Advertising Agency

Participants in the IMC Process

Advertiser
Advertiser (Client)
(Client)
Advertising
Advertising agency
agency
Media
Media organizations
organizations
Marketing
Marketing
communications
communications specialist
specialist
organizations
organizations
Collateral
Collateral services
services

DirectDirectresponse
response
agencies
agencies

Sales
Sales
promotion
promotion
agencies
agencies

Public
Public
relations
relations
firms
firms

Interactive
Interactive
agencies
agencies

Media Organizations
Companies that provide information and
entertainment to subscribers, viewers, listeners
and/or readers and in which marketers can
purchase time or space to deliver their
advertising and promotion messages

Marketing Communication
Specialist Organizations

Companies that provide specialized marketing

communication services that are used as part of
the IMC process. These include
Direct response agencies
Sales promotion agencies
Public Relations Firms
Interactive Agencies

Collateral Services
Companies that provide a wide array of support
functions used by advertisers, agencies, media
organizations, and specialist organizations such as
marketing research, package design, photography,
video production and other services

Advertising Agency
A

firm that specialises in the

creation, production, and placement
of advertising message and may
provide other services that facilitate
the marketing communication
process.
An organisation may have an
Advertising Department or an inhouse Ad Agency or it may hire it
from outside.

STRUCTURE
Centralised

System
Decentralised System

Centralised System
The

advertising manager is responsible for

all promotions activities except sales.
Controls the entire promotion operations,
including:
- budgeting
- coordinating creation and production of
Ads
- Planning Media schedules
- Monitoring and Administrating the sales
promotion programs.

Centralised System
President

Production

Finance

Marketing Research

Marketing

Advertising

R&D

Sales

HR

Product Planning

Pros & Cons of a Centralized System

+ Positive

- Negative

Better
Better
communications
communications
Fewer
Fewer
personnel
personnel

Less
Less goal
goal
involvement
involvement

The
The
Centralized
Centralized
System
System

Longer
Longer
response
response time
time

Continuity
Continuity

More
More top
top management
management
involvement
involvement

Impractical
Impractical for
for
multiple
multiple brands,
brands,
products,
products, divisions
divisions

Pros & Cons of Decentralization

+ Positive

- Negative
Ineffective
Ineffective decision
decision
making
making

Concentrated
Concentrated
attention
attention

Rapid
Rapid problem
problem
response
response

Increased
Increased
flexibility
flexibility

The
The
Decentralized
Decentralized
System
System

Internal
Internal conflicts
conflicts

Unequal
Unequal distribution
distribution
of
of funds
funds
Lack
Lack of
of
Authority
Authority

Functions
1.

Planning & Budgeting

Advertising Department is
responsible for:
Developing the advertising &
Promotional Plans;
Developing Advertising Budget
Final Decisions are made by the
Top Mgt.

2. Administration &
Execution

Manager must organise the

Advertising Department
Supervise & Control its activities:
- Execution of plans
Work in coordination with other
departments:
Production, Media, Art, Copy & Sales
Promotion
An outside agency may be hired.

3. Coordination with other

Departments
Particularly those involving in
marketing functions. Like:
Marketing Research Department:
to determine which Product
features are important to
customer & should be
emphasized in the Ads.

Decentralised System
Large

corporations with multiple

divisions and different products.
Separate departments for various
divisions, product lines or
business.

Corporate

Production

Sales

Finance

Marketing

Product Mgt.
Brand Mgr
Ad Agency

Brand Mgr
Ad Agency

Brand Mgr
Ad Agency

R&D

HR

Marketing Mgt.

Advertising
Dept.

Marketing
Research

Sales Promotion
Package Design
Merchandising

 The

responsibilities
and
functions
associated with advertising and promotion
are transferred to the brand manager.
Works closely with Ad agency & other
marketing communication specialists while
developing promotional program.
Concentrated managerial attention
Rapid
response
to
problems
&
opportunities
Increased flexibility
Manager may lack training & experience
Internal Conflict & Rivalry
Ineffective decision making & Lack of
authority.

