It started with a pair of certified letters to MINI USA’s Woodcliff Lake headquarters in northern New Jersey in the summer of 2005. One of the letters was addressed to Jim McDowell, vice president and managing director of MINI USA, the U.S. division of BMW’s MINI automobile brand. The other letter was to Trudy Hardy, marketing manager for MINI USA and a direct report to McDowell. Both letters were from Scheid, Roberts, and Reicher (SRR),1 MINI’s advertising agency since 2001, and both arrived at their respective destinations at almost exactly the same time.
From her desk, which was not in the immediate proximity of McDowell’s office, Hardy sat back in her chair and opened the letter without the knowledge that McDowell had just received a similar letter. Her thoughts and feelings as she broke the seal of the envelope and read the one-page letter partly confirmed previous suspicions but, nevertheless, included a sense of great disappointment and some hurt feelings. A rare event in the client-advertising agency relationship, SRR’s letter informed Hardy that they would resign the MINI account in order to pursue a larger account with a competing German automobile manufacturer.
For Hardy, it was during the next few moments that the gravity of the event began to sink in. SRR had been the ad agency for MINI ever since the months leading up to the U.S. launch of the new MINI Cooper, which was the first new car launched by the MINI brand since its acquisition by BMW several years earlier. In a time when the duration of a client-advertising agency relationship typically lasted for just about two years, the collaboration with SRR had been in her mind a productive one for almost five years. And in the same way that she believed the relationship had been extremely valuable to MINI, it was also hard for Hardy to believe that the same did not hold true for SRR as well. In 2001, the MINI account stood as one of the first major SRR client wins when it was a start-up agency with fewer than 50 employees. SRR had now grown to more than 300 employees, and the launch of the MINI Cooper was an unquestioned success. In some ways, MINI and SRR had grown up together.
1 Although this case is based on actual events, Scheid, Roberts, and Reicher (SRR) is a fictional name for MINI USA’s advertising agency from 2001 to 2005. For simplicity, hereinafter, MINI is used as opposed to MINI USA. 2 The BMW Group maintained a general rule that each BMW brand have its own advertising agency. For example, SRR could not work for BMW and MINI at the same time.
________________________________________________________________________________________________________________ Professor David Godes prepared this case with the assistance of Research Associate Peter Wickersham. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.
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Hardy began to think of the task before her. In one sense, if she were the marketing manager for almost any other product, the selection of a new advertising agency might not have been such a critical task. But the MINI brand, in almost every respect, was unique—from the design of the car itself to the passionate owners of the car who, for example, often named their MINI Cooper as they would a pet or family member. MINI’s advertising since the launch of the Cooper had been highly unconventional, and although she had no immediate ideas of how to proceed in finding a new agency, Hardy knew that the selection process would need to be just as unique.
The BMW Group and MINI
We went round the works, and I drove him at a hell of a speed—I’m sure he was terrified—but then he was so impressed by its road holding. We stopped outside his office. He got out of the car and he said, “Go ahead and make it.”
— Alec Issigonis, head of design for the Morris Mini Minor (a.k.a, the Mini), conversation with Leonard Lord, chairman of British Motor Corporation (BMC), 19583 The twentieth century witnessed the creation of scores of automobiles, but it can be argued that only a handful of these cars transcended the others to become cultural icons. For some car enthusiasts, the short list of such cars might have included the likes of the Ford Model T or Volkswagen Beetle. For those living in the United Kingdom and Europe in the 40 years between 1959 and the end of the century, the Mini Minor and its descendants, including the original Mini Cooper, would almost certainly have been counted among them.
The genesis for what was to become the Mini was attributed to Leonard Lord in response to the nationalization of the Suez Canal by Egypt in September 1956. Since it was thought this action might disrupt or restrict the shipment of oil from the Middle East, Lord commissioned Alec Issigonis to design a small car intended for those seeking frugal transport. The design requirements were few and simple: the ability to seat four people, use of a BMC engine, and an overall size smaller than that of current BMC cars. Issigonis formed a team of eight designers and engineers.
