red rag for them. Image was their thing." Mauriello is quick to call this misleading clients. "I hardly know any traditional advertisers who can really be described as dialog marketers with a sound background."
SDV President Heinz Rohrer is aware of the concerns of various DM agencies who fear a reduction in quality due to the intrusion of traditional advertising agencies into the flourishing DM garden. But this does not seem to shake his liberal attitude: "It will not work without integration. Only the sensible combination of both disciplines - traditional and direct measures - can be successful in the long term." This puts him in good company with the US advertising guru David Ogilvy, who predicted this development as early as 1983: "Direct response will lose its special position and be integrated into the range of services offered by general agencies."