Year	Total Distributor Sales
2000	$17,854,482,234
2001	$16,552,291,971
2002	$15,626,739,093
2003	$16,341,132,020
2004	$17,311,730,376

Not everybody shared in the comeback, of course. Many firms had to work overtime just to stay even. Helm Inc./Helm Promotions (UPIC: HELMINC), of Highland Park, Michigan, managed by adding enough new-customer business to offset what was lost from existing accounts, according to Jay Laney, merchandise manager. Greater efficiencies in managing accounts also helped, he adds, and he likes what he saw in the first quarter of 2005.

MARKET SHARE BY DISTRIBUTOR SIZE
Perhaps the most startling revelation of the 2004 survey is the reversal of high gainers in terms of distributor size. The group comprised of large distributors, defined as those with sales exceeding $2.5 million, enjoyed a 12.7-percent increase (versus a paltry 1.7 percent in 2003). The small-distributor cohort managed an anemic 0.9-percent rise-far less than the 7.1-percent up-tick a year earlier.

Consequently, the large-distributor group, with sales of $7,915,768,757, raised its share of market to 45.7 percent. The smaller-distributor segment posted sales of $9,395,961,619, and its share dropped about three points to 54.3 percent. (See Table 2)

Table 2: Market Share By Distributor Size

Distributor Size	2001	2002	2003	2004
Sales less than $2.5 million	56.2%	55.6%	57.0%	54.3%
Sales more than $2.5 million	43.8%	44.4%	43.0%	45.7%

The sales mean for smaller companies rose only slightly from $462,289 in 2003 to $464,021 for 2004. In the small-distributor category, the greatest sales growth, at 19.4 percent more than 2003, was found among firms doing between $250,001 and $1 million in sales. However, the datum doesn't necessarily mean this company subset was doing more business-there were just more of these firms.

What might account for the switch-around? "What we're seeing with smaller distributors was defining niches, understanding exactly how they could fit in and what the market has to offer," reports Mary Kilburn, of Westminster, Colorado-based consultant DinoMar, Inc. (UPIC: DINOMAR).

Kilburn attributes much of the growth in the large-distributor segment to direct marketers, especially since they seem to be focusing on small-business customers. She observes:
"Distributors used to be the medium for small businesses to purchase promotional products, but recently they abandoned these smaller firms to go after the big corporate dollars. The direct marketers picked up the slack by targeting the small and very small businesses, and their growth rates have been phenomenal-thus expanding the market."

Another important factor, Kilburn believes, is the influx of second-stream marketers, which include printers and business-forms companies. "They think promotional products are a good game. You don't have to get into heavy programs, inventory and long-term contracts. A whole lot of quick product sales can be done because there are a lot of people out there who are not being serviced," says Kilburn.

Nevertheless, many distributors still see a demand to provide value-added services. At American Identity (UPIC: AMER0016), one of the industry's top five revenue earners, Howard Trilling says clients of the Overland Park, Kansas-based distributor want more than just merchandise, and the trend is for such things as help in strategic planning.

In terms of merchandise, the what's hot/what's not cantata changes lyrics from year to year, and product preference can be subject to external factors. Paying more now at the gas pump, are you? Maybe that's why Jo-an Lantz, MAS, observes that clients at Lewiston, Maine-based Geiger are trending away from oil-based products, namely plastics. Instead, she reports, they want higher quality apparel, such as dressy shirts in better fabrics.

Helm's Laney sees greater interest in small items that clients can give away-writing instruments, for example-and less demand for pricier products. At American Identity, orders are up for branded merchandise and high-tech toys, reports Trilling.

BUSINESS WITH NON-INDUSTRY SUPPLIERS
Some of these and other products are obtained from non-industry suppliers (those not listed with PPAI, ASI, Impact or SAGE-Quick Technologies). In 2004, distributors did $2,416,717,560 in business with non-industry suppliers, and that was just a hair more than the previous year.

