Gartner G2’s Denise Garcia prognosticates on the ad spending winners and losers in 2004, and the impact of Sarbanes-Oxley on agencies and publishers.

During last month’s Agency Summit in Beaver Creek, Colorado, Denise Garcia presented Gartner G2’s first-ever Advertising Trends Report. It offered an intriguing look at the possibilities of 2004, from which sectors will increase or decrease spending to the effect on marketers of Sarbanes-Oxley reporting mandates. Here’s the transcript.
-- Lee Watters, Executive Editor

“Technology Trends in Marketing: 2004 Advertising Activity”

Denise Garcia: Hi, everybody. I don’t have any music or any song to sing or any dance to do. I do have only 10 minutes to give you this information. I want to leave at least five minutes for questions. This piece of research I just finished, it’s the 2004 Advertising Trends Report. It’s the first ever from Gartner. I just finished it about two weeks ago, and I think it’ll be really interesting, especially for you publishers trying to sell advertising. So with no further ado, I’ll get right through it.

First, the research methodology. What I did was I interviewed all of our Gartner G2 research leads worldwide, and we have research leads in seven different vertical markets. They include automotive; financial services, which also includes insurance; healthcare; manufacturing; retail; technology; and travel.

I asked them six questions, basically about where the market is now, where they see it going, what events are happening, and I developed a ratio of events and activities to advertising, and then I looked at historical advertising activity through comScore, CMR, TNS Information, and paired that data with the information that the research leads gave me, as well as I took some information from some of the surveys that I finished earlier this year.

We did a survey with the IAB on chief media buyers and their feelings about interactive advertising. We also did a survey of marketing directors and their feelings about interactive advertising, and I parsed that by vertical markets. So I came up with this forecast, and again, I’d like to get all your questions answered at the end. So if we could just speed through it, that’d be great, and if we don’t have time, I’ve put my email address on each one of these slides so you can always ask me a question later if we don’t get to it today.

But in general, here are the top-line findings across all of the seven industries we did this research on. All industries, regardless of where you’re selling into next year, will be focused on organic growth via their customer relationships rather than merger and acquisition activity.

The Sarbanes-Oxley Act of 2002—I’m sure we’ve all heard of it. Everyone thinks that’s a financial problem. Well, it’s not just a financial problem. Sarbanes-Oxley is a huge issue for every organization in every industry, and it is increasing the accountability of all functions cross-platform, across the organization. So even marketing is concerned with Sarbanes-Oxley and how that will affect them.

Technology advances in the marketing department and media are also driving the following changes across the board: more customized marketing communication, demonstrable ROI and integrated marketing. So I’ll get into each individual industry, and we’ll take them one by one, and then like I said, we’ll hopefully have room for questions.

So, automotive: the current issues. I’m sure a lot of you sell into the automotive industry. How many of you sell into automotive industry? Quite a few. So what automotive companies are wrestling with right now is the aftermath of customer incentives. The last couple of years, you’ve seen a lot of zero-percent financing, you’ve seen a lot of rebates. Let’s put them into this era of price wars, and we believe that next year the American—all this, by the way, is all U.S. information—so we believe next year there’ll be layoffs in the automotive sector. So their marketing focus is to get away from these price wars and focus on the total lifetime customer relationship.

You’ll see a lot more marketing activities at the dealer location as they look at each customer and the total value of the customer, not just on selling them one product but on selling them services, etc., and selling them on the brand.

They’re also going to be wrestling with how to market build-to-order models. The Internet has actually enabled automotive manufacturers to be able to offer customization of automobiles, and marketers are going to be looking at how they can market these build-to-order models.

They also want to increase their own flexibility so that they can take advantage of sales increasing for the PT Cruiser, for example. That’s something Chrysler didn’t expect to happen, and the PT Cruiser was wildly successful. Well, how does the company increase its marketing flexibility so it can say to its supply chain, “Let’s make more of these” or “Let’s make less of these” or “Let’s market this more?”

So in general, we think that for 2004, there will be an increase in local advertising, especially as automotive manufacturers try to build these customer relationships and explore cost-cutting options. We think they’ll be really interested in Internet-based advertising as they seek differentiation and develop their own customer retention or CRM-type strategies.

We think these changes will occur at the expense of TV advertising and the boon of local newspapers and radio as well as Internet. So [there’s] an increase here in 2004 for Internet, radio, national newspapers, as well as local newspapers; flat for magazines and no increase for outdoor or TV. And already we’re seeing a shift in share from 2002 to 2003 where in TV, 2002 had about 62 percent of advertising share and now in 2003 moved down to about 55 percent, and we think in 2004 that’ll go even lower.

Moving right along to financial services: Their current issue is to be able to increase their wallet share of each consumer. So instead of having someone just be a checking account customer, they want them to be a checking and a saving account, maybe even insurance, customer.

Also a shift from the mass to the targeted media; we think this bodes well for Internet, also bodes well for radio and outdoor and away from the traditional magazines, television, and even newspapers.

Moving along to pharmaceutical: A big event happened for the pharmaceutical industry. This was actually really fun research for me to do, by the way, because I felt like I got to learn so much from all of our research directors. The big issue in the pharmaceutical industry was that the map of the human genome was completed, which means that they get to create all kinds of new and more effective and different drugs.

The next point—I don’t know if this is clearly written, but basically, what the pharmaceutical industry does is they are under pressure to create new drugs constantly. And so research and development is very expensive for them. So instead of developing their own research and development, they’re almost outsourcing it to other smaller companies. Once that company has done all the development, then they acquire it. So they’re still kind of stuck in that phase. We still expect more mergers and acquisition activity to continue through 2004.