In House Agencies
Set

up, owned and operated by the

advertisers.
Little more than advertising
departments.
Large organisations use In- House
agencies for e.g. Avon, Revlon &
Benetton.
Cost Saving
More control
Less experience, Objectivity

Pros & Cons of In-House Agencies

+ Positive

- Negative

Cost
Cost
savings
savings

More
More
control
control

Better
Better
coordination
coordination

Less
Less
experience
experience

The
The
In-house
In-house
Agency
Agency

Less
Less
objectivity
objectivity

Less
Less
flexibility
flexibility

Why external Advertising

Agency?

as companies grow and their

advertising budget and needs
increase
They provide their clients the
services of highly skilled individuals
Can provide an objective point of
view
Can provide the client with an
insight into the industry.

Types of Ad Agencies
Full Service

Offers its clients a full range of

marketing, communication and promotion
services including planning, creating and
producing the advertisements, performing
research, & selecting media

May also offer non advertising

services
like:
strategic
marketing
planning,
sales
promotion,
direct
marketing, public relations & promotion
etc.

Full-Service Agencies

Planning
Planning advertising
advertising
Creating
Creating advertising
advertising
Producing
Producing
advertising
advertising

Full
Full range
range of
of
marketing
marketing
communication
communication and
and
promotion
promotion services
services

Direct
Direct marketing
marketing

Selecting
Selecting media
media

Interactive
Interactive
capabilities
capabilities

Strategic
Strategic market
market
planning
planning
Sales
Sales promotions
promotions

Performing
Performing research
research

Nonadvertising
Nonadvertising
services
services

Package
Package design
design
Public
Public relations
relations and
and
publicity
publicity

Typical Full-Service Agency Organization

Board of
directors
President
VP creative
services

VP account
services
Print
production

Writers

Art directors

TV
production

Traffic

VP marketing
services

Media
Account
supervision

VP management
and finance

Sales
Promotion

Research

Office
management

Account
Executive

Finance

Accounting
Personnel

Services Provided by Agencies

Agency
Agency Services
Services
Account
Account
Services
Services

The
The link
link
between
between
agency
agencyand
and
client
client
Managed
Managed by
by
the
account
the account
executive
executive

Marketing
Marketing
Services
Services

Research
Research
department
department
May
Mayinclude
include
account
account
planners
planners
Media
Media dept.
dept.
obtains
obtains
media
media
space,
space, time
time

Creative
Creative
Services
Services

Creation,
Creation,
execution
execution of
of
ads
ads
Copywriter
Copywriter
artists,
artists, other
other
specialists
specialists

Mgmt
Mgmt&
&
Finance
Finance

Accounting
Accounting
Finance
Finance
Human
Human
resources
resources
New
New
business
business
generation
generation

Account Services
The

link between the ad agency and its

clients
The Account executive is responsible for
undertaking the advertisers marketing &
promotions needs & interpreting them to the
agency personnel.
Coordinate agency efforts in planning,
creating and producing ads.
Presents agency recommendations and
obtain client approval.
Has a strong marketing background and
through understanding of the advertising
process.

Marketing Services
Research

Department

- To gather, analyse and interpret information

that will be useful in developing advertising for
their clients

Can be primary or secondary

- May also conduct pre & post tests to measure

the effectiveness of ads

Media

Department
- Analyses, selects and contracts for
space n time in media
- Develop media plan
- Media specialists must be aware of
the media reach, their rates & how
well they match with the clients
target market.
- negotiate prices

Creative

Services

- Responsible for creation & execution

of Ads
- Copy Writers: conceive the idea for the ad
& writes the headline, sub heads & body copy,
determine the basic appeal & prepare a rough
visual layout.

- Art Dept.: responsible for how the ad

looks
For Print Ad the graphic designers & art
director prepare Layout n for TVC Story board
is prepared.

Production

Department

- Once the copy, layout, illustration &

mechanical specification have been completed
& approved the Ad is turned over to the
Production dept.
- Most agencies hire printers, photographers &
other suppliers to complete the finished
product.

Traffic

Department

coordinates all phases of production to see that

the ads are completed on time and the
deadlines for submitting the ads to the media
are met.

Management

& Finance

- like any other business ad agencies also

perform basic operating and administrative
functions like accounting, finance & HR.
Agency

organisation & structure

- Departmental System
each of the agency function is set up as a
separate dept.

- Group System
Individuals from each dept. work together
in groups to services particular accounts.