In one of their first meetings together, Issigonis placed four wooden chairs on the workshop floor in two rows of two and asked four of his team members to sit in them. They then shuffled the chairs around on the floor until each could sit comfortably in a minimum of space. The rough dimensions were captured in chalk on the workshop floor; the passenger space required was to be at least 8 feet 9 inches long, Purchased for use on the MSc International Marketing, at King’s College London, Department of Management. Taught by Douglas West, from 12-Jan-2015 to 27-Mar-2015. Order ref F240566. Usage permitted only within these parameters otherwise contact [email protected]
“Well, I guess they’re off to greener pastures,” he said in a matter-of-fact tone. After talking some more about the resignation, they soon turned their attention to finding a new partner. “Listen, I have total confidence in you to find our next agency,” McDowell assured Hardy. “It won’t be easy, but you know our brand better than anyone. The only catch is that we should probably have this nailed down before the end of the year, which means early December. Let’s talk more once you have an idea of where you’d like to take the search.” With those words, McDowell left Hardy’s office.
In addition to its small size (and in some cases because of it), the design of the Mini contained several other notable innovations. It was one of the first front-wheel-drive cars, and its engine was mounted transversely so as not to contribute more than two feet to the overall length of the car. The wide spacing of the wheels allowed for more efficient passenger space, and thus more than 80% of the overall dimensions of the Mini were devoted to luggage and occupants. The design of the Mini also had some other unique consequences.
First, the Mini’s simple layout made it easy for owners to modify the interior and exterior of the car; as a result, customization of the car became common. Second, its wide wheel spacing and low center of gravity made the Mini suitable for development of a racing variant of the car. An acquaintance of Issigonis, John Cooper, created the Mini Cooper in 1961 to be driven in rally races. The Mini Cooper was quite successful, winning the prestigious Monte Carlo rally in 1964, 1965, and 1967. In all, around 150,000 Mini Coopers were produced.
The mass-produced version of the Mini was a success in terms of unit sales. It also attracted a cult-like following. Each of the four Beatles owned a Mini as did Peter Sellers and many other famous British celebrities of the day. In 1995, the Mini was voted “Car of the Century” by readers of Autocar, a U.K. car magazine.
BMW Acquires Mini
Although the Mini was universally considered a success, the same could not be said for the succession of parent companies that owned the brand. In 1968, British Leyland was formed when BMC merged with the Leyland truck company. In 1975, British Leyland went bankrupt, and the company—with classic brands such as Jaguar, Rover, MG, Triumph, and Mini—was bought out by the British government. In 1988, the collection of surviving brands, now referred to as the Rover Group, was sold to British Aerospace, another nationalized company. Along the way, there were notable investments made in the Rover Group by other car manufacturers, including Honda of Japan, which owned approximately 25% of the company at one time.
Yet, the greatest investment and perhaps the biggest surprise occurred in 1994 when BMW, the German luxury automaker with 1993 sales of $18 billion, acquired Rover and its brands, including Mini, for $1.2 billion. In the eyes of senior management at the BMW Auto Group (AG), the vision for the purchase of the Rover Group was to take the company into a new international era. Bernd Pischetsrieder, who was named chief executive officer of BMW AG in 1994, explained it this way: “The key to success is continuously changing your focus over the long term . . . in the ‘80s, we focused on enhancing the engineering process.
The key emphasis for the ‘90s is globalization of the entire business, including financing, product engineering, styling, designing, manufacturing, and sourcing.”4 Similarly, some industry analysts believed that BMW could not afford to compete solely at the luxury end of a maturing world car market. The acquisition of the Mini brand and the decision to develop the new MINI was seen as a solid strategy to offer less expensive cars without jeopardizing the integrity of the BMW brand.5 According to an analyst with Commerzbank, “By slightly modifying an existing brand, effectively ‘inserting’ a new vehicle into it, it avoids having to pay all the upfront costs associated
4 J. P. Donlon, “Honk if you are global (interview with BMW CEO Bernd Pischetsrieder),” Chief Executive, October 1, 1994. 5 BMW differentiated the new version of the Mini from the original by capitalizing all four letters when referring to the new model (i.e., MINI).
Purchased for use on the MSc International Marketing, at King’s College London, Department of Management. Taught by Douglas West, from 12-Jan-2015 to 27-Mar-2015. Order ref F240566. Usage permitted only within these parameters otherwise contact [email protected] 2 inches wide, and 4 feet 4 inches high. Ultimately, once the engine and luggage space were added, the Mini was designed to be just 10 feet in length (Exhibit 1).
MINI USA: Finding a New Advertising Agency (A) with developing a new brand. The costs of brand building cannot be underestimated, as anyone at Daewoo would be quick to point out.”6
Not included in the deal to divest the Rover division, notably, was the MINI brand as well as the manufacturing facility near Oxford, England. “We knew we had a winner there. Much to the chagrin of the British, we held onto it,” McDowell would say later.
