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WRSX Business Environment Board Meeting Three

Andy Carnelley, WRSX Business Analyst

Hello, Andy Carnelley here, WRSX business analyst. I can give you the following update on the business environment. The worldwide economic growth forecast for this period is 1% – and it is predicted that growth in US and European markets – while not negative - could at best only be flat. Developing markets will continue to grow but at a reduced rate. The effect of this is that budgets and margins across the service industry will come under extreme pressure. This in turn means that operating costs will have to be reduced – and the perennial question is, where can costs be saved? But that - of course - is a question for the Board. In terms of the Advertising & Marketing Communications Sector, the pressure to drive down costs is certainly having its impact on some of our clients. One of our competitors has been the focus of a difficult discussion in Campaign magazine. One of their Senior Account Managers moved to work for one of their clients, a large, multi-national FMCG company. He decided to write an article for Campaign magazine, titled - More Services, Less cost - The Ultimate Advertising Myth - the focus of which was the degree to which vertical integration by agencies actually delivers lower costs and better value for clients. The article’s conclusion was that it does not. The response from his former agency has been rapid and very direct in defending its service strategy. This was then picked up by the editorial team of the magazine and letters and article have flowed ever since. If clients weren’t focussed on costs, services and value before this - they certainly will be now. Our differentiation strategy has been to offer our clients a wide range of specialised services, so as to provide in some ways a “one stop shop”, where a client gets synergies between the services and possibly some economies of scale. There are however, questions around the difference between horizontal specialist differentiation of advertising, such as for example, fast moving consumer goods specialist advertising or business to business advertising, - and vertical backward integration of support services, such as film production and reprographics and printing.

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Evidence from our client research shows that they have some question marks over whether there is a conflict of interest here and whether clients are getting value for money. However, where we can demonstrate that we are providing our clients with excellent value for money, we will have no objections and it can only strengthen the client / agency relationship. With regard to the business environment, we have not been winning as many competitive presentations as in the past. There have been questions recently over whether WRSX has an effective strategy which is delivering a clear market position. There has been talk of “strategic drift”. A recent investor survey has highlighted this as an issue. The survey found that many investors were unsure as to where future growth for WRSX is going to come from and could not see how this growth would add value to advertising clients’ businesses. When we consider what constitutes a market growth opportunity, we should always think about this saying: Is there a gap in the market? And is there a market in the gap? While we may think that we have identified a “gap in the market”, it is worthwhile reflecting on whether there is a “market in the gap” because it may turn out that there are limited returns in the “gap”. It is always worth reflecting on the fact that while we may think we see a gap, why has no one else identified this “gap”? There is a lot of evidence that hasty entry into a market “gap opportunity” can be very costly, take senior managers away from other more productive duties and deliver limited returns. So difficult times ahead are predicted for advertising agencies. On a more positive note, client advertising reviews could present opportunities. Universal Motors Co. will start hearing presentations for select Chevrolet assignments, although the brand's longtime incumbent agency, Cooper-Elliott, according to two executives familiar with the matter, will remain agency of record. Which

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agencies will be invited or whether UMC will hire a consultant to handle the pitches remains unclear.

In New York, QT Cosmetics is expanding a series of local reviews for media buying in the U.S. and U.K. into a global pitch across 90 countries for its nearly 300 million dollar media account. WRSX has been asked to pitch for the London based-share of this business.

After more than two decades with its current agency Pizza Giant is shopping for a new creative agency. Chris Jenkins, a spokesman for the chain, which is battling a massive 8% same-store sales dip, said Pizza Giant is "seeking innovative, consumer-insight-led advertising." The fast-food marketer has hired Finnoula Curran & Partners to conduct the review and expects to finish by late December. The incumbent agency, which has managed to hold onto the account during three separate reviews during its tenure, will once again defend it. An opportunity for WRSX maybe?