IT'S AN AD, AD, AD, AD World

By Daniel Eisenberg

The next time an overly friendly blond sidles up in a crowded bar and asks you to order her a brand-name martini, or a cheery tourist couple wonder whether you can take their picture with their sleek new camera-in-a-cell phone, you might want to think twice. There's a decent chance that these strangers are pitchmen in disguise, paid to oh-so-subtly pique your interest in their product. Their game, known as "stealth marketing," is one of several unorthodox ploys that Madison Avenue is using to get through to jaded consumers.

Covert product placement has been around for years, with movie and TV producers accepting cash for the casual positioning of a particular brand of soda or make of sports car in the background of a scene. But now the concept has leaped off the screen into other areas of life, often catching consumers unaware. Celebrities such as Lauren Bacall and Kathleen Turner appear on talk shows and praise prescription drugs without disclosing that they have been paid by the drugmakers. Marketers give expensive sneakers, colognes or even cars to young trendsetters on college campuses, at the fringes of show biz or at hot nightclubs with the understanding that they will use and talk up the products. Producers of soap operas and sitcoms and even best-selling author Fay Weldon take money to build plots around a certain brand of makeup or jewelry. In an age of rising media saturation and sinking corporate credibility, the theory is that marketing is most effective when you don't know that it's marketing.

Such stealthy efforts are but one phase of a larger growth industry of alternative and guerrilla marketing that ranges from handing out free samples to sponsoring concerts and other events. "We need to take our brand to them and not wait for them to come to us," says Hilary Dart, president of Calvin Klein Cosmetics. Its estimated $45 million campaign to launch the men's fragrance Crave this fall will include street sampling, product seeding among opinion leaders and other guerrilla tactics (even building sand sculptures of the Crave logo on beaches on both coasts) before any ads are unveiled.

There are no reliable estimates of spending on alternative marketing, in part because agencies and clients rarely admit to using stealth methods. Certainly, it represents a small fraction of the estimated $236 billion that will be spent this year on traditional print, broadcast, radio and online advertising in the U.S. But industry experts say that outlays for alternative campaigns are growing rapidly--and that Madison Avenue has little choice but to seek new ways to push products. After tightening their belts during the recession, clients are increasingly wondering what exactly their hefty ad budgets are getting them and "demanding greater accountability," as Steve Moynihan, managing director of ArnoldMPG, puts it. "Advertising is only one part of the communications mix and not the whole arsenal," says Seth Matlins, who runs marketing for Hollywood talent agency Creative Artists Agency, which helped land Coke a high-profile role on Fox Broadcasting's summer talent-contest hit, American Idol. (Notice that instead of the standard green room for guests waiting backstage, there's the Coca-Cola Red Room with curvy red couches that look suspiciously like the Real Thing's logo.)

Critics say stealth marketing is tinkering with our minds. Jeffrey Chester, executive director of the Center for Digital Democracy, dubs the phenomenon the "brand washing of America." Many ad-industry executives are worried that it could all too easily backfire, making consumers even more wary. "I'm against any form of deception," says Keith Reinhard, chairman of DDB Worldwide. "In the end, it's bad business."

Like it or not, consumers are probably going to see more and more unexpected, and undercover, pitches. That's because the old model, the 30-second TV spot, is proving less and less effective. Digital video recorders such as TiVo now give viewers the ability to banish commercials, prompting network executive Jamie Kellner, CEO of Turner Broadcasting System (which, like TIME, is owned by AOL Time Warner), to warn that commercial-supported free TV is an endangered species.

That may be a stretch, but there's no denying that the major ad holding companies are having to justify the value of their creative work as never before. They are already hedging their bets, setting up or funding alternative shops in New York City or Los Angeles with such hip monikers as Brand Buzz, Renegade Marketing Group and Interference Inc. Al Ries, a veteran marketing strategist and co-author of the just-published book The Fall of Advertising & the Rise of PR (Harper Business), says the reason is simple: traditional advertising has lost most of its credibility. "Anything you say about yourself is now automatically suspect," he says.

