BUSINESS

PITCHING IT HARDER

CANADA’S AD INDUSTRY IS UNDER PRESSURE FROM NEW COMPETITORS AND DEMANDING CUSTOMERS

BRENDA DALGLISH October 22 1990
BUSINESS

PITCHING IT HARDER

CANADA’S AD INDUSTRY IS UNDER PRESSURE FROM NEW COMPETITORS AND DEMANDING CUSTOMERS

BRENDA DALGLISH October 22 1990

PITCHING IT HARDER

BUSINESS

As the first solemn notes of O Canada sounded at a recent Blue Jays game in Toronto, a stadium full of baseball fans raised their eyes to

watch a small plane tow a banner above the Sky Dome’s open roof. “Filmores’ 50 Exotic Dancers, 212 Dundas E,” it read. Wayne Percy, new owner of Specialty Air Advertising Inc., the company that flew the plane, used to be director of marketing for Hershey Canada Inc. And Percy says that that experience taught him how difficult it now is for advertisers to get their message through to consumers. As a result, for the price of two 30-second radio spots on a popular Toronto radio station, Percy flies ad banners over ball games, rock concerts, ski hills and other areas for an hour. Said Percy: “You can target the audience and reach a lot of people, in a novel way.” And that sums up the advertising challenge of the 1990s. Consumers are becoming more skeptical, sophisticated and reluctant to spend. At the same time, advertisers are under pres-

CANADA’S AD INDUSTRY IS UNDER PRESSURE FROM NEW COMPETITORS AND DEMANDING CUSTOMERS

sure because they face both a recession and ever increasing rates for ads in the traditional media. Says Peter Swain, president of Media Buying Services Ltd. of Toronto, which competes with traditional agencies to buy advertising space: “It is really in vogue right now to hate your advertising agency.” Meanwhile, advertisers are switching agencies and spread-

ing budgets over a much wider range of services. And new competitors, who range from independent entrepreneurs like Percy to major international agencies who are trying to get more advertising work from their multinational clients, even if it means raiding the accounts of clients’ regional agencies, are buffeting the industry from all sides. The agencies that create and place the ads make up a cottage industry. While more than $10 billion will be spent on advertising in Canada this year, most of it will go to buy media space, and only a small fraction will go to the agencies. In the past year, some of these agencies have cut their staff by as much as 20 per cent because of lost accounts and a general fall in business. Ad executives say that their industry is going through its most difficult period in memory. Declared Gary Prouk of Scali, McCabe, Sloves (Canada) Ltd.: “I’ve never seen it so panicky.” Added Andrew Krupski, president of J. Walter Thompson Co. Ltd.: “Even change is changing.”

Consumers are bombarded daily by thousands of advertising images. Logos on shirt pockets and automobile trunks, billboards on street corners and classifieds at the back of newspapers decorate urban environments. Because of all that competition, new ideas are the life blood of the advertising industry. But now those ideas have to be better, come faster and cost less to produce than ever before.

Still, some advertising executives say that the shakeup in their industry is healthy and may even result in better advertising. Said Krupski: “By virtue of necessity, tougher times create an opportunity for great advertising. We are going to have to take some risks to win. Clients who cut their losses and wait for the storm to clear may lose out to those who are willing to take more risks and stand out from the crowd.”

Standing out is essential to reach consumers, who have become conditioned to tune out of most ad messages. And the explosion of new media outlets makes the potential buyer harder to find. The number of new magazines has skyrocketed in the past decade, and television, still considered by advertisers as the medium with the most impact, offers viewers more choice than ever. And remote-control channel changers allow viewers to skip past commercials. At the same time, consumer militancy is growing. When one theatre chain introduced commercials before the main feature, many moviegoers hissed and booed when the ads appeared.

More than just attitudes towards advertising have changed. Morris Saffer, head of Saffer Advertising Inc. of Toronto, which specializes in the retail sector, says conspicuous consumption is out of fashion. Declared Saffer:

“The whole psyche today is towards nonbuying. People don’t need new things.

There’s no stigma attached to driving an old car. It’s a backlash against the‘shop-till-youdrop’ attitude of the 1980s.”

Economic downturns tend to make the fragile relationship between advertisers and their agencies even more delicate. When sales decline, advertising budgets are usually among the first expenses to be cut. And agencies feel the pain immediately because under traditional compensation systems, agencies earn a 15per-cent commission on the advertising budgets of their clients. When a company cuts those budgets, the size of the agencies’ share is reduced as well.

But the commission system is under attack, too. Hayhurst Communications Alberta Ltd., of Calgary, which recently developed a series of

TV commercials for Royal Trust, broke from the trend to 10or 15-second spots and convinced CBC and CTV to alter the schedules of their flagship news shows for a week to run five five-minute commercials each night. Commented Terrance O’Malley, president of Toronto-based Vickers & Benson Advertising Ltd.: “That’s like buying centre spread in the Bible.” But, just as significant is the way in which Royal Trust will pay Hayhurst. Instead of the usual 15-per-cent commission, Hayhurst president Alan Wiggan says that the agency’s compensation will reflect the ads’ effectiveness.

Hayhurst received a minimum payment to cover its basic costs. In addition, it will collect more money depending on the degree of consumer awareness that is achieved, as measured by a polling agency against a predetermined target. If the poll of consumers shows that the ads achieved a higher level of awareness than the target, Hayhurst will be paid more than it would have under the traditional commission system. Other agency executives say that they like the pay-for-performance approach because they believe their successes outnumber their failures. However, they say that, in most cases, it is impossible to accurately measure the success of an advertising campaign.

