Promotional Products, Reflections on the State of the Industry 2010

The Advertising Specialty Institue recently released its annual State of the Industry Report (subscription required) for the $15.9 billion dollar promotional products industry. Like many in our industry, I eagerly await each issue it truly is the closest (and most affordable) option to hiring a consultant to help guide your business. Following are a few of my key take-aways from this year's issue:

• distributor revenues fell in the market last year by 19.5%
• during 2009, the industry as a whole, gave back all of its revenue gains of the past five years
• the top end-users of promotional products? healthcare, financial, insurance, education and associations (healthcare, education and financial combined, comprise 37% of overall ad specialty revenues)
• the average number of orders distributors fulfilled (1,210) fell to 2006 levels in 2009
• 84% of sales in the U.S. (in general) are a result of word-of-mouth advertising
• for the 5th year in a row, distributors said that referrals were their #1 source for new business
• the average distributor competed in 68 RFPs during the year
• the top two ways distributors increased business with existing clients: 1) ask about upcoming events 2) referrals to other departments
• the number of new clients served in 2009 for distributors in the $250,000 to $1 million range: 64
• the percentage of orders that suppliers say need to be turned around in five days or less: 35%
• more distributors agree that their clients shop for promotional products primarily based on price (58% agree)
• in the U.S., the majority of distributors cite 'websites selling promotional products' as the #1 competitor
• the top 40 distributors represent 21.8% of overall industry revenues (2009 total industry revenues: $15.9 billion)
• out of the 40 top distributors, only four recorded an increase of sales in 2009
• 63% of distributors are optimistic that they will increase their profitability in 2010

2009, for many of us, was an extremely difficult year. For me, the recession proved that, as an industry, we have a two-fold problem:

1. being reactive to the point of sales (business development) paralysis
2. being reconciled to allow the market to define our products (and their potential) for us

Both eminate from either a latent understanding of sales or a purely passive approach to the business. In my own world, I realized that the fastest way to lose your business is to allow your pipeline to go dry (we talked about it all the time in the years prior to 2009, but once we actually saw it happen before our very eyes, we - I - finally understood).

The promotional products industry feels almost entirely reactionary, in large part due to the aggressive "rush" nature of many of our best projects (according to suppliers, "rush" orders comprise 36% of total industry orders). But it seems that those who exerienced the strongest growth (or the least amount of loss) in the industry built some form of infrastructure (or maybe it was just attitude!) that resisted passivity and refused to accept "reactionism only" as a standard form of business practice. Once these companies adopted this attitude, the market, left largely ignored by any real aggressive business development, was wide open for (primarily) those with some type of eCommerce model (more on this in my next post). Add to this the declining average order amount and you've successfully shaken the system free from mere opportunists and channeled it so that other solution providers could fill in the gaps.

The promotional products business is, if nothing else, predictable inconstancy but (note to self) it doesn't always have to be this way. There is a difference between deciding that things will never change (thus resigning oneself to mediocrity) and understanding that the market has changed but we must continue to adapt to survive.

In my next post, I'll write about some of the changes in promotional products as it relates to eCommerce (I've written about this before). For now, I'd love to hear your feedback on the State of the Industry, please drop me a note!

Many of the above points were taken directly from the SOI issue, credit goes to the editorial team at ASI (Andy Cohen, Betsy Cummings, Shane Dale, Alex Palmer and Dave Vagnoni; research by Larry Basinait). Also, a hearty congrats to the entire editorial team at ASI for both an outstanding issue (probably the best issue ever published) but also to winning 14 ASBPE Awards (American Society of Business Publication Editors) - well deserved!

Comments

[Branndon]

Why do you think the majority of distributors cite 'websites selling promotional products' as the #1 competitor? Is it because most buyers start with the internet when they have a need or is it really just about price? If the former, then it seems that efforts to ensure your name and the value you provide stays top of mind with the client would would be a good strategy to minimize those threats.

You can be certain that once they use an online store, they are going to receive constant reminders (probably via email) from that online distributor ensuring they return to their site for their next project/purchase.

