Keeping the ball rolling

A year like a pinball game: Constantly having to react to new demands, stay flexible and, nevertheless, still do good business – that is probably the most apt description of the European promotional products market in the year 2023. Towards the end of the year eppi magazine once again asked international industry experts about their experiences over the course of the past fiscal year, looked into the trends and tendencies and collected statements. The opinions in the Industry Monitor are as varied, colourful and surprising as the industry itself, but they do however show one clear understanding: In spite of all challenges optimism, confidence and the joy at having won the odd free game.

They are a magical attraction for many pub visitors: Pinball machines promise fun, a bit of action and an excursion into brightly-coloured worlds. Whereby the rules and handling are so uncomplicated that the machines are still easy to operate, even if one has already downed several pints of Pale Ale and can no longer get one’s tongue around the more or less profound pub gossip. Pinballs are cult.

Even certain managers and entrepreneurs aren’t able to resist the fascination of pinball machines in their free time, although their aspirations for their business alignment run on a completely different tangent. Because business deals are supposed to be plannable, investments targeted and market changes should be correctly predicted with a certain degree of probability. However, over the past years since the global economy has been shaken by diverse crises and challenges more than ever before within the shortest space of time, plannability is no more than a pipe dream. Business is no longer a game of strategy, it is no longer a game of chess or monopoly, or Age of Empires. Instead it has turned more into a fast reaction game, which involves finding the appropriate answer to rapidly changing conditions again and again, juggling with numerous tasks at the same time and coming up with new impulses that always keeping the ball rolling. A game in which the bumper inflation makes prices shoot around wildly in all directions and the where the goods first of all have make it through the supply chain, but in some cases simply disappear in the hole of a harbour. A game which nevertheless offers the players the opportunity of being awarded a bonus order unexpectedly or even winning the jackpot. Business is like a pinball game.

This also applies – and to a particular extent – for the European promotional products industry. The pandemic and the most difficult economic framework conditions in times of an energy crisis, climate change, inflation, a lack in skilled workers, the start of recessions in diverse core markets, numerous international sources of conflict and internal political upheavals have led to improvising and reacting becoming the popular modus operandi. That was clearly noticeable in 2023, as many of the industry players’ statements illustrated.

For example, Arthur Strijbos from Premium Square finds himself on “a bumpy road instead of a flat highway” and Marc Rugi, BIC, talks about fluctuations akin to “a roller coaster ride from one month to the next”. Overall, the whole year was “a little bit different, because of many difficulties” (Lasse Lauritzen, IDE House of Brands) or expressed in two words: “extremely unpredictable” (Prama Bhardwaj, Mantis World).

Highscores

Despite the fact that the business was hindered by external influences, the industry does still have one major advantage: It is used to these sort of worries and knows how to react flexibly more than any other industry or service sector, with the result that, expressed in bare statistics, the fiscal year 2023 went very well for the majority of the parties involved, who were here and there even able to notch up an entry in the highscore list.

“Regarding our turnover, which we nearly managed to double, we can look back on a fantastic year” (Aneta Niciak, Refloactive). “Pandinavia recorded the by far highest turnover ever in its over 50-year history” (Kaspar Benz, Pandinavia). “Surprisingly enough, the year has shown an incredibly strong and positive development” (Holger Kapanski, DIE6). “Our performance in 2023 has by far exceeded that of 2019, which we consider to be the pre-Covid benchmark” (Rugi).

There are differing opinions as to whether the overall market will reach the pre-COVID level this year already, in 2024 or not for three to four years. The figures are indeed very difficult to compare: On the one hand there is the inflation, which is making the turnovers spiral upwards, but simultaneously the costs as well. On the other hand many companies introduced structural changes during the years of the pandemic: Streamlining measures in the HR sector, mergers, the expansion and discontinuation of diverse business areas, all of which has led to completely different cost structures than prior to 2020.

However, it is becoming clearly apparent that the market has come through the COVID pandemic much better than previously predicted. The huge wave of company bankruptcies forecasted didn’t happen, the turnovers of most of the suppliers and distributors are stable again and profited in 2023 from the fact that all over Europe the measures to combat the COVID pandemic have almost completely been lifted.

Extremely important for the industry: Trade shows and live events were staged again on the usual scale. In terms of sales this led to a revival of the business, because trade shows, congresses, seminars, parties, festivals and customer events are occasions at which haptic advertising media are traditionally gladly implemented in high numbers – as invitation boosters, prize draw premiums, points of contact, give-aways or souvenirs. But the industry trade fair life also picked up speed again. After a three year break, the PSI in Düsseldorf kicked off the promotional products year and got the industry’s ball rolling with unexpected dynamics. The exhibitor and visitor figures of past years were nowhere near matched, but with its compressed, realignment the show that attracted almost 500 exhibitors and over 10,000 visitors, managed to generate a real spirit of optimism, which was tangible throughout the year at different, European trade show platforms from Warsaw to Madrid. The joy of engaging in a personal exchange, making and grooming contacts carefree and of course being able to actually touch and try out the promotional products oneself, was noticeable at all of the industry events. The following applies even in the online age: “Exhibitions still play a crucial role in our industry” (Strijbos).

