chapter

chapter five
five

advertising
advertising agencies
agencies
the
the first
first advertising
advertising agents
agents
■ 1843
1843 volney
volney palmer
palmer
● agent
● agent for
for media
media,, not
not advertisers
advertisers
■ 1864
1864 -- george
george p.
p. rowell
rowell
● “the
● “the johnny
johnny appleseed
appleseed of
of
advertising”
advertising”
● Rowell’s
● Rowell’s American
American
Newspaper
Newspaper Directory
Directory
● space
● space wholesaler
wholesaler
● shared
● shared his
his “secret”
“secret”
● 1888
● 1888 -- “Printer’s
“Printer’s Ink”
Ink”
the
the first
first advertising
advertising agency
agency
■ n.w. ayer & son
● founded
● founded in
in 1864
1864 by
by
francis
francis w.
w. ayer,
ayer, 20
20
● “&
● “& son”
son” made
made the
the business
business
seem
seem more
more established
established
● worked
● worked for
for advertiser
advertiser
● slogan
● slogan -- “keeping
“keeping
everlastingly
everlastingly at
at itit brings
brings
success.”
success.”
44 full-service
full-service agency
agency functions:
functions:
■ today,
■ today, “full-service”
“full-service” agencies
agencies
provide
provide the
the following
following::
● account
● account management
management
● creative
● creative
● media
● media planning
planning and
and media
media
placement
placement (media
(media buying)
buying)
● research
● research
■ many
■ many adding
adding “below
“below the
the line”
line” services
services -- PR,
PR, sales
sales
promotion,
promotion, Interactive
Interactive
U.S.
U.S. agency
agency business
business today
today

■ over
over $236
$236 billion
billion in
in media
media billings
billings
((www.mccannerickson.com
www.mccannerickson.com))
■ over
over 5,000
5,000 agencies
agencies
■ over
over 243,000
243,000 people
people employed
employed
■ New
New York
York and
and Chicago
Chicago dominate
dominate
 agency
agency billing
billing by
by city/state
city/state
City
City Billings
Billings in
in Millions
Millions
New
New York
York $61,264.4
$61,264.4
Chicago
Chicago 17,739.9
17,739.9
Los
Los Angeles
Angeles 10,545.6
10,545.6
Detroit
Detroit 7,946.3
7,946.3
Minneapolis
Minneapolis 6,087.2
6,087.2
San
San Francisco
Francisco 5,101.9
5,101.9
Boston
Boston 3,993.7
3,993.7
Dallas
Dallas 3,234.8
3,234.8
Atlanta
Atlanta 2,620.9
2,620.9
Philadelphia
Philadelphia 2,379.6
2,379.6
(Source:
(Source Ad
(Source
(Source: Ad Age,
Age, 2001
2001 ))
major
major types
types of
of agency:
agency:
■ mega-agency
mega-agency groups
groups
■ independent
independent agencies
agencies
● national,
● national, regional,
regional, and
and local
local
■ specialized/niche
specialized/niche agencies
agencies
■ agency
agency service
service suppliers
suppliers
● media
● media buying,
buying, creative
creative services
services
mega-agency
mega-agency groups
groups
■ prompted
■ prompted by by mergers
mergers andand
client
client globalization
globalization
■ financial
■ financial pressures
pressures
■ service
■ service multinational
multinational accounts
accounts
■ subsidiaries
■ subsidiaries provide
provide “IMC”
“IMC”
martin sorrell,
(integrated
(integrated marketing
marketing chairman WPP
communication)
communication) services
services
5 top mega-agency groups:

OmniCom Group $4.15 billion

WPP Group $3.64 billion
Interpublic Group $3.38 billion
Dentsu (Japan) $1.98 billion
Young & Rubicam $1.49 billion

1997
5 top mega-agency groups:

WPP Group $6.69 billion

(including Y&R)
Omnicom Group 5.74 billion
Interpublic Group $5.08 billion
Havas $2.39 billion
Publicis $2.17 billion
(including Saatchi)
1999
5 top mega-agency groups:

WPP Group $7.9 billion

(including Y&R)
Omnicom Group $6.9 billion
Interpublic Group $6.6 billion
Dentsu $3.1 billion
Havas $2.76 billion

2000
5 top mega-agency groups:

Omnicom Group $8.62 billion

WPP Group 6.76 billion
Interpublic (IPG) 5.86 billion
Publicis 4.41 billion
(Including Leo Burnett)
Dentsu (Japan) 2.55 billion
Havas Advertising 1.88 billion
2003
5 top mega-agency groups:
■ Together, the five international mega-
agencies are now 75% of worldwide
billings 6%
18%
Omnicom
25% WPP
IPG
16% Publicis
Other
Havas
17%
18%

Source: Ad Age 2004

mega-agency
mega-agency pros
pros &
& cons
cons
■
■ positives:
positives: ■
■ negatives:
negatives:
■
■ larger
larger talent
talent pool
pool ■
■ people
people vs.
vs. profit
profit
■
■ negotiating
negotiating clout
clout
■
■ creativity
creativity vs.
vs. size
size
■
■ financial
financial rewards
rewards
■
■ account
account security
security
■
■ conflict
conflict of
of
■ competitive
competitive edge
edge
interests
interests
■
■
■ strong
strong partnerships
partnerships ■ people
■ people business
business
■
■ more
more services
services
■
■ international
international link
link
national,
national, regional
regional &
& local
local
■ these
■ these are
are independent
independent agencies
agencies
■ there
■ there are
are now
now fewer
fewer national
national agencies
agencies which
which are
are
not
not part
part of
of mega-agency
mega-agency groups
groups
■ regional
■ regional and
and local
local agencies
agencies work
work with
with smaller
smaller
clients
clients who
who are
are usually
usually located
located nearby
nearby
10
10 top
top U.S.
U.S. ad
ad agencies
agencies
1.
1. J.
J. Walter
Walter Thompson
Thompson
2.
2. Leo
Leo Burnett
Burnett Worldwide
Worldwide
3.
3. McCann-Erickson
McCann-Erickson Worldwide
Worldwide
4.
4. BBDO
BBDO Worldwide
Worldwide
5.
5. Grey
Grey Advertising
Advertising
6.
6. DDB
DDB Worldwide
Worldwide
7.
7. Ogilvy
Ogilvy &
& Mather
Mather Worldwide
Worldwide
8.
8. FCB
FCB Worldwide
Worldwide
9.
9. Y&R
Y&R Advertising
Advertising
10.
10. Publicis
Publicis Worldwide
Worldwide
specialized/niche
specialized/niche agencies
agencies
■ industry
industry specialists
specialists
■ ethnic
ethnic agencies
agencies
specialized/niche
specialized/niche agencies
agencies
■ industry
industry specialists
specialists
■ ethnic
ethnic agencies
agencies
■ internet agencies
specialized/niche
specialized/niche agencies
agencies
■ industry
industry specialists
specialists
■ ethnic
ethnic agencies
agencies
■ internet agencies
■ business-to-business agencies
■ creative boutiques and
design houses
other
other suppliers
suppliers
■ provide
■ provide “unbundled”
“unbundled” services
services
● one
● one part
part of
of what
what an
an agency
agency does
does
■ media
■ media buying
buying services
services
■ freelancers
■ freelancers &
& consultants
consultants
■ production
■ production companies
companies
■ in-house
■ in-house or
or “house”
“house” agencies
agencies
● agencies
● agencies owned
owned by
by clients
clients
in-house
in-house agencies
agencies
■ advantages
advantages &
& disadvantages
disadvantages

from
from the
the gap’s
gap’s
“house
“house agency”
agency”
in-house
in-house agencies
agencies
■ advantages
advantages &
& disadvantages
disadvantages
● familiarity
● specialization
● fast service
● cost savings
● confidentiality

from
from the
the gap’s
gap’s
“house
“house agency”
agency”
in-house
in-house agencies
agencies
■ advantages
advantages &
& disadvantages
disadvantages
● familiarity
familiarity ● objectivity
● specialization
specialization ● resources
● fast
fast service
service ● fresh ideas
● cost ● extra cost and
cost savings
savings
overhead
● confidentiality
confidentiality
22 primary
primary roles
roles of
of agencies
agencies

