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Chapter 4

Advertising Agencies

A brief history of

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Advertising on the crossroads

IS INTEGRATION THE ANSWER?

THE ADVERTISING TRINITY

Advertiser Ad agency Media

• Buys • Creates • Sells

space/time ads space/time
• Facilitates
media
buying

THE AGENT ACTS AS PRINCIPAL

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Participants in the IMC Process

Advertiser (Client)

Advertising Agency

Media Organizations Direct Sales

Response Promotion
Marketing Agencies Agencies
Communications
Specialist
Organization Public
Interactive
Relations
Agencies
Collateral Services Firms

Participants in the IMC Process

Advertiser

• The most visible player in the advertising process

• The advertiser’s desire to sell something is what drives the
entire advertising process.
• Once an advertiser agrees to use the services of an ad agency,
the advertiser becomes that agency’s Client.

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Advertising agency

Is an outside firm that specializes in creation, production and placement of

the
communication messages.

It may provide other services to facilitate the

marketing and promotions process.

Hiring an agency can result in several benefits:

 Offers objective advice.

 Draw on the collective experience and training of its staff.
 Provide people and management skills to accomplish
advertising objectives.
 Provide supportive environment for professional advertising
people.

Media organizations

Media Organizations

 Provides information and entertainment to

their subscribers, viewers or readers.
 Provides an environment for the firms
marcom messages.
 Reach their TA and provides messages
effectively

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Specialist marcom org

Direct Response Agencies — Handle communications with their customers

through telemarketing, direct mail and other forms of direct-response
advertising. These agencies provide their clients a variety of services including
data base development and management.

Sales Promotions Agencies — There are many companies specializing in the

provision of sales promotions such as contests, games, sweepstakes, and refund
and rebate offers.

Public Relations/Publicity Agencies — Public relations firms develop and

implement programs to manage an organization’s publicity and image, with
consumers and other relevant publics including employers, suppliers,
stockholders, government, labor and the general public.

Interactive Agencies — with the rapid growth of the Internet a new type of
specialized marketing communication organization has evolved—the interactive
agency. A number of marketers are turning to these firms to develop web sites,
banner ads & other forms of interactive advertising.

Collateral services

Vendors

These are the group of service organizations that assist the advertisers,
the ad agencies & media.

Are useful when advertisers

need expertise (in stuff that is not their core competence)
Overloaded
Fresh perspective
Cost aspect

Members of this group are called

Freelancers
Consultants
Self employed professionals.

These could be freelance copywriters, graphic artists, photographers,

songwriters, printers market researchers, telemarketers etc.

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Organizing for Advertising and Promotion in the firm :

The client’s Role

How a firm organizes for advertising and promotions is a function of a number of

factors including (1) the size of the organization, (2) the number of products it
markets, (3) the role that advertising and promotion assume in the product mix,
(4) the advertising and promotions budget, and (5) the structure of the firm.

Three organizational designs are discussed:

 The Centralized System - In this design, marketing activities are

organized along functional lines. A common form is to have an
advertising manager (or marketing communications manager)
responsible for all advertising and promotions activities including

 planning and budgeting,

 administration and execution, and
 coordination with other departments and outside agencies.

Pros & Cons of Centralization

+ Positive - Negative

Better Less Goal

Communications Involvement

The
Fewer Longer
Personnel Centralized Response Time
System

Can’t Do
Continuity
Multiple Product
Of Staff
Lines

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Organizing for Advertising and Promotion in the firm :

The client’s Role

The Decentralized System - In this system, individual

products or brands are the responsibility of the product
manager or brand manager.
All advertising and promotion for the brand or product will be
this person’s responsibility (including responsibilities for
working with all external agencies) and s/he will be in charge
of all planning, implementation and control for that product or
brand.

Decentralized Brand Management System

Corporate

Production Finance Marketing Research Human

and Resources
Development

Sales Product Marketing

Management Services

Brand Brand
Advertising Marketing
Manager Manager
Department Research
Ad agency Ad agency

Sales Package
Promotion Design

Nestle, HUL Merchandising

P & G – Category Mgt System

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Pros & Cons of Decentralization

+ Positive - Negative

Lack of
Concentrated
Experience
Attention
in IMC

Rapid Problem The Competition for

Response Decentralized Resources
System

Increased Lack of
Flexibility Authority

In house agencies
• some companies use to reduce costs while maintaining greater control over
agency activities. Using an in-house agency can also save time, and it is
easier to coordinate promotions with the firm’s overall marketing program.

