Peaks and Vallees

Question: AdAge's ranking of the top 25 agencies for 2002 shows GPJ as having increased its revenue by 14 percent from 2001 to 2002. How have you been able to grow your business when others have seen only decreases?

Answer: Part of it is the strength of our global network, and the number of significant opportunities that have been generated as a result of that. The world today is becoming a small place. A lot of automotive contracts now are for multiple venues and transcend continents. In technology, our second largest area of billing, we see a lot of clients going out to bid with global programs too.

Q: Did the decision to offer more integrated marketing services several years ago, as opposed to remaining a single-job build shop, have anything to do with that?

A: I'm not opposed to single jobs. We do still like that business, but it's not the way we've positioned the company. We're very happy, especially at certain times of the year, to get a very clean, quarter-million-dollar tradeshow build.

Q: Still, with the close of the Folio Group and the continued financial difficulties in other firms, do you think the demise of the specialized exhibit house is imminent?

A: I don't think it's the demise of the specialized exhibit house. It does equate to better fiscal responsibility for a lot of these entities. The business plan — at least from an outsider's perspective of what I saw Folio doing, as well as what Exhibitgroup(/Giltspur) did for years — was, in our minds, flawed. And some of what you're seeing today is validation of the errors in their ways.

Q: Like what?

A: You need consolidated fabrication in this business. There is no company in this business that generates enough fabrication year-round to support dozens of fabrication facilities ... Today's computerized Kuomo routers are a quarter of a million dollars. There's no company that can go out and buy 10 of those. It's just not possible.

Q: What else?

A: I think the industry got a little carried away with the whole commission structure. I think it's ludicrous to pay salespeople commissions as high as 10 or 12 percent on a total sales figure in a period in which we're seeing really, really difficult pricing scenarios and the margins have really been driven down.

I think the entire industry needs to look more at basing commission on margin. If a company feels it must retain a commission-based structure, because it's in their culture — and we're not of that opinion — then a calculation of margin, whether it's gross or net, to us seems a lot more reasonable.

Q: How would you address the problem of exhibit houses doing expensive design spec work for free as part of the bidding process?

A: It's really ... that's a problem, but I don't think it's going to change any time soon. We're still in a very difficult climate, and there are a lot of very hungry outfits out there just trying to survive. So, they'll involve themselves in RFP opportunities without any price being paid for what they're generating.

Q: What's the solution?

A: If you look at the world in total, you'll find that the only way to bring your price down relative to our deliverable is by going to a different kind of model in how we price everything we do. Our model that we present to our client takes us more away from markup on third-party costs or internal materials or sub-contracts, and toward a more direct human resource or people, hourly rate reimbursement for what we do.

Q: So, charging someone what it costs you?

A: Yes, very much along the lines of an agency approach, where all the media buys and so forth are either going to give you very little or nothing. But we will pay you for the mind share you bring to our program. Paying for design and people's time is something that we really need to consider carefully in this industry.

Q: You told me last year that tradeshows comprise, on average, less than a quarter of the integrated event marketing strategy for most of the clients you consult with. Has that percentage changed any since then?

A: It has shrunk significantly. That's not speaking for the whole marketplace, because obviously there are some companies that do no events and only go to tradeshows. But for us, in all our non-automotive business, I would say that tradeshows in those programs represent less than 10 to 15 percent of the mix. The rest is corporate events, sponsorship opportunities, specific department or individual-targeted events.

Q: Is that indicative of the direction GPJ is moving? Of the way the business is moving?

A: Both. When we look carefully at where we would recommend a company's dollars are most effective, at least for the major companies we're involved with, events have a better return on investment. That statement isn't appropriate for the whole industry, but for a lot of the big players, I think it is. Why hasn't IBM been at COMDEX for five or six years? There may be other reasons there, but it wasn't the best bang for their buck.

Q: GPJ recently released its second Event Trends Report, which concluded that nearly half of organizations will increase the use of events as marketing mediums in 2003. Most respondents also said they don't plan to increase their event budgets, so how realistic are those findings?

A: Marketing and advertising spending is very discretionary. So, if we're facing challenges, if we had a $10-million marketing and advertising budget for 2002 and we're not meeting our expectations relative to revenue projection and earnings, let's cut it by $1 million. Now you're going to go to the head of marketing and say, how are you going to do that? Ideally, this VP is going to say, I might not be getting the best bang for my buck by having a 30-second spot during the Super Bowl this year. Let me take that $1 million and reallocate it to something that gets more directly to the specific customer I'm interested in educating about my product and service. A better way to do that, I think, is the direction that companies like IBM and Siebel systems are engaged in: user conferences, proprietary events, small knowledge seminars and that kind of thing.

Q: Is that why a lot of ad agencies are getting into the tradeshow business?

A: Yes, it's heading in this direction. A lot of companies are buying boutique agencies that can get them involved in specific niche marketing or unique sponsorship opportunities. So, frankly, going forward, we see our competition as more of the subsets of the agency holding companies than, say, Exhibitgroup or most of those kinds of companies.