■ idea
idea generation
generation
■ brand-building
brand-building
idea
idea generation
generation
● ideas are lifeblood of the agency
■ create intellectual capital
■ create and sell different kinds of
ideas
● marketing strategies
● promotional opportunities
● even new product ideas...
brand-building
brand-building
■ ““The
The agency’s
agency’s purpose
purpose is
is to
to create
create
and
and direct
direct communication
communication aboutabout aa
product
product oror service
service so
so that
that the
the brand
brand
is
is perceived
perceived to to have
have aa unique
unique
value
value oror brand
brand personality.”
personality.”
■ Let’s
Let’s look
look atat some
some examples...
examples...
brand-building
brand-building
■ Marlboro
Marlboro
● Leo
Leo Burnett
Burnett
brand-building
brand-building
■ McDonald’s
McDonald’s
● DDB
DDB Needham
Needham
brand-building
brand-building
■ Pepsi
Pepsi
● BBDO
BBDO
brand-building
brand-building
■ Nike
Nike
● Wieden
Wieden ++ Kennedy
Kennedy

QuickTimeª and a
Sorenson Video 3 decompressor
are needed to see this picture.
brand-building
brand-building
■ American
American Express
Express
● Ogilvy
Ogilvy &
& Mather
Mather
brand-building
brand-building
■ Apple
Apple
● Chiat/Day
Chiat/Day
brand-building
brand-building
means integration
■ more
more andand more,
more, agencies
agencies are
are being
being
involved
involved in in all
all areas
areas of
of marketers’
marketers’
brand-building
brand-building activities
activities
■ today,
today, it’s
it’s more
more than
than advertising
advertising
■ it’s
it’s integrated
integrated marketing
marketing
communications
communications (IMC) (IMC)
integrated
integrated marketing
marketing communication
communication
■ more
■“done
“done and
moreright,
andIMC
right, more,
more,
IMC is
is the
the
planning
agencies
planning
agencies and
andare
are
implementation
implementation of
of
becoming
becoming
the various
the
the
the various
integrators
integrators of
communications
communications of the
the
whole
whole range
range
disciplines
disciplines as of
of
as aa single,
single,
brand-building
overall
overall communications
communications
brand-building
system
system --
-- making
activities...making all
all the
the
activities...
channels
channels work.”
work.”
integrated
integrated marketing
marketing communication
communication
the imc promotion mix
■ advertising
■ public relations
■ direct response
■ sales promotion
■ personal selling
structure & organization

what
what agencies
agencies do.
do.
and how they’re organized
to do it.
77 primary
primary services:
services:
■ complete
■ complete aa marketing
marketing analysis
analysis
■ develop
■ develop an
an advertising
advertising plan
plan
■ prepare
■ prepare aa creative
creative strategy
strategy
■ create
■ create advertising
advertising executions
executions
■ develop
■ develop and
and implement
implement aa media
media plan
plan
■ handle
■ handle billing
billing and
and payments
payments
■ integrate
■ integrate other
other marketing
marketing communications
communications
4 functions of full-service agencies

■ account management
■ creative
■ media planning and placement
■ research
agency
agency organization
organization chart
chart
Boardof
Directors
[Chairm an/CEO]

President
[COO]

OtherM arketing Strategy OfficeManagement

Com munications ReviewBoard [Personnel,
Services [M anagm ent Accounting,
[PR, etc.] Com mittee] Legal, etc.]

Account Mgmt. Creative Research MediaDept.