When the economy slows down, advertisers often find more reasons to be dissatisfied with their agencies. At times, the agencies are their own worst enemy. For one thing, some successful agencies flaunted their past prosperity. The offices of one of the Canadian industry’s Top 10 include a meeting room designed to resemble an elaborate Irish country pub, complete with a working fire| place, bar and etched glass

0 doors bearing the president’s name. For those corporate

1 executives who have been re■* ducing unnecessary expenditures in their own companies during the past decade, that kind of indulgence is frowned upon.

But whether the dissatisfaction is prompted by big bills or low returns, advertisers are more inclined to change agencies when the economy weakens and sales fall. This summer two big advertisers, Canadian Airlines International Ltd. and Labatt Brewing Co. Ltd., shook the advertising community when they switched agencies.

The current recession comes at a particularly bad time for the agencies because they have not yet recovered from the trauma inflicted by widespread ownership changes in the past three years. Although there are dozens of smaller Canadian-owned agencies, seven of the

10 largest agencies in Marketing magazine’s annual ranking of the top 100 in terms of total billings are now owned outside Canada. The three Canadian-owned are: Cossette CommunicationMarketing of Quebec City, which ranks second with billings of $215 million, just behind MacLaremLintas Inc. with $220 million; Saffer Advertising of Toronto, ranked ninth with billings of $180 million; and in tenth spot, Vickers & Benson with billings of $169 million. Before the takeover binge that started in Europe in the mid-1980s and then spread to the United States, most of the major Canadian agencies were owned by key employees. After watching the rapid consolidation of a few large international advertising companies, ad executives became concerned that they

would be unable to compete unless they strengthened their international connections. Former owner Anthony Miller sold his interest in one of Canada’s oldest agencies, MacLaren Advertising, to the British agency Lintas, which in turn is owned by the Interpublic Group of Companies Ltd. of New York City. Miller says that he was motivated by two major factors. He says that he was concerned that MacLaren, which does about 55 per cent of its work for multinationals such as Unilever Ltd. and General Motors Corp., would lose business to foreign agencies if advertisers cut costs and

decided to eliminate their regional agencies. Also, Miller says, the new company, MacLaremLintas, now has the international connections needed by Canadian clients to sell their products abroad. Miller’s counterparts at other ad agencies say that partners at mature agencies also sold simply to make money. The foreign firms offered sums far greater than the partners could ever have expected to realize otherwise. The effects of the ownership changes are still unclear. John Foss, president of the Association of Canadian Advertisers, whose members in-

clude about 200 of the largest companies in the country, says that he worries that the agencies will try to pass along the high costs of the acquisitions to the advertisers. Added Foss: “Someone has to pay for it, and we’re worried it will be us.” Some agencies hope to benefit from retaining their Canadian ownership. Cossette chair-

man Claude Lessard, for one, says that his 12 employee-partners are determined not to sell. He added that being Canadian-owned clearly differentiates Cossette from other foreignowned firms. Declared Lessard: “It’s a great opportunity.” Indeed, the federal government, which is the single largest advertiser in the country, and most provinces have a policy of placing their often lucrative advertising accounts only with Canadian-owned companies. Canadian media outlets are disturbed about the ownership changes at agencies where they have had long-standing relationships. They say

SOURCE MARKETING MAGAZINE

that they are concerned they will lose advertising revenue because the foreign owners might not be as familiar with them. Canadian media and their advertising agency associates are also concerned that the space bought in the traditional media—newspapers, television, radio and magazines—has declined in recent years. At the same time, ad money

spent on nonmedia outlets such as directories, the sponsorship of sports and cultural events and direct-mail promotion has grown steadily. While TV and newspaper advertising revenues have grown by 46 and 38 per cent respectively since 1984, the ad revenues of directories, like the telephone yellow pages, have grown by 124 per cent to $930 million and outdoor advertising, including billboards and bus posters, has increased by 83 per cent, to $720 million. However, TV and newspapers are still the most popular advertising media, each generating about $1.4 billion in ad revenues. Agencies are sharply divided about how to respond to this trend. Some executives say that the new ad outlets are gimmicks and their popularity will probably decline. Said Gary Prouk, the man

behind such well-known campaigns as the Caramilk chocolate bar secret: “Our business is advertising. I don’t do windows and I don’t do direct mail. Novelty is the major drug of this business.” But most of the Top 10 agencies have added special services to the traditional ones. Allan Kazmer, creative director of Carder Grey DDB Needham Advertising of Toronto, says that the addition of new advertising methods adds significantly to his ability to reach consumers. He points out that Porsche, for one, advertises in some mainstream media to create an image and a desire for its cars. But it

follows up with a direct-mail campaign targeted carefully at that small segment of the population who might spend as much as $100,000 on a sports car. Despite the current turmoil, no one doubts the importance of advertising. Miller of MacLaremLintas predicts that as market growth slows ^ and the number of brands in5 creases, advertising will be the main difference between a 0 product that sells and one that t sits on the shelf. He added, 1 “What we do for a living is uj emerging as one of the bigg gest business opportunities of 1/1 the 1990s.” Good ideas will

continue to be the currency of the industry. Regardless of international connections or the range of services, successful agencies will be the ones that come up with the brightest new ideas for catching the attention of buyers in an evermore-crowded marketplace. BRENDA DALGLISH