Omnicom case

Omnicom was established in 1986 through a combination of three advertising, marketing and corporate communications networks, BBDO, DDB and TBWA.

The group’s history began in 1891, when George Batten formed an advertising agency named Batten Co. in New York, US which later on in 1928 merged with Barton Durstine Osborn, another New York agency to form BBDO. DDB was founded in 1949 and then later on in 1986 merged with Needham Harper Worldwide, a Chicago based advertising agency to form DDB Nedham. In the same year, BBDO merged with DDB Needham to form Omnicom. TBWA, another advertising agency was founded in Paris and by 1980s, became a major player in both the European and the US advertising markets.

Through the late 1980s, the advertising industry across the world underwent much large scale, structural changes. IMC, clarified the ideas behind the concept, and many new theories, practices, and principles were beginning to emerge in the 1990s, all of which impacted upon communications. The circumstances which forced the evolution of Omnicom included:

• Growing popularity of marketing, corporate communication services, direct marketing, sales promotion, public relations and event sponsorship.

• Emergence of media buying as a separate business.

• Globalization i.e. expansion of product range & diversification of businesses by domestic and global companies.

• Change in traditional advertising i.e. different agency for different products.

• Increase popularity of integrated marketing communications (IMC).

• The engine of information technology allowing massive customer data holding and manipulation (Clow and Baack, 2002; Duncan, 2002; Maddox, 2001)

• The use of the internet as information source, communication channel, transaction facilitator, and distribution tool (Durkin and Lawlor, 2001; Gronstedt, 1997; Reich, 1998)

• Development in agency practices— internationalization, globalization, client mirroring, organizational learning and practice driven by client need, multicountry, multioffice structures and networks (Clow and Baack, 2002; Gould, Lerman, and Grein, 1999; Kitchen and Schultz, 1999)

• The need for brands to become global, the pressure of advertising localization (Fill and Yeshin, 2001; Grein and Gould, 1996; Kanso and Nelson, 2002; Terpstra and Sarathy, 2000)

• The fact that “the world has changed, the nature and forms of communication have changed, and, therefore, the practice of developing and managing marketing and communication must change as well” (Kitchen and Schultz, 2000, p. 16)

2. OMNICOM STRATEGIES TO BECOME GLOBAL AGENCY  

The advertising industry went in a phase of consolidation through 1980s. As a result of these changes, integrated marketing communication (IMC) & other marketing activities involved in communicating with the end customer became popular. Client started asking the advertising agencies to provide such facilities. Most of the leading agencies began acquiring companies across the worlds that specialized in various marketing and communication services. Omnicom was the first one to identify these changing trends, and adopted the mergers and acquisition strategy to become a leading global advertising group. Omnicom increased its portfolio by acquiring many companies through its Diversified Agency Services Division in areas such as sales promotion, event marketing, direct marketing, communication, health care and public relations. In1996 it entered into the advertising market and by investing into many digital interactive communications and also started focusing on media services activities by establishing the Optimum Media division and PhD under Optimum Media group.  By series of acquisition and take over, Omnicom not only expanded the geographical reach of its core business but also continuously diversified its portfolio of activities. Thus maintaining a geographical balance for its various businesses and reducing the group exposure to any single industry, client or geographic area.

Omnicom and other advertising agencies invested and organized to provide all communications capabilities in addition to traditional advertising services, such as sales promotion, public relations, collateral materials, and direct mail. This shift was motivated by economics: Budgets were moving away from media advertising to other resources, and agencies wanted to retain that income.

Agencies also wanted to provide coordinated campaigns for their clients. Yet the majority of clients didn't buy for several reasons. First, clients didn't see a clear cost benefit from combining all these services in one advertising agency. Their analysis indicated it would be cheaper to disperse this work among different suppliers. Second, and more importantly, many clients didn't have confidence in the ability of advertising agencies to deliver specialized services such as annual reports, direct mail, and PR. They felt more secure going to specialists. Finally, clients had administrative concerns about putting all their eggs in one basket. If the client decided to replace the agency, the transition process would be considerably more complicated. And if the agency resigned the client which does sometimes happen there would be considerable administrative factors to deal with.

Integrated communication services require agencies to be locally competent in many different functional areas (Daume 1998).  The preferred solution for global clients and their brands is “glocalization,” a term describing a hybrid strategy that is almost totally determined by client and local needs. Advertisers requires greater efficiency and coordination in reaching their target audience through a variety of  communication approaches (Levin1993)  and the large ad agencies have show themselves to be incapable of this sort of integration (Schultz 1993). Advertising agencies and clients develop and articulate notions of global advertising for multiple reasons: to rationalize their growing size and transnational structures, to gather business, to cut costs, and to increase profits.