In addition to the comeback of the live culture, there was a further development that the industry profited from: During the pandemic with its home office rules and the splitting up of teams, the employee came under the focus of many managing directors as a new target group, which they bestowed diverse promotional products upon as a token of their appreciation. A trend, that is basically ongoing, even if it has slowed down slightly during the year-end business of 2023, because Christmas parties are allowed to take place again, which means the thank-you present at the end of the year is often not quite as opulent as in the past years.

Nevertheless, the theme employer branding is firmly established in many companies – due to the lack of skilled workers – so that the demand for welcome kits, corporate wear and employee premiums “have significantly increased over the last two years. We can therefore assume that the shortage of skilled workers has created benefits for our industry” (Vitolo). “It has been good times for workwear, which contributes to a big part of our turnover” (Lauritzen).

A pleasant side effect: In countries with strict regulations concerning the tax treatment of promotional products – such as Germany for instance – employee gifts often allow more freedom than customer gifts. Higher-quality and higher priced products can be implemented in this section, which otherwise wouldn’t come into question because they exceed specific value thresholds. The rocketing price developments make it even more difficult to remain under these thresholds when selecting a promotional product.

Explosive price development

Which brings us to one of the most worrying themes of the year: inflation. Apart from the pinball machines, that can still be operated with a one Euro coin in most premises, pretty much everything else has become much more expensive. The inflation rate was 8.9% in the Euro region at the beginning of the year, in Great Britain it even clearly exceeded 10%. The situation has calmed down somewhat over the course of the year and the values had fallen down to 2.9% and 4.7% respectively in October, but even these are figures that are much higher than what we have been used to in this century so far.

Even economically strong markets are affected by this development. “Inflation is affecting the entire economy in Switzerland,” confirmed Urs Germann, Earline. “As far as the promotional products industry is concerned, there have not only be price increases of in some cases up to 100% for the raw materials, the customising costs have rocketed too.“ One of the main cost drivers was without doubt the energy crisis, a “European problem” (Niciak), which many consider to be a competitive disadvantage compared to the American economy, for instance.

Especially production businesses with a high energy consumption, like the mug customising segment for instance, had to increase the prices significantly for their products. And since these companies also generally sign longterm, six-month or twelve-month contracts with energy supply companies, it is not possible for them to adapt their prices in line with the sinking energy costs at short notice. A small consolation: Regarding the price increases everyone is on the same boat, every buyer is familiar with the situation from his own experiences. “Price increases are in the meantime accepted by many customers due to the global developments, whereby the situation has stabilised again due to the decline in the freight rates” (Markus Angermayr, Forum). “Big companies are aware of general inflationary pressures. They respect that we are only increasing our prices due to our costs increasing, not to make more money ourselves” (Mike Oxley, Prominate).

Even if there is widespread understanding for the price increases, this does lead to tangible problems in practice. Budgets are rarely increased, particularly in times of economic uncertainty, and are thus exhausted faster. So either the quality of the goods implemented suffers or the order volumes are reduced. Since the wages for the own employees are rising at the same time, many businesses are subject to strong growth pressure. That is particularly a problem for many medium-sized promotional products distributors. Quite a few experts are presuming that this type of distributor will die out in several years and that only the small mum and dad shops or large agencies with a large workforce and diversified range of services will be able to survive. Numerous mergers and fusions between promotional products distributors currently corroborate this development.

Last, but not least inflation is having a negative effect on the margins of the suppliers and distributors, because the increases in prices are often not passed on to the customers in full. This is particularly true for the segment of products that are exclusively offered on the promotional products market, which the buyer thus has no price feeling for. Here, they are always tempted to try and negotiate. “Brand products” are on the other hand “stable in price and guarantee our promotional products distributors good margins” (Joachim Schäfer, Schäfer Toy Company).

Big challenge: Sustainability

The price increases are also problematic for one of the industry’s most urgent areas of responsibility: Sustainability. When money is scarce anyway and the items are becoming increasingly more expensive, the readiness to pay more for a sustainable product diminishes significantly.

Yet, the demands – particularly of large, internationally-operating companies – for proven, sustainable production methods are becoming higher and higher. The key question is what does “sustainable” actually mean. “On the Italian promotional market about 90% of the enquiries are for ‘green’ products. However, it is not always clear in the minds of the customers what a ‘green’ product exactly means” (Vitolo). “Since every company has a different opinion about what sustainable actually is, it is becoming imperative that our industry creates independent sustainability standards. Otherwise the industry is very vulnerable” (Benz).