For the large distributors (sales more than $2.5 million), 17.4 percent of their business was placed outside the industry, a fraction of a percentage point less than the previous year. The non-industry suppliers' share from the small-distributor group was 9.3 percent, again just marginally lower than a year earlier. During a three-year period, business done with outside suppliers appears to have peaked.

PERCENT OF TOTAL SALES IN PROMOTIONAL PRODUCTS
Although distributors may complain of more competition from outsiders, smaller firms with substantial revenue streams from outside the industry are becoming fewer in number. In 2004, the small-distributor group reported 81.5 percent of its dollar volume came from promotional products orders.

Table 3: Promotional Products Portion Of Small Distributors' Total Business

2002	2003	2004
77.4%	78.0%	81.5%

ONLINE SALES
We asked distributors how much business they received from the internet. Answers reflected a steady-if unspectacular-growth in website-generated sales. In 2004, online sales totaled $1,913,731,257-almost $700 million more than two years earlier.

Table 4: Website Business As A Percent Of Total Sales

Distributors	2002	2003	2004
Sales less than $2.5 million	8.0%	8.3%	9.9%
Sales more than $2.5 million	7.7%	12.0%	12.3%

Table 5: Online Sales Of Promotional Products

	2000	2001	2002	2003	2004
Total online sales of promotional products for companies with less than $2,500,000 in sales	$ 713,471,530	$ 697,780,562	$ 699,049,249	$ 774,087,316	$ 937,716,970
Total online sales of promotional products for companies with sales of more than $2,500,000	$ 635,002,420	$ 492,901,477	$ 533,078,236	$ 845,930,624	$ 976,014,287
TOTAL	$1,348,473,950	$1,190,682,040	$1,232,127,485	$1,620,017,940	$1,913,731,257

Buyers increased their 2004 expenditures for other media, too. Billings for newspaper advertising-$46.7 billion-were up 3.9 percent. Fast-growing internet advertising rose 31.5 percent to $9.6 billion. Even heretofore-sluggish ad billings for broadcast television climbed 11 percent to $47.2 billion, despite TiVo blackouts and declining audiences.


SLICING THE INDUSTRY PIE: ESTIMATED SALES BY PRODUCT AND PROGRAM CATEGORY
One of the greatest impediments to accurately segmenting the market by product category is the simple fact that many products simply won't fit neatly into one single product category. With an abundance of products in our industry, it is a constant challenge to categorize products into a manageable number of categories that clearly segment the market. Back in the 1960s, only four categories were measured. Throughout the years, PPAI has expanded the product categories, using 18 since 1999.

This year, based on a need to further clarify and accurately segment the market, the PPAI Marketing Information & Research Committee revised the product category segments by adding three new categories and renaming one existing categories, resulting in a total of 21 categories. In addition, the committee better defined and expanded some of the existing product categories.

New categories or revised/renamed categories include:

• Drinkware
  
• Clocks and Watches
  
• Magnets
  
• Stickers and Decals
  
  Specifically, category changes were:
  
• Add a new category called Drinkware. Previously, mugs were lumped in Glassware/Ceramics category, which included china, crystal, mugs and figurines.
  
• Remove figurines from the old Glassware/Ceramics category and move it to the Recognition/Awards category.
  
• Delete the old Glassware/Ceramics category.
  
• Create a new Clocks and Watches category. These products were formerly included in the Recognition/Award/Trophies/Jewelry/Clocks and Watches category.
  
• Form a separate category for Magnets. In the past, magnets were included in the Buttons/Badges/Ribbons/Stickers/Magnets category.
  
• Establish a category for Stickers and Decals. Previously, these products were included under the Buttons/Badges/Ribbons/Stickers/Magnets category.
  
  Other revisions to existing categories included:
  
• Briefcases, which were previously included in the Desk/Office/Business Accessories Category, were moved into the Bags category.
  
• Duffel bags are now being included in the "Bags" category. Formerly, they were included in the Sporting Goods/Leisure Products/ Travel Accessories Category.
  
• The Desk/Office/Business Accessories category description now also includes adhesive notes and non-dated paper products.
  
