When MGH Advertising Inc. pitched a Papa John's pizza account in Atlanta recently, executives competed against a large, publicly held advertising firm for a $2 million piece of business - a David-and-Goliath match-up MGH's chief said would never occur in a stronger economy.
At Baltimore's GKV Advertising, executives acknowledge that accounts they once dismissed as too small to go after are now being considered.
Annapolis-based Ledo Pizza officials made a few informal phone calls recently seeking advertising help and soon had the pick of 12 agencies - for business worth less than a half-million dollars in billings, according to one of the firms involved.
"I think in the last year or so agencies are a lot hungrier," said Andrew Malis, president of MGH, which lost out on the Atlanta Papa John's account to a unit of giant Interpublic Group of Companies. "Larger agencies that we wouldn't usually compete with are getting into the pitches."
The economic downturn has sharpened the already fierce competition in advertising to a razor edge. Large firms are chasing smaller pieces of business, smaller shops are slashing prices, and everyone is after the same turf. Agencies that never before crossed paths are suddenly finding themselves in the same arena.
"Every single agency that hears about something is pitching it," said Paul M. Walczyk, executive vice president and general manager of the Baltimore office of Brann Worldwide, "whether they would have before or not and whether they have any experience in the category. Everyone is pitching everything. The competition is unbelievable."
GKV, for instance, now looks at accounts one-third the size it had set as a threshold.
"The new-business prospecting has been abysmal in our industry for two years," said Roger L. Gray, president and chief executive officer. "We have been talking to people with half-million [dollar] budgets. Two years ago, we pretty much set a limit of $1.5 million plus. The economy has forced agencies to get their overhead more in line so they can service well the smaller budget accounts."
"There's a lot of cost competition in the marketplace," said Gray. "The smaller agencies are trying to combat that by discounting."
For GKV, lowering the bar for business seems to have paid off. The firm has won about 40 percent of the new business it has pursued - well above the 15 percent to 20 percent that is more typical, Gray said. He said he expects to close this year with a 17.5 percent increase in revenue.
The strategy has helped spare his firm layoffs this year - a problem that has afflicted agencies here and across the country.
Employees at Baltimore's office of Brann Worldwide, for instance, popped champagne last month to celebrate winning the Saab direct-marketing business, worth up to $15 million a year. A week later, eight people were laid off.
Eventually, the Saab business will require at least three additional hires, but they will be people experienced in the automotive category, Walczyk said.
"It's so bad that a lot of agencies are laying off, not hiring, going after smaller accounts, doing anything they can to stay in business," said Lynda M. Maddox, professor of marketing and advertising at George Washington University in Washington.
The slump has hit particularly hard in New York City, where roughly one-sixth of the industry's U.S. jobs are found.
The number of advertising jobs there dropped from an average of 45,436 in 2000 to an average of 40,146 last year, according to Vincent F. DeSantis, a state labor market analyst for the New York State Department of Labor. The downsizing has continued in New York and elsewhere, according to industry experts.
About 1,700 people worked in advertising in the Baltimore area as of the first quarter of this year, according to the Maryland Department of Labor, Licensing and Regulation.
MGH, which has 55 employees, has avoided layoffs this year and throughout its 7 1/2 years of operation.
"The thing that I'm proudest of is that we've never had a layoff here," Malis said.
He attributes his agency's track record to a policy that keeps its three largest clients from collectively representing more than 30 percent of total billings. But he also recognizes that his shop, where billings hover around $50 million to $55 million, has been lucky.
"None of our clients has cut back," he said. "In general, our clients who are the largest spenders are either leaders in their category or they're in a competitive market and have to keep advertising."
That hasn't been the case at several Baltimore agencies, including Brann, Eisner Communications Inc., Carton Donofrio Partners Inc. and others that laid off staff this year.
"We had clients scale back," Brann's Walczyk said. "Our layoffs were completely due to the economy. We were actually carrying people for a significant time hoping to gain new business."
The instability in the advertising industry prompted four Baltimore advertising women, with combined experience of more than 100 years, to launch an agency, Outloud LLC. Three came from Carton Donofrio, where one of them had been laid off.
"The scariness was not in that we were flying in the face of a bad economy," said Holly Rich, a principal with Outloud who retired after more than 17 years at Doner. "The scary part was that we were all very senior people used to everything in the way of support staff. This was starting out on our own."
The firm, which the principals describe as a marketing communications boutique, has found opportunity in the downturn, Rich said, as the new business venture has enabled them to take advantage of corporate cost-cutting.
"I think that's the fallout from what's happening at the large agencies," she said. "We have very little overhead. Clients come to us because they don't want to pay the large agency fees which have to support their expenses. With the large agencies, they're paying for departments they don't need."
Outloud now has 12 clients and estimates its year-end billings at $4 million, Rich said.
Chuck Donofrio, chief executive officer of Carton Donofrio, points to Ad Week's accounts-in-review page as evidence of a business slowdown. That list, typically three pages long, now barely fills a page as fewer accounts go up for review, he said.
Like GKV, Carton Donofrio has a target account size - in its case, $3 million and above. But that doesn't mean it doesn't go after smaller ones.
"You may have a set minimum account size of $3 million, but if you haven't pitched one in six months, and one comes along for $2 million, you're going to go after it," he said. "We've gone after $1 million, $2 million and $3 million accounts for sure."
And with fewer opportunities at new business, agencies will do more to win accounts, he said.
"When you get a chance at bat, you pull out all the stops," he said. "You might do more research, invest more, do more spec creative. If you go from having 30 pitches a year to 10 a year, you're willing to spend more on those 10."
Brann, whose clients are largely among the top 50 of the Fortune 500, is conducting more intensive critiques after making a pitch than in the past, Walczyk said. Win or lose, there is extensive questioning of what the client liked or didn't like about Brann.
"We do a lot more homework after the fact, and we use it for the next time," Walczyk said.
Surviving a recession also means watching expenses and being "day-by-day very prudent," said Steven C. Eisner, president and chief executive of Eisner.
This year, that included eliminating the company Halloween party. It also has required that employees take the MARC commuter train instead of Amtrak to Washington, Eisner said.
Tough economic times also call for taking extra care of existing clients.
"You concentrate on the knitting in hand," he said. "You focus on and double your efforts surrounding the brands that fuel you. My constant mantra is to be all over our clients' business."
His firm, which has 150 employees in its Baltimore and Washington offices, reported 2001 year-end billings of $248 million. Billings are up 10 percent so far this year, Eisner officials said.
Eleven employees were added when the agency won the US Airways account this year, but it cut eight others after losing the Go RVing account, according to Abe Novick, senior vice president of strategic business development for Eisner.
That volatility may smooth out for some in the next year if noted advertising expert Robert J. Coen, senior vice president, director of forecasting at Universal McCann, is right in his projection that advertising spending will increase 5.5 percent over this year's.
But Gray, for one, remains skeptical. "It doesn't appear that the budgets of our existing clients are going to expand next year," he said. "They haven't for the past two years. I just don't see it turning around next year. If it does, it will be in the latter part of the year."