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Designing a New MINI
The design and development of the new MINI in the mid-1990s was to some at BMW the embodiment of the larger struggle to integrate the cultures of Rover and BMW. Between 1994 and 1999, there existed two separate MINI design teams—one British and one German. The British-based Rover designers and engineers for much of that time envisioned a revolutionary design of the new MINI. One such MINI concept was unlike, the previous Mini in almost every way but was seen as a contemporary interpretation of Issigonis’ vision of building a small car with maximum passenger space (Exhibit 3). BMW’s designers took a more evolutionary approach in terms of design combined with BMW’s reputation for delivering high-performance, driver-oriented cars. On one night in 1998 at his home in Munich, Frank Stephenson, a BMW designer originally from the U.S., cast himself into the role of Issigonis, who was known for doodling designs of cars on the back of napkins.
On a kitchen towel, Stephenson sketched a series of updated versions of the original Mini to reflect modern trends in design and new technology; see Exhibit 3 for a sample sketch.7 In the end, it was Stephenson’s design that would form the basis of the new MINI. The official launch of the MINI was held at the Paris auto show in 2000. During the show, senior BMW AG executives and Stephenson unveiled the new MINI to a rousing ovation. In explaining its design, Stephenson said, “The MINI Cooper is not a retro design car, but an evolution of the original.
It has the genes and many of the characteristics of its predecessor, but is larger, more powerful, more muscular and more exciting than its predecessor.”8 Two production models were to be launched in the U.K. (its historical home) in July 2001: a base model called the MINI One and a more upscale MINI Cooper. A sportier MINI Cooper S was to be launched soon thereafter in the U.K., and both the MINI Cooper and MINI Cooper S were scheduled for launch in the U.S. as well as other parts of the world in early 2002.
Even though the first MINI Coopers were not scheduled to arrive until early 2002, work was well underway in 2000 to establish an organization to support the launch of the MINI in the United States. MINI USA was established as a division of BMW of North America LLC and would share the same headquarters in Woodcliff Lake, New Jersey, as its parent organization. Jack Pitney was named general manager of MINI USA, a unique distinction for someone with a marketing background as opposed to automotive engineering, manufacturing, finance, or sales.
Kerri Martin was appointed MINI’s marketing communications manager. Trudy Hardy was also recruited in 2001 as brand communications manager of MINI, reporting to Martin. The MINI USA headquarters organization was designed to be small (fewer than 25 employees), nimble, and highly creative. From the start, the credo of the organization appeared to be, “If another car company might take the same approach, MINI ought not.” Martin, for instance, was commonly called by the title “keeper of brand soul” instead of marketing manager. Work proceeded quickly. By the end of 2000, www.miniusa.com was live and already receiving hits.
As with the MINI USA headquarters organization, the existing BMW infrastructure was utilized to create a network of U.S. MINI dealerships. Nevertheless, in a similar fashion, great lengths were taken to establish MINI as its own brand. Approximately 70 dealerships in 31 cities were renovated to add an exclusive MINI showroom under a separate marquee. In total, across all U.S. dealerships, first-year MINI sales objectives were expected to be 20,000 units, an amount Pitney viewed as aggressive but within reach. Base retail sticker prices for the MINI Cooper and MINI Cooper S models were set at about $18,000 and $21,000, respectively, including dealer shipment fees.
Additionally, leveraging the history of customizations to the original Mini, each model carried an extensive list of optional equipment and exterior color schemes. For instance, the car roof alone could be painted at the factory with one of more than 10 color schemes, including a black-and-white checkerboard pattern as well as an image of either the Union Jack or American flag. Early expectations were that the MINI Cooper S would capture approximately 80% of sales due to its larger engine and better acceleration. Depending on the amount of optional equipment selected, the total price of a MINI Cooper S could exceed $25,000.
Given its design and price range, plans were to position the MINI Cooper as a premium small car—something that MINI saw as a new market niche. This was especially true because the MINI Cooper was smaller and more expensive than some of the better-established compact cars made by Honda, Toyota, and Nissan. Initial MINI marketing materials and media reports from auto shows portrayed the MINI Cooper as a “fashionable accessory to an affluent, urban-hipster lifestyle.”9 However, early market research also indicated that the target market for the MINI was not limited to a specific demographic group or socioeconomic class but rather was more of a lifestyle choice or mind-set. For example, in surveys conducted before launch, potential MINI buyers in the U.S. described themselves as “young at heart” or “free spirited,” a finding that was consistent among both young as well as older age groups.