  Every time a significant change is made, it is difficult to compare data with previous years. However, in the quest to segment the market accurately, changes do need to be made. Wherever possible, historical information will be provided for segments that have not been changed or revised.
  
  So what were the slices of the pie?
  
  

  	PRODUCT CATEGORY	Includes The Following:
  1	Wearables	T-shirts, golf shirts, aprons, uniforms, blazers, caps, headbands, jackets, neckwear, footwear, etc.
  2	Writing Instruments	Pens, pencils, markers, highlighters, etc.
  3	Calendars	Wall and wallet calendars, desk diaries, pocket secretaries, etc.
  4	Drinkware	All glass, china, ceramic, crystal, plastic and stainless steel drinkware
  5	Desk/Office/Business Accessories	Folders, desk pen sets, calculators, non-dated paper products, cubed paper, scratch pads, adhesive notes, stationery, etc.
  6	Bags	Tote bags, shopping bags, satchels, gift bags, drawstring bags, cosmetic bags, paper bags, duffel bags, briefcases, etc.
  7	Recognition Awards/ Trophies/Jewelry	Awards, trophies, plaques, certificates, figurines, jewelry, etc.
  8	Other	No examples reported
  9	Games/Toys/Playing Cards/Inflatables	Kites, balls, puzzles, stuffed animals, etc.
  10	Textiles	Flags, towels, umbrellas, pennants, throws, blankets, etc.
  11	Sporting Goods/Leisure Products/Travel Accessories	Picnic/party products, camping equipment, barbecue items, bar products, binoculars, luggage, passport cases, etc.
  12	Housewares/Tools	Measuring devices, kitchen products, picture frames, household decorations, ornaments, tool kits, first aid kits, furniture, flashlights, cutlery, weather instruments, etc.
  13	Clocks and Watches	Clocks, watches, etc.
  14	Automotive Accessories	Key tags, bumper strips, road maps, floor mats, window shades, etc.
  15	Stickers and Decals	Stickers, decals, etc.
  16	Computer Products and Accessories	Mouse pads, monitor frames, disk carriers, wrist pads, software, etc.
  17	Magnets	Magnets and magnetic products
  18	Food Gifts	Candy, nuts, gourmet items, meat, spices, etc.
  19	Electronic Devices & Accessories	Radios, TVs, video tapes, music CDs, phone cards, etc.
  20	Buttons/Badges/Ribbons	Buttons, badges, ribbons, signs, banners, etc.
  21	Personal/Pocket-Purse Products	Pocket knives, grooming aids, lighters, matches, sunglasses, wallets, etc.

  
  
  THE TOP CATEGORIES
  Wearables retained its top position with the largest slice of the pie, accounting for 29.9 percent of distributor sales, slightly higher than last year's 29.5 percent. This segment of the industry continues to enjoy the greatest share of the pie and has shown steady growth during the last three years. With the constant influx of small embroidery and screen-printing operations, the market continues to grow.
  
  In the product category survey, respondents were also asked a question about the categories that had seen the greatest increase in sales since the previous year. Forty-seven percent of respondents reported seeing the greatest increase in sales in the wearables category compared to 2003. When looking at products in particular, they went further to specify that they had seen increasing sales of products like golf shirts. Second place continues to belong to writing instruments, a decade-long tradition with 10.61 percent of the market. Third place was taken by calendars with 7.46 percent of the market, increasing market share from 6.9 percent last year.
  
  Drinkware (a new category) has emerged as the fourth largest category this year with a share of 6.25 percent of the pie. The components of this category were previously distributed across several different categories in previous years.
  
  Please refer to the product pie chart for more detail on other segments. Since PPAI added and revised categories this year, comparisons to previous years cannot be made across all categories.
  
  PROGRAM NOTES
  Evaluating the sales by program category gives further insight into how promotional products are used in the marketplace. The business gifts category takes the top position once again this year with 17.84 percent of total sales, slightly down from 17.90 percent of the market last year. Although the share of the market was marginally lower this year, this segment saw an increase in terms of actual sales from $2,925,062,632 in 2003 to $3,088,412,699.
  