And also government and consumer complaints regarding pricing. We’ve just heard a lot about that with the new Medicaid or Medicare bill that passed a couple weeks ago. We expect to hear more about that through 2004.

So their marketing focus is going to be on creating customized treatments for consumers because they just mapped the human genome. They’ve also been able to create what they call targeted treatments, and targeted treatments are treatments that are made for each individual. So I no longer have to take this drug for high blood pressure and this drug for my heart condition or whatever it is that I have. I only have to take one drug instead of nine, and that drug will be customized to me.

So technology is customizing and changing many different industries in much the similar way of customization and personalization as it is in the pharmaceutical industry. So we believe, because of that, the targeted treatments, that the pharmaceutical companies will be branding themselves rather than individual drugs, and we’re already starting to see that happen as they move away from mass media to targeted media.

Most dramatically, we see a shift in share in TV, and we expect that in 2004, television advertising will go way down. But as they move toward these more targeted messages, this will bode well for Internet, and as they move toward relationships with their doctors and developing these local relationship patient care co-marketing exchanges, we expect them to advertise more in a media like newspaper.

Overall, though, you should know that we expect, because they’re moving toward these targeted treatments, it’s very difficult to find areas where these patients are alike. It’s not by zip code that people have diabetes or heart problems or whatever. They’re going to be very difficult to find. So over the long term, we expect a spending reduction in general for advertising in pharmaceuticals.

Moving on to manufacturing. These are big multinational companies, companies like Shell Oil, companies that you see advertising in National Geographic most of the time. Their current issues are China, how to deal with China, China as a market, China as the new competitor, multinationalism, what might work here. Saying it’s made in America might not work in France or other countries, and certainly Sarbanes-Oxley is also a huge issue.

They are focused on approaching each market differently as they globalize. So we expect that their advertising will remain pretty much status quo in the traditional mediums like magazines, TV and newspapers.

So moving right along to retail. Current issues. Big issues here. Most retail stores have installed CRM applications and technologies, and most of them, they believe, have failed, according to our CRM analysts. They also feel burned by e-commerce. Really, for most retailers like the Wal-Marts and Targets of the world, their business is still high volume low margin, and for the effort that they put into CRM, they’re really not getting the sales back. They’re also wrestling with the idea of Sarbanes-Oxley.

So they have told us they want to improve the in-store experience, that putting energy into improving the in-store experience has more payoff for them than putting energy into CRM types of applications. We’re going to see more kiosk advertising there, more point-of-purchase advertising, etc. within the retail store.

However, for advertising, it’s not all gloom and doom. We do believe that they will be creating retail personalities and brands, such like Target. That’s the best example of a retail store that’s created a personality, created a personality around its brands.

So I think that it will remain pretty much status quo for the retail sector, communicating quite a bit in broadcast media as well.

So moving right along to technology, current issues that technology is wrestling with. Earlier this year, the Harvard Business Review wrote an article, “Does IT Matter?” [Nicholas G. Carr, May 2003] and that had a huge impact throughout the industry. What does IT matter... are companies that have technology in their businesses more competitive? Are they more profitable than others? The article said no, and since then, the industry has been wrestling with proving itself and saying, “Yes, it can make you more competitive by having increased technology.”

So they also believe that Sarbanes-Oxley is an opportunity for them. Sarbanes-Oxley is about making your business more transparent. They believe that their message can be, “Make your business more transparent. Comply with Sarbanes-Oxley and do that through technology.” So they’re focused on positioning information technology as part of a total business process, getting away from a product sort of advertising strategy.

So we believe, unfortunately for the Internet folks in the group, that that’s really been their mainstay—Internet and B2B magazines. Instead, we see that the technology industry will be moving away from that to a more traditional type of media as they brand themselves as a business process solution rather than a product manufacturer.

Lastly, travel. Travel is dealing with safety issues. You know 9/11 has still been an impact for them, as well as SARS—managing unpredictability. Certainly, I know, I flew in from New York. The weather is unpredictable. How do we make sure that we sell all the seeds, yet service our customers, manage inventory, etc.? And they also have thrown themselves into price wars.

So much like the automotive industry, they want to differentiate their brands and break out of the price wars, and many of them are expanding into other travel related businesses like American Express.

So we think that 2004 will remain pretty status quo. There won’t be a lot of money in this industry because of these price wars. But we do think that they’ll be using the Internet as a way to cut costs and be able to measure their ROI. So we only predict an increase here for Internet.

So, in general, conclusions. We believe that Internet advertising will increase for four vertical markets (automotive, financial services, pharmaceutical and travel) and decrease for three (manufacturing, retail and technology).

I just got through it all. Do we have time for—thank you. That was hard.

Host: Just once again, Denise’s presentation will be made available to all of you. There are some great numbers in there. We have time, maybe, for one or two very quick questions. Any questions from the audience? Yes?

Greg Stuart: Yeah, Greg Stuart from the IAB. Hi, Denise. Are you predicting sort of overall what you think Internet advertising is going to be going forward, and what are your predictions?

DG: We’re about to do our first-ever worldwide Internet advertising forecast. We did one in 2001. I still predicted growth. I was probably one of the higher ones. I even came out a little bit higher than your audit, and starting in March, we’ll be doing a worldwide Internet advertising forecast that includes Europe, not Asia Pacific, as well as the U.S.

But I would expect that we’re going to have to revise our current growth forecasts, which are about 3.4 percent.