It is no wonder, then, that so many companies are relying on celebrities, trendsetters or even seemingly ordinary consumers to say it for them--often with no hint that money or merchandise has changed hands. The New York Times revealed that drug companies are making payments to celebrities or their favorite charities in return for their touting pharmaceutical products on talk shows: Lauren Bacall praised Visudyne as a treatment for macular degeneration, Rob Lowe plugged Neulasta to combat a side effect of chemotherapy, and Kathleen Turner directed viewers to a website for a drug for rheumatoid arthritis. Sometimes, as with Bacall's controversial appearance on NBC's Today, the celebrities fail to mention that they are being paid. Just last week CNN (which is owned by AOL Time Warner) announced that from now on, it will always disclose any such financial ties during an interview, and the three major broadcast networks have suggested that they will follow suit.

For all of TV's reach, the real action in covert marketing is on the streets. Sony Ericsson has hired a troupe of actors this summer to pose as tourists in New York City and Los Angeles and to ask passers-by to take their picture with the company's new T68i, a combination cell phone and digital camera. Vespa promoted U.S. sales of its scooters last summer with a biker gang of beautiful people who were paid to ride them around such cities as Los Angeles and Houston.

Meanwhile, Big Fat Promotions, a stealth-marketing pioneer based in New York City, says (without naming its clients) that it has paid bar "leaners" to casually talk up the merits of certain liquors, doormen to pile up packages from a particular online catalog company in the lobby of their building, mothers to talk about a new laundry detergent at their kids' little-league games and commuters to play with a new PDA on the train home. Jonathan Ressler, 38, who founded Big Fat (one look at the loud, hulking New Jersey native, he says, and you will know where the name comes from), calls such maneuvers "brand baiting." He adds, "Buzz doesn't happen by accident. This is just real-life product placement."

So too, it might be argued, is seeding: giving new products to trendsetters to help build buzz. Fusion 5, a division of marketing giant WPP Group, gave advance models of the Ford Focus to employees of such celebrities as Adam Sandler and Madonna so the cars could be seen at hip places and parties around town. "We leverage the untapped power of word of mouth," says Matthew Stradiotto, cofounder of Matchstick, a Toronto firm that specializes in product seeding. Before a product launch, Matchstick hands out samples to key "influencers," a method credited with contributing to the success of sneaker launches by the likes of Adidas and Reebok.

Some marketers have found that they don't need people at all to spread the word. Even before the trendy energy drink Red Bull hit the shelves in England a few years ago, a London agency called Cake Creative Consultancy filled sidewalk trash cans and pub tables in Newcastle with empty cans of the stuff. Cake executives readily talk about the campaign, but in a sign of how sensitive stealth marketing has become, Red Bull claims, without elaboration, that the story is apocryphal.

Many of today's alternative approaches are clever updates of old techniques. As part of the launch of new talk shows hosted by Isaac Mizrahi and Carrie Fisher, respectively, women's cable network Oxygen has dispatched ice-cream trucks to cruise the streets of New York City and Los Angeles and give out specially labeled popsicles and vitamin waters touting the coming broadcasts. Procter & Gamble sent out a trailer of elegant, air- conditioned Porta Potties, complete with hardwood floors and aromatherapy candles, to state fairs last summer to extol the virtues of Charmin toilet paper. Bottled-water producer Evian paid to repair a run-down public pool in the London neighborhood of Brixton and tile the bottom with its brand name--a message that was hard to miss for passengers flying in and out of nearby Heathrow Airport.

It's all happening online too, as marketers look for alternatives to banner or pop-up ads. Some firms, such as Honda, IBM and Burger King, are turning to start-ups like YaYa to create "advergames"--online games that include a subtle or overt commercial message--to grab Web surfers' attention. And with the help of New York City software company ActiveBuddy, marketers such as Elle magazine and Capitol Records have created branded interactive agents that can chat online, provided that the Web surfers initiate the conversation.