Indeed it seems like the industry is condemned to master the transformation towards more sustainability, because mid-term it might mean “game over“ otherwise. Since promotional products are not products of everyday use, they are not system relevant, but rather tainted with the rumour of being superfluous. The industry constantly has to dispute this, demonstrate their added value for marketing purposes and offer products that ideally replace items that the recipients would otherwise buy themselves. So, the top priority must be creating high-quality products of high practical value: “Especially for our industry it is not just important to use more recycled materials, but also to make sure the products themselves will be used in a sustainable way. In this respect, the functionality and the quality of promotional articles are crucial, but also the way the products are used” (Henk Greftenhuis, Araco). A general change in awareness is called for, it is necessary “to stop greenwashing and to stop just continuing to do business as usual with a token ‘eco’ label to tick a box. It’s time to really grapple with the issue of overproduction and overconsumption – that’s where real progress is to be made” (Bhardwaj).

Europe vs. China

Sustainability is an attitude, but it demands change management with concrete measures in everyday life. Two current developments are presently apparent. On the one hand: Circular economy is a long-term objective that many companies are getting closer to by offering and implementing more and more products made from recycled and upcycled materials. On the other hand: European production is en vogue. “Products ‘made in Europe’ are increasingly popular these days, as customer awareness of environmental issues is growing” (Dabrowski). “In Austria we are observing a strong trend towards European products, which are being demanded by more and more customers, which means the crisis could also prove to be a huge opportunity for European producers” (Angermayr).

Whereby there are many product groups that can hardly be produced in Europe if at all, because the right infrastructure, know-how and skilled workers are lacking. And many customers are then not (yet) prepared to pay the considerably higher prices – often 100% more.

In many cases the decision for “made in Europe” is a decision against “made in China”. The country is coming under increased criticism from companies of Western orientation. Many factors play a role here. That the supply chains were so fragile during the pandemic for instance unsettled many people, whereas the business is meanwhile back on track. Visits to the large sourcing platforms or to the Chinese preliminary suppliers were possible this year almost without restrictions and in many cases it was observed that the Chinese factories had made use of the COVID period to further professionalise their businesses. “After four years, we returned to visit our suppliers in China. We were positively impressed by the growing technological innovation and the great organisation of the operational structures” (Alessandro Colle Tiz, Master Italia).

But some of the experts are searching for the big innovations on the haptic advertising scene in vain. “It’s hard to see product innovation, sure not comparable to pre-COVID” (Strijbos). This may have something to do with the fact that the Chinese companies are undergoing a reorientation and prefer to produce consumer goods for the domestic market instead of continually coming up with new items in comparably small order volumes for the promotional products industry.

Although the production standards and the sustainability management of many Chinese companies is on a par with the European level, goods made in Chinese are often defamed as being cheaply manufactured items of inferior quality. People are also sceptical about possible safety defects, fair wages and the long transport routes that have a negative effect on the climate balance.

The dependence on China is a thorn in the side of many managers. “Here in Europe we are relying more and more on electronics, digitalisation, etc., but are pursuing a policy that is unrealistic in this field and as such are more or less urging China and India to take over our production markets. This does worry me.”(Germann)

But above all it is the political developments in China that are making companies think about relocating production. Many importers don’t even want to think about what would happen if China decides to solve the Taiwan dispute by taking military steps. Their complete business model would be ruined overnight, the local economy would be paralysed. Russia’s invasion of Ukraine last year made it all too clear how quickly political developments can cause huge economic turbulences in a globally networked world. And even if the worst-case scenario doesn’t happen: Political upheavals are never good for the business, have a negative effect on the mood and the readiness to take decisions, and on the readiness to invest. “Geopolitical crises have an impact, because we are dependent on a positive business climate and economic growth” (Volker Griesel, Fare).

Next year, next game

Sometimes it almost seems like the promotional products industry is just a ball that the major global happenings are shooting to and fro through the entire universe. The associations are striving to improve the lobby for the marketing discipline haptic advertising, overcome the excessive red tape, combat tax hurdles, make success measurable, all in a bid to make the industry more powerful, more stable and more resistant. A new, pan-European association that is to exploit synergies is currently in the pipeline.

A laudable undertaking, but ultimately it is up to each player individually how well he masters the challenges that the everyday business brings with it. The realisation that haptic advertising still works and fascinates and “offers the unique opportunity of addressing customers on an emotional level“ (Angermayr), that it radiates credibility, is used longterm by the recipient and is an enormous effective and popular advertising medium was heightened by the exciting events of the year 2023.

2024 is not going to be an easy year, but one is used to that. If three years of pandemic, diverse political crises and continually new everyday challenges didn’t manage to throw a company off track – regardless of how unpredictable the environment may be – don’t worry. Marc Rugi is expecting “another roller coaster year”. Or precisely another pinball machine. Either way: “Let’s start the game” (Rugi).

// Dr. Mischa Delbrouck

Photos: Jasmin Oberdorfer (2), © WA Media GmbH; Halfar (1), Koelnmesse/Gamescom/Harald Fleissner (1), mbw (1), Shutterstock (1), Sigg (1), ZARA (1)