Director ExecCD Director Director

Management Associate Project Associate

Supervisor Creative Managers M edia
Director Director

Account Creative Research M edia

Executive Group: Assistants Supervisor

Asst. Account CopySpvr. & Art Supervisor M edia Media

Executive Copywriters &Art Directors Planner Buyer

Broadcast Print Analysts

Production Production

Traffic
account
account management
management

■ liaison
liaison between
between agency
agency and
and client
client
■ responsible
responsible for
for understanding...
understanding...
● the
the client’s
client’s business
business
● the
the client’s
client’s marketing
marketing needs
needs
● strategy
strategy development
development
■ representing
representing client
client point
point of
of view
view
within
within the
the agency
agency
 account
account management
management
Account Mgmt.
Director
■ account
■ account management
management director
director
■ management
■ management supervisor
supervisor
Management.
Supervisor
■ account
■ account supervisors
supervisors
Account ■ account
■ account executives
executives
Supervisor
■ assistant
■ assistant account
account execs
execs
■ account
account coordinators
Account
Executive ■ coordinators
Asst. Account Account ■ traffic
■ traffic
Executive Coordinator

Traffic
creative
creative department
department
■ responsibility
responsibility
● the
● the creative
creative department
department is
is responsible
responsible for
for
creating
creating and
and producing
producing the
the print
print and
and
broadcast
broadcast advertising
advertising
■ strategy is key
● good
● good creative
creative work
work is
is always
always guided
guided by
by aa
creative
creative strategy
strategy that
that sets
sets forth
forth goals
goals to
to be
be
accomplished
accomplished andand key
key message
message points
points to
to
be
be relayed
relayed
 creative
creative department
department
Strategy
Review ■ executive
■ executive & & group
group creative
creative
directors
Board
directors
■ creative
creative director
Executive
Creative
Director (ECD)
■ director
Creative ■ associate
■ associate creative
creative director
director
Director (CD)

Associate
■ copywriters
■ copywriters
Creative
Director (ACD) ■ art
■ art directors
directors
Creative
Group:
■ broadcast
■ broadcast producers
producers
Copy Spvr. & Art Supervisor
■ print
■ print production
production managers
managers
■ traffic
■ traffic coordinators
coordinators
Copywriters & Art Directors

Broadcast Print
Production Production

Traffic
media
media department
department
■ The
The media
media department
department has
has two
two main
main
functions
functions -- planning
planning and
and buying.
buying.
■ The planning group handles more
strategic marketing and media issues.
■ The buying group handles media
negotiations and implementation.
 media
media department
department
Media
Director ■ media
■ media director
director

■ associate
■ associate media
media directors
directors
Associate
Media
Director
■ media
■ media supervisors
supervisors

■ media
■ media planners
planners
Media
Supervisor
■ media
■ media buyers
buyers
Media
Media Media ■ media
■ media analysts
analysts Plan
Planner Buyer

Analysts
big changes in the
media department
■ mega-agency
mega-agency media media departments
departments
have
have now
now become
become profit
profit centers
centers
■ agencies
agencies have
have set
set up
up their
their media
media
departments
departments as as free-standing
free-standing units
units
■ many
many large
large clients
clients now
now look
look at
at media
media
as
as aa separate
separate service
service
 research department
■
■ interpret
interpret market
market environment
environment
● gather
● gather and
and analyze
analyze research
research data.
data.
● primary
● primary and
and secondary
secondary techniques
techniques
■ determine
■ determine consumer
consumer needs/perceptions
needs/perceptions
● understand
● understand problems
problems
■ advise
■ advise how
how ads
ads can
can meet
meet strategic
strategic goals
goals
● help find solutions Research
● help find solutions Report
 research department
Research
Director ■ research
■ research director
director
■ research
■ research project
project managers
managers
■ research
■ research assistants
assistants
■ outside
outside research specialists
Project ■ research specialists
Managers

Research
Assistants
Research
Outside Report
Research
Suppliers
auxiliary
auxiliary agency
agency functions
functions