And there are updates to the old bait-and-switch tactics. As part of the launch of a new car in Britain, Mercedes commissioned film director Michael Mann and Oscar-winning actor Benicio Del Toro to make an authentic-looking trailer featuring quick shots of the sleek new SL sedan for Lucky Star, a film about a slick guy blessed with mysterious luck that brings him women, fortune and fame. The trailer played on TV and in theaters across Britain in July. But the film it promotes doesn't exist--and only when viewers go to a website advertised in the trailer is the truth revealed. Lucky Star was clearly inspired by BMW's The Hire, a successful series of online short films that has ushered in a wave of similar projects from Ford and Chrysler and others.

Blurring the lines between content and commerce seems to be the order of the day in Hollywood. Ad agency Interpublic is said to be considering buying both a literary and a Hollywood talent agency to help find TV and film projects in which it can place its clients' products. Just a few weeks ago, Miramax Films and Coors Brewing Co. announced a long-term alliance that will include product placement in at least five films over the first three years. Meanwhile, Push, Nevada, a new prime-time drama-reality show, produced by Ben Affleck's company LivePlanet and scheduled to make its debut on abc this fall, will prominently feature products from Toyota and Sprint. "If you can make the costs more palatable, you have to look at it," says cbs chief executive Les Moonves, who, while being bombarded with product pitches from advertisers this year, is thus far restricting the cameos to reality shows like Survivor.

Traditional product placement is fast evolving into what agents call brand integration, in which products take center stage. Earlier this year, cosmetics maker Revlon became an integral part of a story line played out over three months on abc's soap opera All My Children, a groundbreaking deal that other advertisers hope to duplicate. BMW's Mini car, a star of this season's product-packed movie Austin Powers in Goldmember, will be the linchpin of a heist in next summer's Paramount release, The Italian Job, starring Mark Wahlberg and Edward Norton. "The Mini plays the real hero. It's almost another character," says Tera Hanks, executive vice president at marketing shop Davie-Brown Entertainment, a unit of Omnicom, where placement deals have increased tenfold in the past few years. Meanwhile, the Mini's marketers are turning the car into a conversation piece by plopping Minis down among the seats at sports stadiums in Oakland, Calif., and New Orleans, and resting them atop suvs that drive around cities.

In the ultimate twist, marketing itself is becoming "content" on several new TV shows. Online auction house eBay is working with Columbia TriStar TV to develop a 30-minute program that features profiles of eBay users describing their collections. NBC's ShopNBC cable channel now sells everything from jewelry to computers and smoothie blenders featured on soap operas Passions and Days of Our Lives, and ABC hawks some of its soap-star accoutrements on the Home Shopping Network. This fall Dodge will roll out the Fast Enuff Challenge, a nationwide contest to find the best novice racetrack driver, which will form the basis of a one-hour documentary on MTV. And Who Wants to Be a Millionaire producer Michael Davies is working on a prime-time, commercial-free variety show called Live from Tomorrow that will include segments revolving around new products, like teams of teenagers scampering around the country photographing national monuments with a hot new camera.

When it comes to the blurring of art and commerce, FoodFight!--a digitally animated film to be released for Christmas 2003--may set a new standard. Independently produced by Threshold Entertainment, the small studio that has turned Mortal Kombat and Duke Nukem into billion-dollar entertainment franchises, FoodFight! tells the story of a supermarket come to life, where such brands as Twinkie the Kid, Charlie the Tuna, Mrs. Butterworth and Mr. Clean battle evil brand-X products for control of the shelves. (Guess who wins?)

Larry Kasanoff, CEO of Threshold and former president of Lightstorm Entertainment, the production company of Titanic director James Cameron, insists that his film doesn't technically engage in product placement because Threshold isn't getting paid for featuring the branded stars, which appear primarily in cameos next to other original characters. But he concedes that the participating brands will help with cross-promotion worth as much as $100 million. In his view, product characters are celebrities in their own right, worthy of the same place on the big screen. "In the digital world," he says, "you're hard pressed to tell the difference between Mr. Clean and Arnold Schwarzenegger." Of course, back in the real world, the line between advertising and life is getting just as fuzzy. --With reporting by Jeanne McDowell and Leslie Berestein/Los Angeles, Dody Tsiantar/New York City and Eileen Finan/London

With reporting by Jeanne McDowell and Leslie Berestein/Los Angeles, Dody Tsiantar/New York City and Eileen Finan/London