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Two analysts and top management from two sector firms examine the consumer sector in this special 19-page Management Consulting & Market Research issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info454.htm

TWST: Backing up, when companies just stopped spending, was it simply because of the uncertainty level, not being sure how their business was going to be impacted, that they put the brakes on their spending entirely? Or was it that things had changed and they had to go through a period of reassessment of where to spend that money? How do you see it?

Mr. Doft: It’s a little of both. Clearly, the first thing that corporations are thinking of is their earnings per share and Street expectations, so it’s turning off the tap and saying, “We need extra dollars to the bottom line to keep the Street happy and keep our stock price up.” After that initial reaction, they reason that they can’t keep the tap turned off forever, so they then look to maximize the efficiency of their marketing spend. If companies did not have to market and advertise, they wouldn’t — they’d save the money. But clearly they have to advertise in order to grow their businesses. If you go back to the basics of why you advertise, it’s to differentiate your product or brand and give yourself pricing power — otherwise, you’re a commodity. So at some point they need to spend or else they damage their position in the marketplace.

TWST: Now, applying that to the marketing services and marketing research companies themselves, they have to make that same assessment as to how they allocate their resources, and the hard call for a lot of those companies would be to use this inflection point to expand their customer base or their contact with their current customers. Have they been able to do that? Is it not a great opportunity for a marketing company to say, “Look, you used to do this, but in this period let us give you some advice, some new tools to consider”.

Mr. Doft: Clearly that’s something to do, but I don’t think it’s an issue to focus on. We’re in a world where over the last few years there has been tremendous consolidation in this industry, and you have more and more companies able to provide a multitude of services across all disciplines. Going back to the advertising holding companies, they are no longer advertising agencies where all they do is traditional ad campaigns. They now have the capabilities to do all these other subcategories of marketing services. So they are actively trying to keep those dollars in-house. Sure, all of the pure-play marketing service companies are going after them as well, but that’s a longer-term issue. You’re not going to see any marketers making rash decisions, switching relationships with their agencies based on some change in their advertising strategies, such as a switch to do more promotions. They already have a promotions agency, odds are, and they’ll just spend a little more with them.

TWST: Let’s go into the teleservices area. What is the strength of companies there, and who bubbles to the top?

Mr. Doft: You need to look the teleservices area in two ways. First, all the companies are different. There are some companies that also got hit early in the cycle, because they are similar in the way they are positioned to Acxiom (Nasdaq:ACXM). Typical of that is TeleTech Holdings (Nasdaq:TTEC), which is currently Add rated. I like it the best in this sector. TeleTech’s focus is entirely on managing customer care programs on an outsource basis. So if a customer has a question or concern, they pick up the phone and call an 800-number. Often, it is TeleTech that answers the phone, not the company. It is a highly strategic service that TeleTech provides. It is very valuable in that there is nothing more valuable to a company than the actual face-to-face interaction with their customers. TeleTech does that for them. It’s a very important program they run, they tend to be very large scale, and TeleTech’s client base includes many Fortune 100 companies — actually seven of the top 10 companies in the Fortune 100. They are also a hybrid marketing and technology service. They are technology in that they are building call centers and they are integrating call centers into customer databases. So there is up-front cost to the customer in order to set up these programs. They were also hit very hard early in the cycle, especially from several so-called “new economy” clients that faltered.

This special issue includes:

1) Outlook for Marketing & Advertising Services - In an in-depth (5,700 words) Analyst Interview, David B. Doft, Managing Director and Senior Analyst at ABN AMRO, examines the outlook for the sector and shares specific stock recommendations.

2) Management Consulting & Market Research Companies - In an in-depth (3,500 words) Analyst Interview, Alan K. Creech, Vice President, Consumer Information Technology at Emerging Growth Equities, Ltd., examines the outlook for the sector and shares specific stock recommendations.

3) CEO interviews (average 2,500 words). Top management of two sector firms examine the outlook for their firm and the sector.