New Realities for the Advertising Specialties Industry

The less than stellar results are in.

According to Counselor magazine, advertising specialties industry revenues have fallen 17.6% for the first quarter of 2009 – a net decrease of $700 million in sales compared to one year ago. Large distributors (revenues over $1 million) are feeling the greater pinch, due to larger clients experiencing budget freeze or suspension of marketing as usual for first quarter. Smaller distributors (revenues under $250,000) are more optimistic about the future and do not seem to be as affected at this time.

The promotional industry has been further rocked by filings for bankruptcy protection by leading suppliers, business closures, and production slow downs in response to lowered demand.

Falling revenues should be no surprise, considering the dynamics of the current market environment. The drop in revenues can be attributed not only to fragile economic conditions but to new regulatory issues such as adjustments to the PhRMA Code and the Consumer Product Safety Improvement Act (CPSIA).

Adjustments to the PhRMA Code and a more recent bill the Physician Payments Sunshine Act, S. 301, put those who focus on healthcare channel promotions in a quandary. This once lucrative channel of distribution has been seriously impacted by the new regulations stance on promotional products.

The CPSIA is continuing to redefine itself, the consequence of legislation too broadly written. In a statement Monday, The Consumer Product Safety Commission (CPSC) said that that the vast majority of pens are “not likely” to be considered children’s products and would not be subject to related safety requirements under the Consumer Product Safety Improvement Act (CPSIA). This would be a welcome reprieve for a product line that makes up about 9% of industry product sales. The net effect on the industry as a whole is still to be determined.

New Strategies for a New Environment

All is not lost. Companies, in order to assure their own survival, are beginning to market again. Some advertising specialty providers, including IMC, are reporting glimmers of hope as companies are re-engaging. Budgets are opening up and more normal marketing activity is beginning to occur. While things are looking better, there will not be any short-term turn around to challenging market conditions. Industry projections do not anticipate any real return to “normal” until the second half of 2010. 

In the meantime, what strategies are promotional products companies employing to navigate these turbulent times? Two strategies that I see making the biggest difference in the advertising specialties landscape are the shift to social media as a primary marketing medium and use of merger and acquisition as a tool for expansion. 

As customer purchasing habits become more conservative, the demand for new customers is growing. While customer retention is still paramount, the revenue gap must be bridged through the development of new customers. Budget limitations and a stronger emphasis on ROI favor a shift to online marketing tactics over more traditional efforts like direct mail. Particularly significant is the increased use of social media to drive customer acquisition. According to a 2009 Social Media Marketing Industry Report 88% of marketers surveyed are using social media to market their businesses, but 72% have only been doing so for a few months or less. If done well, social media (as part of an integrated marketing plan) has proven to be an incredibly cost-effective way to drive inbound lead generation.

Some advertising specialty companies are employing merger and acquisition as strategies to build business opportunities. Smaller companies, whose purchase offers market-ready solutions, are most attractive to potential buyers. These include enhanced production capabilities, line extension, and extended distribution networks. New entities will emerge as both the economy and industry continue to consolidate and evolve.

What trends are you seeing in the promotional products industry?