3. SUCCESS SECRETS OF OMNICOM

Omnicom success was due to its client centric approach and strategy of building a geographically balanced network of operations and entering into different business disciplines in various countries.  The client centric approach, substantial depth in each marketing discipline in every major market helped the company in identifying changing trends well in time and entering the new businesses early as compared to their competitors.  

The company expansion strategy, which aimed at acquiring only those marketing and communication agencies that had the potential to become top players in their respective segments, and helping them to become top players in those segment also contributed to the success. The decision to give operating autonomy to group companies to foster creativity and leadership also helped in the success of the company.

The increasing dominance of global markets for brands in a wider variety of product categories, enterprises, and industries favored the growth of global network communications agencies over national advertising specialists.

IMC approaches have grown in recognition and importance for effective marketing, particularly as there has been a trend to allocate budgets away from mass media advertising due to increased media fragmentation  and increasing segmentation of  consumer tastes and preferences (Durkin and Lawlor, 2001; Eagle and Kitchen, 2000; Schwartz, 2001; Tedlow, 1990), easier access to consumer databases and computational resources (Kitchen and Schultz, 1999;McGoon, 1999; Reich, 1998), the importance of reinforcing consumer loyalty via relationship marketing (Gonring, 1994; Reich, 1998; Schultz, 2002), and the importance of building and increasing a brand’s image-based equity (McLaughlin, 1997; Schultz, 1999; Wood, 1997). This change was seen by Omnicom, the group decided to reduce its dependence on advertising revenues. Omnicom saw that the clients were not spending money on brand advertising and were spending more on sales promotion; Media’s services were getting popular. Direct marketing was stealing business from traditional advertising, and growth of sales promotion and integrated marketing communications both came at the expense of traditional advertising.  Advertising agencies such as Omnicom were in the state of siege as they were loosing the account to non-traditional players and furthermore the media fragmentation lowered the potential to reach the large number of consumers.  Advent of new technologies and the empowerment of consumers further affected the group decision to reduce its dependence on advertising revenues.

4. CHANGES IN 2003 AND FUTURE OF OMNICOM

Organizational change in advertising agencies was driven by the likes of implementing IMC, capturing budget, improved efficiency, satisfying client demands and international alignment. The most prevalent factor that emerged was to provide consistency in communications, thereby increasing the importance thereof.

Due to intensified competition among advertising agencies the success of Omnicom will depend on Omnicom to stay ‘ahead of the game’ and hence to be among the first to offer expertise. New client demands such as the implementation of integrated marketing communications and increase in the new marketing activities associated with the Internet are rising. The Internet has had the dual impact of unifying and shattering the global economy.

There are some concerns about insufficient skills to effectively implement and run IMC programs. The biggest obstacle advertising agencies are facing is to implement IMC, as many clients feel that there is a lack of people with the broad perspective and skills to make it work. Internal turf battles, agency egos, and fear of budget reductions are also cited as major barriers to successful integrated marketing campaigns. Agencies will have to address this issue because clients may doubt their agency’s ability to integrate all the communications vehicles, because they don’t have the people to do the job.

        

5. RECOMMENDATIONS FOR OMNICOM TO RETAIN ITS MARKET LEADERSHIP

The future of Omnicom will be outside traditional advertising, it will largely depend upon the information insight and market research; in public relations and public affairs; in branding and in specialist communications. In the future the single greatest change will be the impact that technology has on business the messages, the media, the consumers, the research and the results. The media network is already composed of the internet, chat rooms, interactive TV, SMS messaging and iPods. There is not much space for traditional media in future. In line of these changes following are the recommendations for Omnicom to retain its market leadership in future:

• Need to develop true expertise in a variety of integrated marketing communications areas.
• Need to create organizational structures that make it possible for individuals with expertise in a variety of communications areas to work well together both internally and externally.
• With the emergence the agencies with interactive experience in Web marketing and advertising (digital advertising) will have a jump on agencies that do not have interactive skills. Need to develop further expertise in web marketing.
• Cultural differences have a significant impact; agencies such as Omnicom have yet to harness their global experience in bridging cultural differences.
• Integration of marketing communication elements will further strengthen the company position.  

6. SOURCES OF RESEARCH

Books:

• Schultz,D. & Kitchen,P. (2000) Communicating Globally, An integrated marketing approach, Macmillan press ltd.
• Shimp, T. 6th Edition, (2003) Advertising promotion & supplemental aspects of integrated marketing communications, Thomson south western

Journals:

• Journal of advertising research accessed on 26th May 2006
• Journal of marketing communications accessed on 26th May 2006

Databases:

 

• Market Line http://0-dbic.datamonitor.com.lispac.lsbu.ac.uk/ ( accessed on 26th May 2006 )

Websites:

• www.omnicomgroup.com (accessed on 27th May 2006)

Case Study:

 

• Omnicom Case, (2004) ICFAI Center for management research (ICMR) Hyderabad, India  

TOTAL WORD COUNT: 1,846

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