This agency advisor says online’s ability to quickly show return rates will continue to make it an indispensable part of direct marketing campaigns.

The stock market is toying with the 10,000 level again. The economy seems to be shaking off its slumber. Unemployment could be declining, and there are hints that the recession may be waning. However, turmoil in Iraq persists, conflicts in the Middle East continue to escalate, and threats of terrorism loom over the country and the world.

With market conditions still soft and the future uncertain, what’s the state of marketing communications as a business?

Slow but Steady

History suggests that business will bounce back strongly after this recession. It did so after the oil shock in 1973, after the recessions in the mid ‘80s and more recently in the early ‘90s. However, euphoric growth like in the ‘90s most likely will not happen again in our lifetimes. Instead, the growth of the communications business is more likely to be slow but steady.

Consumers and businesses simply do not yet feel secure in today’s economic environment. As a result, companies are continuing to carefully monitor where marketing dollars are spent and what returns these expenditures deliver to the bottom line. Marketing budgets and capital expenditures are increasing at a snail-like pace as consumer confidence slowly increases.

As we move into the near future, consumers will continue to be careful about how they spend their money and businesses will continue to be cautious about how they reach those consumers. This trend does not favor traditional advertising media, like television, where it’s almost impossible to measure results quickly.

It does, however, favor all forms of direct marketing and the rapid expansion of online advertising. In addition, clients will move more dollars into product publicity and public relations, will continue to leverage customer testimonials, and will test other forms of direct communication.

Why Direct Marketing?

Direct marketing enables clients to see results and test different programs quickly and inexpensively, thereby optimizing their investments. Sophisticated databases allow clients to tailor messages and reach specific targets on a one-to-one basis. And even though we’re all concerned about privacy and junk mail, have you ever discarded a package that contained information you really are interested in? This is what we call relevancy of the message, which will be as important to successful communication during this decade as the creative delivery mechanism itself.

We’re also seeing great synergy between traditional direct marketing and online marketing within campaigns. It’s this trend towards brand integration across multiple mediums that is spurring the growth of online advertising. According to the Internet Advertising Bureau, Internet ad spending is expected to grow by more than 15 percent to more than $9 billion in 2007. GartnerG2 projects that the total interactive ad market revenue will reach $13.5 billion by 2007.

This is not surprising. Online advertising is a digital form of direct marketing, and it possesses many of the same advantages as direct marketing. Targeting, placement and creative can all be optimized online for maximum results. Therefore, online investment will continue at a fast pace, albeit off a small base.

New online ad formats -- from animated ads that flit across the computer screen to search-related ads that appear alongside results on well-trafficked sites like Yahoo! and MSN -- are very appealing to consumers and driving them to sales sites.

Increased penetration of broadband and high speed access will enable even more creative messages to be sent to prospects, thereby moving online advertising closer to conventional television. That will offer an important thread of familiarity to big agencies and their clients. Many claim that online advertising cannot build brands. But brands can be built online via Website messages. More importantly, online activities can build both direct sales and in-store sales at the same time.

Results and ROI will be the watchwords of the day over the next few years. Clients will prefer media delivery systems that can provide these numbers over traditional messengers like television. While TV will continue as the best medium to reach large audiences, clients are going to insist on much more disciplined creative messages that drive results -- and their advertising agencies better heed this message.

Graham Phillips is a former chief executive of Ogilvy & Mather Worldwide, and now serves on the advisory board of Avenue A, an interactive agency and operating unit of aQuantive, Inc. (NASDAQ: AQNT), that provides advertisers with an integrated suite of services include web advertising, affiliate programs, search engine optimization, strategic portal relationships, creative and web site design, e-mail, customer targeting, profiling and advanced analytical services. Clients include AstraZeneca, Best Buy, Household Finance, L'Oreal USA, Microsoft/MSN and WeightWatchers.com. Mr. Phillips can be reached at grahamp@avenuea.com.