■ account
account planning
planning
■ strategy/creative
strategy/creative review
review board
board
■ office
office management
management
● human
human resources
resources
● legal
legal services
services
● accounting
accounting
● recruitment
recruitment
33 ways
ways agencies
agencies make
make money
money

■ commissions
commissions
● usually
● usually 15%
15% of
of gross
gross costs
costs
■ fees
fees
● usually
● usually based
based on
on negotiated
negotiated hourly
hourly rate
rate
■ incentives
incentives
● still
● still relatively
relatively new
new and
and problematic
problematic
● usually
● usually based
based onon performance
performance goals
goals
agency
agency commissions
commissions
■ media
media commission
commission system
system
● 15%
● 15% media
media commission
commission
■ adjustable
adjustable commission
commission rates
rates
● negotiate
● negotiate to
to match
match client
client budget
budget
● sliding
● sliding scale
scale
■ markups-production
markups-production &
& service
service
● add
● add aa percentage
percentage markup
markup to
to costs
costs
● 17.65%
● 17.65% ofof net
net == 15%
15% of
of gross
gross
44 types
types of
of fee
fee systems
systems

■ fixed
fixed fee
fee (retainer)
(retainer)
■ cost-plus
cost-plus fee
fee
■ performance
performance feefee
■ hybrid
hybrid fee
fee &
&
commission
commission
incentives
incentives
■
■ in
in theory,
theory, aa good
good wayway to
to work
work
■
■ get
get paid
paid based
based on on how
how well
well you
you do,
do, not
not
how
how muchmuch you
you bill
bill
■ in
■ in practice,
practice, difficult
difficult to
to implement
implement
■ ifif client
■ client makes
makes final
final decision
decision (instead
(instead of
of
agency),
agency), how how can
can agency
agency bebe responsible
responsible
for
for final
final results?
results?
■ results
■ results based
based onon many
many factors,
factors, such
such as
as
competitive
competitive efforts,
efforts, not
not just
just advertising
advertising
new
new business
business
■ three
three primary
primary sources
sources
“●●The
build
build
The existing
critical
critical client’s
client’s business
existingobjective
objective and
and role
business role
● add and
add ad
●any sell
sell new
andagency new IMC
IMC services
services new
of is
of any ad agency is gaining gaining new
●● solicit
solicit new accounts
newbusiness.”
accounts
business.”
■ two
two ongoing
ongoing problems
problems
● ““spec”
● spec” work
work
● teams
● teams “walking”
“walking” with
with accounts
accounts
beyond
beyond 2000
2000

advertising
advertising
agency
agency trends
trends
agency
agency trends
trends
■clutter,
■ clutter, overload
overload,, “overchoice”
“overchoice”
● increased
● increased media
media options
options
● increasing
● increasing audience
audience fragmentation
fragmentation
● more
● more messages
messages everywhere
everywhere
■ doing
■ doing more
more with
with less
less
● economic
● economic pressures,
pressures, “downsizing”
“downsizing”
● ongoing
● ongoing client
client budget
budget pressures
pressures
■ managing
■ managing size
size
● more
● more mergers
mergers and
and mega-agencies
mega-agencies
agency
agency trends
trends
■ managing
managing technology
technology
● interactive
● interactive marketing
marketing
● e-mail,
● e-mail, web
web sites
sites
■ improving
improving internal
internal systems
systems
● account
● account planning
planning
● re-engineering
● re-engineering agency
agency organization
organization
● improving
● improving delivery
delivery of
of imc
imc services
services
in conclusion...

as
as long
long as
as marketers
marketers need
need
ideas
ideas to
to build
build their
their brands,
brands,
they’re
they’re going
going toto need
need
advertising agencies
 questions
questions &
& discussion
discussion
■ why
why might
might youyou be
be interested
interested in
in
going
going into
into the
the agency
agency business?
business?
■ what
what might
might keepkeep you
you from
from choosing
choosing
aa career
career in
in the
the agency
agency business?
business?