Wednesday, 28 November 2012

Promotional Products Industry Revenue Expected to Increase by 4.1%


The promotional products industry has begun to turn the corner following the financial crisis, posting gains the past three years, according to a market research report by IBISWorld. In 2012, industry revenue is expected to have increased by 4.1 percent as marketing budgets expand and the industry benefits from promotions associated with the 2012 Olympics and presidential election. However, despite positive growth in four of the five years since 2007, IBISWorld estimates industry revenue will decline at an annualized rate of 0.8 percent to $13.2 billion as a result of a decline in media expenditure and the loss of a key downstream market.

“In 2009, pharmaceutical companies introduced self-imposed rules prohibiting the distribution of non-educational promotional items, removing themselves as industry clients,” said IBISWorld. This loss, combined with decreased advertising dollars, drove revenue down 14.4 percent in 2009 as the pharmaceutical market had accounted for 11.0 percent of industry revenue.

The majority of industry revenue is generated through the distribution of specialty advertising products. Operators specializing in this service do not manufacture products; they purchase “blanks” or “plain stock” from industry suppliers and customise them according to client needs. Unfortunately, industry globalisation has made it easier for a client to go directly to the manufacturers (although this often has dire consequences for the client, despite the expected short term gains), skipping industry firms altogether. In addition, consumer safety laws, such as the Consumer Product Safety Improvement Act of 2008, have increased the cost of insurance and product testing. According to IBISWorld, these trends have caused the industry to experience some consolidation and pushed some firms out of business; industry enterprises have declined at an average annual rate of 0.6 percent to just more than 8,000 in the five years to 2012.

As businesses have begun to expand their advertising budgets, the industry has benefited from a move toward more integrated advertising campaigns. With audiences becoming more fragmented, clients are being forced to diversity their marketing efforts. In addition, promotional products expose a user to a brand or product name throughout their use, making them “more cost effective than a magazine or television ad that may be only viewed once”. Consequently, industry revenue is forecast to grow during the five years to 2017.

IBISWorld estimated that no firm in the promotional products industry holds greater than a 3 percent market share. Furthermore the top four operators are estimated to represent just 9.2 percent of industry revenue, indicating the industry has a very low level of concentration. The industry consists of a large number of small, niche operators that focus services on local and regional markets. Consequently, more than 85 percent of industry firms have fewer than 10 employees and only 1.5 percent has more than 100. Recently, industry concentration has increased marginally due to some firms being acquired or leaving as a result of a poor operating environment.

All of this makes me proud to be in the position I find myself in the industry, based in London and working with a great team looking after millions of pounds worth of promotional products for some of the biggest brands in the world like Google, Facebook, Mozilla, Linux, McDonalds, WWF, LinkedIn, Bosch, etc. I look forward to working with you soon.

6 comments:

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