Moreover, the potential MINI buyer appeared to be less concerned by the opinions of others and was independent minded. MINI and BMW AG drew a number of conclusions from this initial research. First, it was decided that further research should closely examine the psychographic factors associated with the purchase of a MINI, since the most fervent of potential MINI buyers seemed to have a common mind-set about the car, which was something that Pitney and others hoped to explore in greater detail. Second, the research confirmed to them that, unlike the original Mini, the new MINI should not be marketed as a car for the masses but instead to a particular segment of car buyers. Third, although it created 9 Suzanne Vranica, “Cool Mini Cooper Prepares for Relaunch,” The Wall Street Journal, February 14, 2001.
Pitney and Martin thus recognized the importance of selecting an advertising agency with experience in nontraditional advertising such as promotional events, online advertising, and direct marketing. None of the large advertising agencies known for television advertising were invited to pitch the account, a decision that many industry observers viewed as bold and against the grain. DaimlerChrysler’s Chrysler Group unit, for example, had recently consolidated its $1.5 billion ad account at Omnicom Group. MINI also decided to base part of the compensation of the ad agency on the collective opinions of its dealers, something that was unique in advertising. Following a fourmonth review, SRR was selected as MINI’s agency of record. A separate firm, Circle.com, was selected to handle their online technology strategy and customer relationship management (CRM) duties. Although MINI would not disclose it publicly, the MINI account was valued at about $25 million per year in terms of total marketing spend, a relatively modest size for an automotive client.
Let’s Motor: The U.S. Launch of the MINI
The U.S. Launch Campaign (2001–2002)
By July 2001, in the eyes of Pitney, Martin, Hardy, and the rest of the MINI team, both the marketing strategy and the creative focus of MINI’s U.S. launch (scheduled for March 2002) were taking shape. Moreover, they felt that the desire to do things differently at MINI had been taken to a whole new level. Most significantly, the marketing team had decided not to use any television or radio advertising as part of MINI’s launch, an industry first for what was essentially an entirely new automobile brand in the U.S. market (it had been almost 40 years since the original Mini was sold in the U.S.). Instead, a phased approach using print and nontraditional marketing techniques was developed.
During August and September 2001, MINI’s focus was to build brand awareness primarily through print advertising in magazines. The tagline for the ads was “Let’s Motor,” a theme developed by SRR and that would be carried throughout the launch campaign in 2002. The use of the word “Let’s” at the beginning of each ad was intended to create a feeling of inclusiveness, and the tone of the ads was intended to be friendly and funny. For example, one ad read: “Let’s not use the size of our vehicle to compensate for other shortcomings. Let’s Motor.” Another began, “Let’s put away the middle finger.”
In addition to initial print advertising in magazines such as Autoweek, SRR developed The Book of Motoring, a 5-inch by 5-inch glossy booklet designed to convey exactly what it meant to be a motorer. “How is motoring different from driving?” it posed to the reader. “Physically, they’re the same process . . . the difference is in the mind of the operator . . . when you drive, you go from A to B . . . when you motor you go from A to Z . . . it’s all about living . . . nobody can tell you when you’re motoring . . . you just know.” The book also suggested that motorers pay the toll for the car behind them or feed parking meters if they see a meter maid coming. “Motorers look out for one another,” the book said. The Book of Motoring could be obtained through BMW dealers or the MINI USA website.
In October 2001, in addition to continued print advertising, the SRR and the MINI marketing team designed a series of promotional events and publicity stunts to create additional buzz for the brand.
Purchased for use on the MSc International Marketing, at King’s College London, Department of Management. Taught by Douglas West, from 12-Jan-2015 to 27-Mar-2015. Order ref F240566. Usage permitted only within these parameters otherwise contact [email protected] for the manufacturing team in Oxford, England, it was clear that the target market would likely seek to make their MINI unique by adding optional features and color schemes. Finally, it also became apparent that limiting their advertising to traditional media such as television and radio would not be cost effective, since the MINI itself was not a mass-market car and since its potential buyers seemed less interested in being part of the mainstream.
