Promos Cut Into Advertising's Share Of Marketing

Media-based advertising, which fended off a threatening shift toward consumer and trade promotion spending during the late 1980s and early 1990s, is once again losing share of marketing budgets. While U.S. ad spending has pulled out of recession and managed to expand at moderate rates, promotional and trade spending have been growing at much faster rates, according to the results of an annual study released last week by the Promotion Marketing Association and PROMO magazine.

The results, based on a survey of 5,000 marketing and promotional agency executives, estimate that consumer promotion's share of U.S. marketing expenditures rose 2.0 percentage points over its 2002 share. During the same period, trade marketing expenditures picked up 4.5 points, while consumer ad spending lost 6.5 points of U.S. marketing budgets.

The report, the 2004 edition of the promotion industry's annual trends sturdy, also found that with the exception of one consumer promotion category--games, contests, and sweepstakes (which was flat over 2002)-- all other categories, including event marketing, coop marketing, promotional ads, entertainment tie-ins, interactive marketing, sampling, direct mail, retail merchandising, coupons, online promotions, premiums, and in-store initiatives, grew at healthy rates in 2003.

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Share Of Marketing Budgets (Ads, Promos, Trade in $ billions)


------2002------ ------2003------- Share
Spending Share Spending Share Change
Consumer Promos $233.7 26.5% $288.3 28.5% +2.0 pts
Consumer Ads $211.7 24.0% $177.5 17.5% -6.5 pts
Trade Marketing $436.6 49.5% $546.8 54.0% +4.5 pts
Total Marketing $882.0 -- -- $1,012.6 -- -- -- --

Source: Promotion Marketing Association; PROMO; Veronis, Suhler, Stevenson; Cannondale Associates. Promotional spending estimates derived from a survey of 5,000 brand marketers and promotion agency executives from the PMA's member and PROMO's subscribers.

The study also found that promotion agency revenues appear to be outpacing the rate of growth of advertising agencies, and have been for some time (see table below). In 2003, for example, the net revenues of promotion agencies rose nearly 18 percent.

Nearly a third (31 percent) of agency executives surveyed said their promotion clients increased spending in 2003 compared to the previous year, while 29 percent reported no change. Consistent with client activity, 65 percent of agencies reported revenue increases, with 36 percent even reaching double-digit growth. The agency execs said they were optimistic for 2004, with the highest percentage (24%) expecting 11-25 percent growth in the coming year.

Net Promotion Agency Revenues


Net Revenues Vs. Prior Year
1992 $523 million -- --
1993 $707 million +35.3%
1994 $834 million +18.0%
1995 $1.0 billion +24.0%
1996 $1.1 billion +10.0%
1997 $1.2 billion +14.3%
1998 $1.6 billion +31.7%
1999 $2.2 billion +24.8%
2000 $2.6 billion +19.9%
2001 $2.8 billion +9.4%
2002 $3.2 billion +14.8%
2003 $3.8 billion +17.9%

Source: Promotion Marketing Association, PROMO magazine. Estimates derived from a survey of 5,000 brand marketers and promotion agency executives from the PMA's member and PROMO's subscribers.
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