  Tradeshows came in second this year, showing a huge increase from 9.10-percent market share 2003 to 12.14-percent market share this year. This resulted in actual sales increases in this segment from $1,487,043,014 in 2003 to $2,101,644,068 in 2004. Brand Awareness went up a level to third in rank this year with 9.70-percent share of the market in 2004, up from nine percent of the market in 2003.
  
  Other notable increases include the Not-For-Profit category, which now has 4.99 percent of the promotional products pie, up from 3.80 percent in 2003. This segment grew from approximately $620 million in sales in 2003 to approximately $863 million in 2004.
  
  There were also significant decreases in certain categories in terms of market share. Employee Service Awards saw a decrease in market share from 7.50 percent in 2003 to 5.46 percent in 2004. Employee Relations and Events as a segment also saw a decline from 10.10 percent of the market in 2003 to 8.76 percent in 2004.
  
  

  	PROGRAM TYPE	Includes The Following:
  1	Business Gifts	Gifts to foster customer goodwill and retention
  2	Tradeshows	Tradeshow traffic generation
  3	Brand Awareness	Promotion of brand awareness and brand loyalty
  4	Employee Relations & Events	Morale and motivation, corporate/employee events, employee orientation, organizational commitment/corporate identity, corporate communication, employee training (other than safety), employee referral programs
  5	Public Relations	Corporate involvement with community, fundraising, sponsorship, school programs, media relations, corporate image
  6	Dealer/Distributor Programs	Dealer incentives, co-op programs, company stores
  7	New Customer/Account Generation	New customer or new account generation
  8	New Product/Service Introduction	New product or service introduction
  9	Internal Promotions (Incentive; Non-Safety)	Sales incentive, TQM/quality programs, productivity, inventory reduction, error reduction, attendance improvement
  10	Employee Service Awards	Anniversary recognition, service awards, etc.
  11	Not-For-Profit Programs	Not-for-profit use for fundraising, public awareness campaigns (health, environment, public safety, etc.)
  12	Customer Referral	Customer referral incentive programs
  13	Safety Education/Incentive	Employee safety and education
  14	Marketing Research	Marketing research, survey and focus group participation programs
  15	Other	No examples reported

  
  
  METHODOLOGY: THE FOUNDATION OF THE STUDY
  To compile the 2004 Estimate of Promotional Products Distributor Sales, traditional methodology was followed, surveying a large sample of the entire distributor universe-including PPAI members and nonmembers. The database is accumulated from a merge/purge of lists provided by four industry organizations, including PPAI. Distributors were asked to report their promotional products sales for the 12-month calendar year ending December 31, 2004.
  
  Because some distributors have such a large book of business, an omission of any one of them could distort the statistics. Therefore, a census is conducted of all companies doing $2.5 million or more in promotional products sales. For smaller distributors, a random sample of 12,500 firms was surveyed.
  
  Questionnaires were mailed (with a follow-up) to 15,500 distributors in the large and small sales categories. Responses by mail, web, fax and phone produced 2,611 usable reports, for a response rate of 16.8 percent-the highest in recent years.
  
  The mean computed for sales reported by small distributors-$464,021-was multiplied to project to the entire small-distributor population. Add this to sales turned up in the census of large distributors, and the result is the estimated total of distributor promotional products sales in 2004-$17,311,730,376.
  
  For the product and program category survey, PPAI mailed to a sample size of 3,408 member distributor companies. The response rate was 10.09 percent (n=344 respondents) for the product category survey. The response rate for the program category survey was 9.1 percent (n=310 respondents).
  
  The response rates to these surveys have remained fairly constant throughout the years. Some respondents claim it is hard to track their sales by product category; however, there are others who report having used PPAI's product categories to track their sales during the years. While some argue it is easier for small companies to track product categories, there are others who believe it is easier for large companies to track sales using the existing product categories. Nevertheless, the sample of respondents to both surveys consists of both large and small distributors.
  