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Organizing for Advertising and Promotion in the firm :

The client’s Role

Advantages of this system include:

•Cost savings - Since media commissions that would go to an outside agency

go to the in- house agency
• More control over the advertising function since it is handled within the
company rather than by an outside agency
• Better coordination of advertising and promotion with the firm’s other
marketing activities

Negative aspects of this system include:

• Less advertising experience than is available from an outside agency with

has a variety of specialists in various areas of advertising
• Less objectivity since those working for an in-house agency are part of the
company rather than an outside agency
• Less flexibility as outside agencies can be changed much more easily
whereas changes among in-house agency personnel are slower and more
disruptive

Pros & Cons of In-House Agencies

+ Positive - Negative

Cost Less
Savings Experience

The
More Less
Control In-house Objectivity
Agency

Better Less
Coordination Flexibility

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Advertising agencies

• A service organization that specializes in planning

and executing advt program for its clients
• Billings: The amount of client money agencies spend
on media purchases and other activities
• Reasons for choosing:
– Highly skilled specialists
– Specialization in a particular industry
– Objective viewpoint of the market
– Broad range of experience

FUNCTIONS OF AD AGENCIES

Account
Directors

Account
Executives

Account Market Administrati

Media Creative Production
planning Research on

Storyboards/
General/HR/
Planning Buying Copy Art Shoots/
Finance
Printing

Traffic
Studio
Department

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Ad Agencies Have Skilled Specialists

Artists Writers Researchers

Photographers Media Analysts Other Skills

TYPES OF AGENCIES
• Full service
• Specialized/ a la carte agencies
• Creative boutiques
• In-house agencies
• Media buying services
• Marketing service agencies

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Full-Service Agencies

Planning
advertising Full range of Performing
marketing research
Creating
communication
advertising
and promotion
services Selecting media
Producing
advertising

Strategic market Interactive

planning capabilities

Sales promotions Nonadvertising Package design

services
Direct marketing Public relations
and publicity

Typical Full-Service Agency Organization

Board of
directors

President

VP creative
VP account VP marketing
services VP management
services services
and finance

Writers Print
Art directors production Sales
Media
Promotion
Account
TV supervision
production
Research Office
management Finance

Traffic Account
Accounting
Executive

Personnel

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Services Provided by Agencies

Agency Services

Account Marketing Creative Mgmt &

Services Services Services Finance

The link Research Creation, Accounting

between department execution of
agency and ads Finance
client May include
account Copywriter Human
Managed planners artists, resources
by the other New
account Media dept. specialists
obtains business
executive generation
media
space, time

The Role of Creative Boutiques

Creative
Provide only creative services
Boutiques

Full-service agencies may

subcontract with creative boutiques

Ability to turn out inventive creative

work quickly

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Media Buying Can be Specialized

Media
Specialize in buying media,
Specialist especially broadcast time
Companies

Agencies and clients develop media

strategy

Media buying organizations

implement the strategy and buy
time and space

Media buying agencies

• Their use is growing as more companies look for ways to get more clout
from their advertising budgets.
• The task of purchasing advertising media has grown more complex as
specialized media proliferate. As such, media buying services have found a
niche by specializing in the analysis and purchase of advertising time and
space.
• Agencies and clients usually develop their own media strategies and hire
independent buying services to execute them.
• Some of the characteristics of media buying services include:

– They specialize in buying media time, particularly radio and television time
– Because the purchase large amounts of time and space, they usually receive
large discounts and can save the agency/company money on media purchases.
– They are paid a fee or commission for their work.
– The agency or client may often develop the media strategy
– Media buying organizations may be used to implement the media strategy
and buy broadcast time and/or space in print publications.

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Agency compensation
– Commission method – traditional method, whereby the agency
receives a specified commission (usually 15%) from the media on any
advertising time or space it purchases for a client.
– Fee, cost, and incentive-based systems:
• Fee arrangement – the agency charges a basic monthly fee for all of its
services. Agency and client agree on work to be done and the amount to be
paid. This is the primary method accounting for 68 percent of the
compensation plans.
• Cost-Plus arrangement – the client pays a fee based on the costs of its work
plus some agreed-on profit margin (a percentage of total costs). This
method requires careful accounting and detailed records of agency costs.
• Incentive-based – fee is based on how well the agency meets its
performance goals such as sales or market share. There is a general
movement toward the use of this method by many companies.
– Percentage Charges – adding a markup to the various services the
agency purchases from outside providers. These may include market
research, artwork, printing, photography, etc., and range from 17.65 to
20 percent.

Agency evaluation

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Why agencies lose clients?

How agencies gain clients

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Specialised service agencies

Sales promotion agency

• Developing and managing sales promotion
programs, such as contests, sweepstakes,
refunds and rebates, premium and
incentive offers, and sampling programs

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