Omnicom Group (OMC) is the largest advertising and marketing services
company in the world by revenues. The firm is structured as a holding
company, consisting of three global marketing networks: BBDO, DDB, and
TBWA . Each of these networks consist of numerous individual agencies.
The lines of business are loosely grouped into four segments.
Traditional media advertising comprised 43% of fiscal 2007 revenues -
these are your television, print, and radio ads. Other groups include
customer relationship management (36%), specialty/niche advertising
(10%), and public relations services (10%). Omnicom also has a wide
geographic reach and diverse customer base, operating in over 100
countries and servicing over 5,000 clients. Almost half of revenues are
generated outside the United States, mainly in Europe.
It's instructive to give an example of how a large integrated
marketing firm provides value to a customer. Take one of Omnicom's
campaigns, the highly successful "I'm Lovin' It" campaign developed and
implemented for McDonald's (MCD). Omnicom's services here cover a wide
variety of topics. First, McDonald's would have consulted with the
company in the theme and brand positioning development to come up with
the ideas in the first place. Then, Omnicom's agencies would then
develop a pilot campaign and test it against focus groups. Once it was
determined to be successful, the full rollout of "I'm Lovin' It" can
begin, with Omnicom developing television, print, Internet, radio, and
various other ad materials, and making the strategic buys for placing
them. Omnicom would have also identified attractive sponsorship events
for McDonald's, such as the 2008 Olympics. The firm's services are so
broad that they could conceivably also assisted in designing window and
panel marketing inside the McDonald's locations themselves, as well as
container designs for the food items! As you can see, such an
integrated set of services adds a lot of value, especially for big
firms rolling out large marketing campaigns. Some of Omnicom's large
clients include FedEx (FDX), Clorox (CLX), even marketing giant Proctor
& Gamble (PG).
Let's measure Omnicom against the "three pillars" of investment:
growth, financial health, and moat. First, growth. This is one where
Omnicom has succeeded in the past, growing sales at about 10% annually
over the past 5 years, while earnings per share growth has exceeded 10%
annually. Like most firms in marketing, growth comes mainly through the
acquisition of new agencies to broaden both service offerings and
geographic reach. Some market analysts believe there is a general trend
in big firms toward Omnicom's brand of integrated marketing, which
would drive organic growth. In fact, Omnicom has done well at creating
organic growth from within, mainly through additional services to
existing clients.