  Respondents were asked to give their total sales volume from promotional products and assign percentages of sales to each of the product and program categories. The data captured is then divided into two sub-samples. One consists of companies with sales less than $2.5 million and the other of companies with sales of more than $2.5 million.
  
  The product and program categories are first calculated separately for both groups, and then a weighted average method is used. The weighted average method takes into consideration the market share of large companies and small companies when computing the product and program category information. The 2004 industry sales volume estimate determined that large companies with sales volumes of more than $2.5 million accounted for 45.72 percent of the market and 54.28 percent of the market share was attributed to the smaller distributors. This market share is the weight that is then applied to the product and program category information collected for the two sub-samples. The resulting weighted averages of both samples are then added together to determine product and program category segments for the overall sample.
  
  The data is weighted for two reasons:
  1. Companies in the sample differ vastly by sales volume.
  2. The product mix of larger companies is significantly different from that of small companies.
  
  PPAI started measuring sales by product category in the late 1950s. In 1960, there were only four product categories and estimated sales by product category were calculated by doing a census of companies. In the 1980s, as the industry grew larger, estimated sales by product category were only calculated for large distributors. As the industry grew even further, there was a need to include small distributors in the estimate, and this led to developing the present method.
  
  This methodology, developed and refined by the PPAI Marketing Information and Research Committee, has been used in estimating sales by product and program category since 1994. In 1998, the committee further refined the method to introduce the weighted average method to estimate sales by product and program category. Short of doing a census of almost 21,000 companies in the industry and having them assign percentages to each product and program category, this method provides the best estimate of sales by product and program category.
  
  LOOKING FORWARD
  Will the momentum of last year extend through 2005? Reports of first-quarter sales have been encouraging. COO Bob Lewellen reports double-digit improvement during the first quarter for Kaesar & Blair (UPIC: KAESAR)-just like the Batavia, Ohio firm's gains in the past four years. He attributes this to more salespeople in the field and strong sales from K&B veterans.
  
  This spring, however, the Dow and the S&P 500 showed some noticeable slippage. The experience of recent years indicates the promotional products industry undulates right along with the ups and downs of the economy.
  
  Many companies that downsized during the recession did not go on a rehiring spree after recovery. Interestingly, the result has been the creation of more entrepreneurs who, DinoMar's Kilburn notes, "are taking corporate marketing and applying it to independent business." Since these businesses, too, need to be served, they represent an opportunity for distributors.
  
  Some small- to medium-size distributors will concentrate on niches. This has been successful for Del Mar, California-based Builder Promotions (UPIC: BUIL9499). Now in its fifth year, the company has enjoyed 20- to 25-percent gains each of the last four years, according to Steve Bridges. "We're targeted to one industry," he explains. "The reason we're bucking the trend (during the recession) is that this industry has been one of the hottest markets."
  
  But putting all the eggs in one basket can be risky, no? Sure, admits Bridges, but he sees the risk being mitigated "because we're focused nationally.the majority of our business is outside the state of California."
  
  In summary, for industry distributors in general, the wake of a very good year seems to support a mood of French optimism-laissez le bon temps roulez. Let the good times roll!
  
  Alan D.Fletcher, Ph.D., professor emeritus at the Manship School of Mass Communication, Louisiana State University, can be reached at mailto:http://afletch@lsu.edu.
  
  Rick Ebel, former marketing communications director of PPAI, is principal of Glenrich Business Studies, a business writing and research firm in Corvallis, Oregon. Contact him at 541-738-0480 or mailto:http://glenrichbiz@yahoo.com.
  
  Saritha Kuruvilla, PPAI manager of marketing research, can be reached at 972-258-3043 or mailto:http://SarithaK@ppa.org.
  
  Editor's Note: If you have questions regarding the methodology of the Sales Volume Survey, please contact Dr. Alan Fletcher or Rick Ebel. Other questions should be directed to Saritha Kuruvilla.