In one example, for a Formula 1 car race in Indianapolis, MINIs were secured to the top of three fullsize sport-utility vehicles and were driven to the city from other parts of the U.S. carrying signs that read, “What are you doing for fun this weekend?” The same MINI-toting SUVs then toured some 24 U.S. cities (Exhibit 4). When curious onlookers asked about the car, representatives were instructed to give them a card that said “Coming to America” and directed them to the MINI USA website. Sporting events were also used as venues to promote the car. For instance, a MINI was placed in the stands of an Oakland A’s baseball game and in the Superdome for a Monday Night Football game (Exhibit 5). As part of this promotion, during the game, the announcer did a series of “callouts” that drew the attention of the fans in attendance to the MINI. As one example, he announced: “To the gentleman in Section 101, you’ve left your lights on.” When the in-stadium camera focused on the MINI in Section 101, its lights flashed and then shut off. This particular promotion also played a role in the firm’s attempts to anthropomorphize the MINI.
When the official launch of the MINI Cooper began in March 2002, MINI and SRR continued their grass-roots marketing efforts and print advertising in combination with outdoor advertising using, most notably, billboards, which they felt were underutilized by other car brands. In all 45 markets where the new MINI was to be sold, teaser billboards were posted on the day that showrooms were opened. Instead of displaying the car or its logo, the billboards only included the company’s website, miniusa.com, and a single line of text. One billboard read, “XXL XL L M S Mini.” Another read, “The SUV backlash officially starts now.” Then, in April, a new series of billboards were rolled out that included a photo of a MINI, the MINI logo, and the “Let’s Motor” tagline. Slogans included, “Let’s Sip Not Guzzle,” referring to its above-average fuel economy.
The outdoor advertising was taken to the extreme in cities like New York, where a skyscraper was wrapped to represent the car’s two-tone paint job and a 29-foot-by-125-foot billboard was erected in Times Square. Though typically considered a traditional medium, print advertising was used by MINI as nontraditionally as possible. In late 2001, for instance, executives from 35 magazines were invited to MINI’s headquarters to brainstorm unique ways to market the new MINI in print. One noteworthy outcome of this session was a proposal to use the margins around news stories to hold advertisements. At launch, the “cornering ads,” as they were called, were run in six magazines, including Rolling Stone and Motor Trend. The ads said, “Nothing corners like a MINI” and contained a photo of the Mini Cooper S cornering the one-inch margin of the magazine page. Other aspects of the launch campaign included the following (Exhibit 6):
More than 6 million magazine inserts of an abridged version of The Book of Motoring
A series of MINI-inspired cartoons featured in The New Yorker magazine
Other magazine inserts including an unscented MINI-shaped air freshener and a pullout car game. Another insert allowed readers to customize the car using peel-off stickers; accessories such as wheel covers, blowers, and racks could be placed on a photo of a MINI in the ad.
In total, more than 30 million magazine inserts were published in magazines ranging from Car and Driver to Vanity Fair. The MINI organization was very happy with the creative output of SRR. “Conceptually, just about every one of their ideas was spot on,” Hardy said. “Besides the fact that they really ‘got’ the brand, they also made sure that the ideas they showed us were fleshed out and developed. This extra effort on their part really made it easier for us to react to the ideas and to give them meaningful feedback so we could work together to make them come to life.” MINI and SRR planned to explore other advertising media as 2002 wore on, just not television. Rather than use TV advertising, for example, MINI opted to sign a deal with National Cinema Network, a movie theater network, to show 30- and 45-second advertisements on roughly 2,000 screens in five cities.
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By the close of 2002, there were several reasons for MINI and SRR to celebrate. Most obvious were the year-end MINI sales figures, which indicated that 24,590 units had been sold in a little over nine months. At that pace, first-year sales were projected to total over 30,000 units. In addition to the strong sales figures, a consumer survey indicated that brand awareness for the MINI among the carbuying public was 25%. A survey indicated that 75% of MINI buyers had read or heard about the MINI through public relations and Internet exposure before the official launch advertising actually began in March 2002.
The launch campaign also earned both MINI and SRR a significant number of awards, including Adweek magazine’s 2002 Guerilla Marketer of the Year and 2003 Media Plan of the Year honors, the 2002 Kelly Awards Grand Prize for Outstanding Magazine Advertising, and two 2002 Cannes Media Lion prizes. SRR also won the Best of Show Award and an award for innovation in marketing at the annual One Show awards, a prestigious event sponsored by the One Club for Art and Copy in New York. At the same awards ceremony, MINI USA received the Advertiser of the Year Award. Pitney was named one of two Automotive News Marketers of the Year (the other was awarded to Jim McDowell, vice president of marketing for BMW of North America). In January 2003, the MINI was selected as the North American Car of the Year by the same publication. The MINI Cooper and MINI Cooper S were selected as finalists for the Motor Trend Car of the Year as well.
