In the year when we mark the 200th anniversary of Charles Darwin's birth, phrases used by the great scientist, such as 'natural selection', have never been more apt as a description of the state of the direct marketing (DM) and sales promotion (SP) industry.
There is a land-grab for digital business and intense pressure to cut costs and reassure anxious clients amid the economic turmoil - welcome to the world of below-the-line agencies in 2009. However, as the downturn bites hard, forcing many firms to make redundancies, a savvier breed of agency is emerging from the fray.
Observers say this evolution can be traced back to 2001, when the dotcom bubble burst.
'The dotcom downturn was cruel to many agencies and they learned some hard lessons,' says Graham Beckett, a founding partner of agency consultancy Results. 'There's always an element of overexuberance when business is going well, but good agencies know they need to keep their costs in control. The industry is now well run, compared to 10 years ago.'
This year's figures show that the bigger agencies enjoyed strong growth in 2008. Star performers include The Marketing Store, Gyro International and CDMS, all of which reported profits up by more than a third on the previous year. Digital Marketing Group has also shot up the table, thanks to acquisitions.
Next year's league table, however, is likely to tell a different story, as the true impact of the recession on agencies' bottom line becomes clear.
A noticeable feature of this year's league is the wide range of capabilities successful agencies now possess. Iris Worldwide, the top-ranked agency this year, has roots in SP but has expanded its offer to include advertising, digital, DM, design and experiential marketing.
This broad talent mix resulted in major wins for Iris in 2008, not least the global multichannel Sony Ericsson account. 'All our new assignments are big, multimillion-pound integration tasks,' says Iris founder and chief executive Ian Millner.
Multichannel is becoming the name of the game, as direct mail, once the staple business of these agencies, has slipped down clients' wish-lists. In 2008, the number of integrated pitches was up 15.8% on the previous year, according to intermediary AAR.
Tony Spong, head of DM, SP and integration at AAR, says contact strategy work with existing clients, rather than new business, drove reviews last year, but with a digital twist. 'What we're seeing is the maturing of the digital marketplace from "let's build the website" to "let's connect with customers",' he says. 'Now we're getting the eCRM briefs that require making the connection between brands and consumers stronger.'
Spong thinks direct heritage agencies, with acquired digital skills, are benefiting from a client perception that pure-plays understand how to use customer data. 'A lot of clients tell us "my digital agency doesn't understand CRM", and while they need new contact strategies, these are very different than before. They are less linear, because the consumer now drives the contact themselves.'
A campaign by agency Partners Andrews Aldridge for Visit Wales, involving personalised packs that included a compass and information to direct recipients to a dedicated website, epitomises the integration of digital, data and direct techniques.
The packs were sent last September to people who had said that they were interested in walking activities. The agency personalised the pack by digitally printing the distance from the recipient's house to some popular walks. When the recipient entered this data on a landing page, it opened one of three microsites, which offered further information on detours and specific walks.
Tullo Marshall Warren (TMW) is another DM agency that is winning in the digital space. Like Iris, it broadened its skills base in 2008, hiring 20 online specialists to bring its number of digital 'native' staff to 70 out of a total of 250. The agency's new business wins last year included a successful pitch to overhaul Unilever's Lynx website and manage the brand's CRM activity.
This pattern is repeated in SP-heritage agencies. 'We're looking to integrate the SP, direct and digital disciplines - a perfect combination in these times,' says Ian Cruickshank, who Â joined Billington Cartmell as head of digital and direct in 2008. Toward the end of last year, travel brand First Choice awarded the agency its offline and online CRM work.
The blurring of the lines between disciplines is such that TMW recently reviewed its positioning, and concluded that direct marketing was 'too narrow a description of what we do for brands', according to Richard Marshall, the agency's business development director.
The same is true of many other agencies in the table, not least 23red, whose partner-ship marketing division is an increasingly important part of its business.
It ran a campaign for the Foreign and Common-wealth Office last year to raise awareness of the avoidable problems that young people face on package holidays, such as excessive drinking. The posters, beermats and cards were placed in Club18-30 and 2wentys resorts around the Mediterranean, hitting the key demographic in situ.
For most agency chief executives, 2008 was a year of two distinct halves, the first characterised by a cautious optimism. The £20m in funding that Iris secured from HBOS in July was well-timed, paving the way for the firm's international growth through overseas acquisitions and start-ups in its global clients' key markets.
Banks would be less likely to lend to that extent today, of course. Since the credit crunch accelerated, there has been a discernable battening-down of the hatches. 'A client said recently that breaking even is the new making a profit,' says Cruickshank.
Brendan Tansey, chief executive of Wunderman London observes that while some clients are holding their nerve, others are not. He believes in proactively tackling clients' budget issues; indeed, his firm has approached one of its clients with suggested cost savings, in return for the chance to earn more business from it.
'We went through the client's budget line-by-line and identified seven or eight areas for cost savings,' says Tansey. 'If you've got scale, as we do, that's an argument you can make.'
As the economy began to slow last year, agencies worked to avoid over-reliance on risky sectors and a limited number of clients. Archibald Ingall Stretton (AIS) won the EDF Energy account last April, complementing its other key client, O2.
'It was a difficult year, but we're fortunate that O2 is in telecoms and EDF is in energy - two markets that need to keep talking to their customers and are less at the whim of the financial markets,' says Jon Ingall, managing partner of AIS.
This year has seen the inevitable spectre of agency job losses. Redundancies are being made, even if an agency's client roster appears unchanged. 'A big client cutting its budget by 10% can have the same effect as losing an account,' says Mike Dodds, chief executive of Proximity London.
Regardless of the downturn and the resulting squeeze on budgets, clients say their core requirements are unchanged. 'By and large, we still want the same from agencies,' says Marc Michaels, director of DM at the COI and one of the biggest buyers in the direct marketplace. 'That means great planning and understanding of direct media channels and other integrated channels, where appropriate; superb creative and craft skills; attention to detail; and understanding of our particular target audiences.'
Getting more for less money may also be the top priority for clients, but the pitch last November for Boots' Advantage Card, one of the UK's biggest CRM accounts, supports the view that old-fashioned skills remain the deciding factor for clients.
M&C Saatchi's integrated arm, LIDA, which had a storming end-of-year run of new business, including Carphone Warehouse, Butlins and South West Trains, scooped the Boots brief, worth an estimated £15m. 'The feedback on Butlins and Boots was that our creative [ideas] were ahead of everyone else's,' says Lisa Thomas, LIDA's chief executive.
After months of adjusting to the twin challenges of the downturn and digital conversion, DM and SP agencies appear to be leaner and wiser places. One upside of recession - a halt to digital salary inflation - is welcomed by all.
Is there room for agencies to evolve even further? Yes, says Spong, who argues that the much-used phrase, 'client-focused', needs to be more in evidence in practice. 'Too many agencies talk about the capabilities they've developed and not enough about benefits to the client,' he says. 'Those that are successful right now have worked this out.'
Methodology and Sarbanes-Oxley
Information was collated by Marketing by sending a form to each agency directly. For agencies affected by the US Sarbanes-Oxley Act, which restricts the amount of information firms are allowed to make public, we have used Companies House data provided by Willott Kingston Smith. These agencies have been placed in the table as a guide to their size, but not ranked. No data could be found for Touch DDB, Wunderman, OgilvyOne and The Communications Agency. The significant increase in Digital Marketing Group's figures is due to acquisitions. Libertine is a new agency created from the merger of RPM3 and Beechwood. Marketing takes care to publish accurate company data, but cannot be held responsible for any errors or omissions in the leagues.