• by Nina Lentini , August 8, 2007

While direct marketing spending remained the lion's share of marketing services spending last year, outsourced custom publishing and branded entertainment showed the highest increases--21.1% and 15.7%, respectively.

Spending on public relations, which rose 13.9%, also contributed to a 7.7% growth in spend on marketing services in 2006, Veronis Suhler Stevenson's (VSS) Communications Industry Forecast finds. The compounded annual growth rate of 6.6% from 2001 to 2006 outpaced GDP growth of 5.5%. The future looks rosy for marketing service providers: VSS forecasts a 7.5% growth rate through 2011.

Custom pubs, branded entertainment and PR are all on target to show the largest increases over the next five years, the study finds, as companies look to capture the attention of increasingly distracted consumers who are bombarded with advertising messages in all forms--but as the same study finds, increasingly on the Internet.

Spend on outsourced custom publishing, which includes brand marketers' use of third-party vendors to produce material, hit $4.47 billion in '06, boosted by the launch of new print and electronic publications and investments in production values to produce glossier titles in order to stand out from non-custom pubs.

Magazines and e-publications were the fastest-growing custom pubs' sub-segments in 2006, with magazine spending up 25.8% and e-pubs up 22.1%. Among the marketing services segments, custom pubs generated an increase of $1.77 billion in 2006. If internal spending on custom publishing were included, overall custom publishing soared 31.5% to $37.37 billion in 2006.

"The ongoing shift from newsletters to magazines will fuel outsourced custom publishing growth, as companies invest in production improvements such as color, paper quality and editorial," the study says. "The launch of new titles will also contribute to growth." It cited four such new publications launched this year: American Airlines Federal Credit Union's cent$, Pace Communications' SIGnature for Bluetooth Special Interest Group and for Wachovia, and D Custom's partnering with Lennox Industries to produce a home and garden pub.

In branded entertainment, the smallest service category, advergaming showed the strongest gain because it connects marketers with young audiences who have yet to develop brand loyalty, VSS says. Advergaming, which is what Burger King did when it sponsored an Xbox game sold exclusively in its restaurants, was up 55.3% to $264 million in 2006.

All five sub-segments--event marketing, sponsorships, word-of-mouth marketing, product placement and advergaming--achieved double-digit growth in 2006.

"Branded entertainment spending gains will be driven by strong growth in each of the five sub-segments--including double-digit growth in the largest, event marketing, as major brands continue to shift dollars to alternative marketing methods," VSS says. "Product placement will also continue to generate double-digit growth, as the value of this practice increases and demand fuels the transition to paid placements from added value and barter arrangements.

"The increasing popularity of social networking sites, blogs and instant messaging is creating additional platforms for word-of-mouth marketing, leading to accelerated growth in 2006." Spending on word-of-mouth marketing increased 21.4% in 2006, to $4.82 billion.

While event marketing remained the largest branded entertainment category in 2006 and continued to experience double-digit growth, gains decelerated--with spending up 15.4% to $32.24 billion, according to PQ Media, which VSS cited.

Spending on sponsorships increased 10.5%, to $13.38 billion in 2006. Growth is expected to accelerate in 2007 due to double-digit gains in all categories, including sports, entertainment, causes, arts, festivals and associations.

Sports is the largest sponsorship category by far--generating $8.94 billion in spending in 2006, driven by efforts to target male audiences. Spending is expected to climb 10.8%, to $9.90 billion in 2007.

Entertainment, tours and attractions will post the strongest growth--up 16.2% to $1.60 billion, as marketers attempt to reach the youth market.

Spending on public relations--the smallest service category--increased 13.9%, to $3.81 billion in 2006, as major corporations began to look at PR as an essential part of the marketing mix. However, PR generated the smallest spending increase in terms of dollars, at $464 million. Spending on trade show promotions increased 7.2%, to $2.34 billion.

Consumer and retail accounted for the largest share of PR spending in 2006 at 27.0%, followed closely by health care at 26.0% and technology at 23.0%.

Direct marketing spending increased 6.6% to $101.51 billion in 2006, due to double-digit gains in e-mail marketing, an influx of new direct-response advertisers on TV such as insurance companies and reverse mortgages, and modest growth in the largest categories--telemarketing and direct mail. Political advertising also contributed to gains in the direct mail, e-mail marketing and telemarketing categories.

Spending on direct mail, the second-largest category, increased 5.7% in 2006 to $32.65 billion.

Pervasive Internet usage and the growing popularity of online shopping sparked a 28.4% increase in direct marketing via the Internet, the highest growth in the direct marketing segment.

While marketers are attaining positive results through email and Web campaigns, they continue to employ other direct marketing tactics because integrated campaigns are most effective.

Direct marketing spending is expected to continue to grow steadily during the forecast period, bolstered by consistent direct mail growth and double-digit Internet gains. Growth for direct marketing through television is expected to accelerate during the forecast period as the tactic becomes more mainstream.

Spending on business-to-business promotions increased 4.0%, to $44.76 billion, as corporations expanded their investment in employee incentives and high-quality promotional products.

Spending on consumer promotions increased 3.8% to $44.25 billion in 2006, fueled by point-of-purchase advertising and product sampling. POP advertising is becoming a key component of marketing programs as the store environment evolves into an advertising medium.

While coupons are often distributed along with product samples, spending on coupons increased only 2.3%, to $7.09 billion, as the robust national economy suppressed the use of coupons as a marketing vehicle. In addition, free-standing inserts (FSI) spending has been relatively flat due to pricing pressures.

Marketers continue to rely primarily on FSIs, despite declines in newspaper circulation, with about 89% of coupons distributed through FSIs in Sunday newspapers.

The shift toward new media vehicles is altering the market for coupon distribution.

For example, Subway sandwich shops in 2006 offered consumers coupons via cell phones, and T.G.I. Friday's offered Cingular Wireless customers a free appetizer or a discounted meal via a wireless coupon.

Although marketers are beginning to embrace online coupon distribution, it still represents a small share of the overall coupon market, and it is growing slowly.

New technology is also impacting the premiums and games segments. Growth in spending on premiums remained sluggish, but accelerated in 2006--rising 1.7% to $5.63 billion, as the use of new technology gave the medium a lift.

Loyalty programs, meanwhile, are becoming more sophisticated due to new technology.

Growth for loyalty programs accelerated to 2.5% in 2006, as programs attracted more members and expanded their offerings. Airlines, financial services, grocery and specialty retail represent 57% of total membership. However, airlines--heavy promoters of frequent flyer programs--are reducing reward-seat inventory and limiting mileage expiration periods.

Promotional licensing posted the slowest growth rate among the consumer promotions categories, increasing 1.3% to $6.31 billion in 2006. But growth is expected to accelerate in 2007, as merchandising related to highly anticipated sequels in the "Spiderman," "Shrek" and "Harry Potter" series sparks spending on the category.

Spending on promotional products increased 4.3% to $18.78 billion in 2006, driven by double-digit gains in online sales and growth in the largest product category, wearables.