The Creative Work Continues (2003–2005)
By all accounts, the relationship between MINI and SRR was felt by both sides in 2003 to have been a highly productive collaboration to that point. “Each day we came to the office thinking that we had one of the best jobs in the world. In a sense, SRR was just part of the family. We’d interact and debate ideas on a weekly, sometimes daily, basis,” Hardy described. “It was a close working relationship.”
Over the next two years, MINI’s strategy of using primarily nontraditional advertising in combination with print and outdoor advertising continued, as did SRR’s ability to develop unique creative material in support of this strategy. One magazine campaign featured punch-out, assembleable versions of the MINI Cooper built on a 1:56 scale. About 4.4 million inserts were created, featuring two cars with different combinations of accessories, and came complete with assembly instructions; both cars became collectors’ items.
In another campaign, consumers could pull out MINI cartoon-character decals from magazines. The stickers came eight per sheet and were designed to drive buyers into dealerships for a ninth sticker. Approaches like this one were well received by dealers, including Wayne Youngblood, general manager of Motor City Mini near Detroit. “I’m thrilled with it; MINI marketing is quirky, fun, and it delivers customers that match the vehicle perfectly,” he said. “In my 30 years in the business, there has been no other product that commands as much excitement or attention as MINI.”10
Sales of the MINI Cooper continued to climb (Exhibit 7). In 2004, a MINI Cooper convertible was added to the model lineup. Changes would soon be underway, however. In March 2005, Martin announced that she was leaving MINI to become director of market development for Volkswagen of America, a company known for spending about $500 million annually in North American advertising. Around the same time, Pitney and McDowell made the unique decision to switch jobs as general manager of MINI USA and vice president of marketing for BMW of North America. But the ultimate surprise was SRR’s resignation of the MINI account in order to become the agency of record
Purchased for use on the MSc International Marketing, at King’s College London, Department of Management. Taught by Douglas West, from 12-Jan-2015 to 27-Mar-2015. Order ref F240566. Usage permitted only within these parameters otherwise contact [email protected] for Volkswagen. By then, Hardy had assumed Martin’s duties as head of marketing, and one of her first challenges was starting over and finding a new advertising agency, which would not be easy given the unique relationship that MINI enjoyed with SRR.
With each passing year of technological advancements, it was apparent to MINI and others that the foundations of any advertising firm—creativity and the ability to deliver creative content in a variety of media—were becoming less and less the exclusive domain of bigger advertising firms with extensive production staffs. Consequently, it was possible for a one- or two-person shop to perform the same creative services as a large, multinational advertising conglomerate with billions in revenues such as Omnicom, WPP, Interpublic Group (IPG), and Publicis. Advertising firms in 2005 could be categorized into either of these two groups, but a third group also existed. The “independents,” as they were called, were privately owned firms with anywhere from about 10 to 300 employees. As was the case with SRR, oftentimes these firms were started by young, entrepreneurial advertising professionals looking for creative freedom or autonomy following stints at one or more of the publicly held multinational firms.
Seen by some to be a competitive response to the growth of the independents, consolidation was a significant theme in the advertising industry during much of the 1990s and early twenty-first century. Over this period, the major holding companies appeared intent on expanding market share in order to gain economies of scale, diversifying their revenue streams, and serving clients as a one-stop shop while growing into large, multinational players. In 1993, for example, the top three agency holding companies captured a 36% share of the market. By 2003, this figure had increased to 50%.11 The increase in market share was largely achieved through acquisitions of independents and smaller holding companies, with the bulk of these acquisitions occurring from 1996–2001. One holding company, IPG, acquired 240 companies during that period.
Another significant industry theme was the shift in agency compensation over the past decade from commissions to fee-based compensation. Traditionally, advertising organizations had been paid at a set percentage of an advertising budget for the creative work on an account; this percentage was typically in the 12%–15% range but could be as high as 20%. A major criticism of this compensation system was that it did not align the agency’s pay with the success of a particular campaign or with the amount of work required to create the campaign. The fee-based system (or FTE model) charged production fees and employee hours along with a standard profit margin (e.g., 20%) for the advertising firm. In 2005, it was estimated that 80% of all advertising clients had moved away from commission-based compensation structures to enter fixed fees or a combination of fee and incentive compensation.