[Bobby Lehew]

I think buyers start with the web for convenience first, then price (but with price as an important factor). I agree with your estimation and have always felt that if a distributor stays top-of-mind with a client, primarily by sending ideas to help promote their brand, they (in your words) absolutely minimize, if not neutralize, this threat. Not only will the online shopper receive constant emails from the online/website seller but they will receive a whole lot of TLC from an inside rep, particularly when the account reaches a threshold that requires more account management. These days, the fact that so many prospects and clients utilize their multiple screens (computer/phone) as gatekeepers to dissuade face-to-face contact, the playing field is level for the online providers to capture biz.

I also think we cite websites as the #1 threat because we are/have been, primarily, a reactive business. Years ago I read a report in the PPB that the number one reason why a client leaves is because "they didn't provide me with enough ideas", i.e., lack of TLC. An old statistic but still true: http://bobbylehew.typepad.com/bobby_lehew/2009/10/one-expense-you-absolutely-must-not-cut.html

Thanks for taking the time to comment, Branndon ... appreciate the feedback.

[Nate]

I believe one of the problems we had in 2009 is that many people were willing to work harder for less money. That is understandable for many reasons, mostly survival. I found it interesting that the average sales order was around $940.00. (don't have the SOI issue in front of me.) I think one of the things we, as sales people, need to live by is the "Yeah...so" principle. In other words...ASK THE HOTTEST GIRLS OUT! Go for the big companies in your area. Go for the companies that make $2,500, $5,000, $10,000 orders at a time...life is much easier. If they say NO when you call on them, think "yeah...so" and then ask the next hottest girl out. Sales is not an ending story, it's fluid and continual. You never know, at the beginning of the year they may say no, but if you keep courting them, they quite possibly could be your prom date...

[Bobby Lehew]

"Ask the hottest girls out". Classic. I'm quoting you on that one, Nate. It's why you have a great book of biz ... always glad to hear your thoughts, thanks for taking the time to comment.

[Bobby Lehew]

For those interested, ASI highlights the 2nd QTR 2010 vs 2nd QTR 2009 results: http://www.asicentral.com/asp/open/Research/IndustrySales/index.aspx

[Dan Collins]

Bobby,

Your take aways are right on the money. As always my friend. The only observation that i would add is that last year really highlighted the 'passive' nature of those who experienced extreme difficulties. Much of the industry relied on a 'just tell me what you want and i will source it for you' mentality and consequently was not prepared for the shock to the economic system that all areas felt. As an industry we need to embrace "brains on fire" approaches while still disciplining ourselves to do the good old fashioned hard work. The internet, social media and global nature of business today are only threats to those who do not learn to embrace the challenges of a changing communication stream and a buyer who has unlimited sources of information and purchase points. Bottom line - we need to be better in order to do better.

[Bobby Lehew]

True, Dan, "changing communication stream and a buyer who has unlimited sources of information and purchase points" - absolutely. The only solution I can see is to not leave customers to fend for themselves in-any-way-whatsoever. In my own world, if I want to rise above "promotional consultant" and become a trusted advisor, it's going to require hustle, a LOT of proactivity, (as you aptly put it) "brains on fire" and to provide solutions before the customer detects there is a problem (tall order, I know).

I always read your blog and appreciate your insight ... thanks for taking the time to comment.

[James Bois Smith]

Websites selling promo products are the #1 competitor because they are focusing on "84% of sales in the U.S. (in general) are a result of word-of-mouth advertising". How do you get word of mouth? You find "blue oceans" in the distribution cycle and give people a reason outside of price to talk about your company.

Of course "more distributors agree that their clients shop for promotional products primarily based on price (58% agree)". If the decision maker lacks knowledge of your company they will find prices that fit their budget AND their concerns (Such as packaging and delivery). Price drives purchases but stories and experiences drive word of mouth.

[Bobby Lehew]

Good insight, James: "Price drives purchases but stories and experiences drive word of mouth". So true. Well said.