Follow The Bouncing Ad Sales Dollar

As the economy bounces back so goes our industry—or does it?

In last month’s column I posed that question in commenting on the upsurge in distributor sales in 2012 over 2011. Although “only” a 4.4 percent increase, our industry’s percentage growth still outshines seven other advertising categories, including direct mail, cable television, newspapers, consumer and business magazines, radio and outdoor advertising.

So what does this mean? Is our industry a mature one that only grows with the economy and inflation? Or, are there other waves of growth for the industry still to ride?

The promotional products industry has enjoyed at least a 40-year history of sustained growth. Year after year, the industry has consistently grown and in only two time periods—2001-2002 and 2008-2009—has our industry shrunk. But the decline was noticeable and painful. In 2001, sales dropped 7.3 percent. As the U.S. economy began to recover, so did promotional products sales—until the recession hit in 2008 and sales fell again, this time by 6.9 percent. The next year sales fell even further—a record drop of 13.6 percent in 2009.

But there’s much more than the overall economy that impacts our industry. Fortunately, many factors have combined to feed our long track record of growth. This is most likely only a partial list of those factors:

  • Development of equipment that can decorate so many more varieties of products
  • Inclusion of apparel as a common promotional product
  • Inclusion of flash drives, mouse pads and other technology-related items as common promotional products
  • Migration of manufacturing offshore, dramatically reducing the cost of promotional products
  • Dramatic growth in the number of people selling promotional products to end-user customers
  • The snowball effect of promotional products being fun, effective, efficient and easy to buy

It will be interesting for us to consider and debate the factors that are likely to influence our industry’s future growth trend. Some of these may help accelerate our industry’s growth, and some may serve to retard its growth. Here is another partial list of things to consider, many of which may impact our industry’s growth rate:

  • E-commerce and social media
  • Developing trends in labor and material costs
  • New product lines not yet conceived for promotional product use
  • Governmental facilitation of international trade
  • Product safety, social compliance and environmental concerns
  • Industry consolidation, on both the supplier and distributor sides, in a highly fragmented industry
  • The increasing sophistication of end-user client expectations
  • The advent of Millennials to positions of authority and responsibility in major companies
  • The economy, both in the U.S. and worldwide
  • The flexibility and adaptability of industry participants to meet new challenges and opportunities

Each of these topics can lead to many conclusions, some countervailing. For example, e-commerce may reduce the sale price of certain promotional products through greater communication of offers and enhanced competition. However, the digital age is decimating many of the mass media categories that are dependent on advertising dollars for survival. For example, the New York Times bought the Boston Globe in 1993 for $1.1 billion. It sold it this month, 20 years later, for a mere $70 million. That is a 93-percent loss on the investment. And both transactions—the purchase and the recent sale—were conducted by astute businesspeople with top-notch professional advisers.

We are seeing proof that mass media advertising is losing its appeal. Today’s consumer can filter out most advertisements that he or she does not wish to see. It is becoming all the more challenging for businesses to reach their customers—unless they think out-of-the-box and out-strategize the competition. Who is my customer? Where is my customer? How can I assure that my customer will see my message? Only then can I ask “What is my message?” and “Why is that message appealing to my customer?”

As each of you supports your client’s efforts to solve this problem, I know you see the utility of promotional products in this approach. The benefits are shrinking for a series of quarter-page ads on page 10 of a (print) newspaper whose circulation shrinks every month. The advertising message will instead be on a promotional product as the promotional product is an item that the customer wants. And, the promotional product will only be sent to the profile of people who are likely to become customers. As the digital age drives down mass media, targeted marketing has to gain market share. The efficiency of technology thus also represents an opportunity for our industry.

And the discussion goes on. Will our manufacturing move to Africa? Will we run out of inexpensive labor markets? What happens to the price of cotton? How elastic is our customers’ demand for decorated apparel? Will elasticity increase as more professional salespeople sell solutions instead of taking orders to sell products? Will we enjoy reduced energy costs? What will be the impact? Will we have access to less expensive freight on overseas shipping or lower costs of petroleum-based products?

Will product safety concerns and social compliance responsibilities reduce off-shore production? Will the world suffer trade wars with tariffs reducing competition and increasing costs?

Mature industries are said to follow what is known as The Rule of Three. There are countless examples of industry after industry in which one dominating player controls half or nearly half the market, one large player controls nearly 20 percent and a third player controls at least 10 percent. Then, there are a series of niche players each with a small fraction of the market, always well under five percent. Then there are those companies “in the ditch” that are neither nimble enough to compete and adapt with the very small players nor powerful enough to go toe to toe with the big players. Our industry’s largest players are one to two percent of the market, no more than that. Is that the sign of a mature industry? I don’t think so.

It is very difficult to predict the impact of these trends and what our industry will look like in 10 or 20 years. But what is clear and what is overriding is that promotional products work. They present the best bang for the advertising buck. At the end of the day, this is what drives our growth.

Henry Ford said, “The man who stops advertising to save money is like the man who stops the clock to save time.”

Advertising is indeed essential. Promotional products represent a necessary and compelling advertising medium and, as I explained in last month’s column, PPAI continually works to impart that message to buyers through a variety of actions and programs.

I would enjoy hearing from you on other factors that influenced our industry’s extended growth record and your opinion on the topic of our industry’s future.

 

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