Direct Marketing Health Check
Is Direct Marketing on its death bed?
In spite of these problems, Smith says he firmly believes DM to be “a very healthy sector”. And while he expects more below-the-line casualties in the near future, he also expects to see new agencies hit the scene, born out of those networked agencies that have receded from the region or have been set up by people who decided to break away from the agencies that still remain.
Indeed, this could be a real time of change for the direct marketing sector. And the fact that the below-the-line scene is going through such a turbulent time hasn’t escaped the notice of Carl Hopkins, former chairman of JDA, which was acquired by TDMG.
“There has definitely been a decline in direct marketing,” he says. “People have started to redefine exactly what below-the-line actually is, and with the growth in digital, below-the-line marketing has lost some of its business.”
Hopkins suggests that the use of established northern agencies has, of late, become somewhat outdated. He thinks the offices were no longer in demand, due to the reliance on resources from a company’s London offices.
“If you look at established agencies – those that have been around for an awful long time – you could have an agency that thought, ‘The direct market is really growing, let’s establish a new office up north.’
“They would initially show some good growth as northern clients thought, ‘I want to work with a northern agency.’ But then what tends to happen is that it becomes harder and harder to maintain that satellite office and the margins become less and less. Ultimately the agency will not want destroy its crown jewels – their London base – and so they quit the north.”
Fergus McCallum, managing director of Tequila believes the recent closure of WWAV North and EHS Brann is simply the way of the world. He doesn’t think it is down to any emerging trend as such.
“If you study the UK market over the past 12 months there have been direct marketing agency closures everywhere,” he says. “Conversely, there have been new agency openings and stellar growth and new business successes across the country.
“The agency scene is always changing, and the fact that two agencies have closed is disappointing, but it does not mean there aren’t significant successes elsewhere in the north.”
David Patrick, a member of the DMA North Council and managing direct of the Yes Agency, agrees with Smith. In fact, he believes the future of the sector actually looks “bright”. “As long as we can continue to maintain and develop new specialisms which meet what clients are looking for in their agencies, then we and others will continue to thrive,” he says.
And below-the-line agencies aren’t helped any with large clients moving their DM accounts to an in-house team in order to cut their own direct marketing costs. If the current speculation that Strongbow and the Royal Bank of Scotland have both taken their DM business in-house is correct, then Tequila could be the next to face some very difficult decisions in the north.
“There’s always a pressure to cut costs, and one of the easier ways of being seen to make savings is to bring part of your marketing activity in-house,” explains Patrick. “That’s because agency retainers stick out like a sore thumb, whereas marketing staff overheads are not so obvious.”
Nicky Unsworth, managing director of BJL, agrees that this move to in-house is nothing new. She says there is no sign that more clients will follow suit in the near future, further undermining the DM business.
“Over the years I’ve worked in advertising I’ve seen clients do both,” she says. “I’ve seen clients take their accounts in-house and then decide that they are not getting the right resource, and the account will come out again and into an external agency. Especially if they have less of a big idea, then they appoint an agency to work on some execution detail. But I don’t see that developing as a pattern.”
Unsworth also believes that the larger networked agencies are well placed to take on direct marketing accounts. She sees no reason why reasonably sized integrated agencies are not able to take on and execute DM campaigns as well as their specialist counterparts.
In light of The Direct Marketing Group and The Digital Marketing Group both taking over below-the-line agencies in the region recently, it looks as though one survival option for many DM agencies will be to sell out and become part of a larger network.
Asked whether this is a positive move for the industry, Fiona Hought, managing director of Millennium, says: “It depends on whether investors are prepared to resource and grow organically and help it develop, or whether they are simply looking for a short-term opportunity.
“I guess if someone was willing to put financial resources into the region and help it grow and develop, then that could only be a good thing. That then gives our clients the choice to buy what’s on their doorstep.”
So, is DM on its deathbed? Possibly not, but it is clear agencies must now think in terms of both economies of scale and an integrated offering - that includes digital - if they are going to survive.