Other types of Agency &

Services
Creative

Boutiques

An agency that provides only creative

services.
coz some clients want to use only the
creative talent of an outside provider
while maintaining the other functions
internally.
when employees lack the required
creative skills

The Role of Creative Boutiques

Creative
Creative
Boutiques
Boutiques

Provide
Provide only
only creative
creative services
services

Full-service
Full-service agencies
agencies may
may subcontract
subcontract
with
with creative
creative boutiques
boutiques

Ability
Ability to
to turn
turn out
out inventive
inventive creative
creative
work
work quickly
quickly

Media

Buying Services

- independent companies that specialises in

-

the buying of media.

Agencies and clients develop their own
media strategy & hire the buying services to
execute them.
Coz media buying services large amount of
time & space they get heavy discounts. Can
save clients money
Are paid a fee or commission for their
services.
Some major agencies have also formed their
independent media services companies that
handle media planning & buying.

Media Buying Can be Specialized

Media
Media Specialist
Specialist
Companies
Companies

Specialize
Specialize in
in buying
buying media,
media, especially
especially
broadcast
broadcast time
time

Agencies
Agencies and
and clients
clients develop
develop media
media
strategy
strategy

Media
Media buying
buying organizations
organizations implement
implement
the
the strategy
strategy and
and buy
buy time
time and
and space
space

AGENCY
COMPENSATION

1.

COMMISSION SYSTEM
- A specified commission usually 15% is

received from media on any advertising

time & space it purchases for its clients.
- for outdoor advertising the commission
is16 2/3
percent.
for e.g. An agency prepares a full page ad
and arranges it to be placed on the back
cover of a magazine at the cost of $
100,000.
The bills for the Agency & the Advertisers would
be:

COMMISSION SYSTEM
Media Bills Agency
Cost for Media Space =
$100,000
Less 15% Commission =
-15,000
Cost of Media Space=
85,000
Less 2% cash discount =
-1,700
Agency pays Media =
83,300

Media Bills Advertiser

Cost for Media Space = $100,000
Less 15% Commission = -1,700
Cost of Media Space=
98,300
Agency Income =

$15,000

2. APPRAISAL OF THE SYSTEM

Criticism:
- Controversial
-Whether the 15% compensation is equitable
for the services performed
- Agencies recommend high media
expenditures
- Ignore cost accounting system
- Avoid non commissionable media
- Out dated

Arguments in favour:
Easy to administer
- Non price competition among
agencies
Negotiated Commissions
Can take the form of reduced
percentage rates, variable
commission rates, commission with
minimum & maximum profit rates.
-

2. Fee Arrangement
a) Straight/ Fixed Fee Method
- Basic monthly fee for all the services is
charged
- Any commission earned is credited to the
client

b) Fee- Commission combination

- Media commission received are credited
against the fee.
- If the commissions are less than the
agreed on fees then the company must
make up the difference.

Agency should carefully assess its

costs of services to the clients
plus the its desired profit margin
- It should specify what the agency
is expected to perform
-

3. Cost Plus Agreement

- Fee is based on the cost of work plus

some agreed on profit margin
Agency is required to keep detailed
record of its cost incurred on a clients
account
- difficult to estimate when bidding for an
account.

4. INCENTIVE BASED COMPENSATION

The agencys compensation level will depend

on how well it meets predetermined performance
goals

5. PERCENTAGE CHARGES

by adding percentage charges to various services

the agency purchases from outside providers.
These may include the market research, artwork,
printing, photography etc.

EVALUATING AGENCIES
QUANTITATIVE

Financial Audit: focuses on how

the agency conducts its business.
- designed to verify costs &
expenses, no of personnel hours
charges to an account, Payment to
media & outside suppliers

QUALITATIVE
Focuses

on the agencys efforts in

planning, developing & implementing
the clients advertising programs &
consider result achieved
The agency evaluation is subjective,
informal.
when budget is large formal and
systematic evaluation is done

Evaluating Agencies

Financial
Audit

Qualitative
Audit

Verify costs, expenses

Planning

Personnel hours charged

Program development

Payments to media

Implementation

Payments to suppliers

Results achieved

Gaining & Loosing Clients

Loosing Clients
Poor

performance or services
Poor communication
Unrealistic demands by the client
Personality conflict
Personnel Changes
Change in size of the client & agency
Changes in Clients corporate&/or
marketing strategy
Changes in policies
Declining Sales
Conflicting compensation philosophies

Gaining Clients
Referrals

from existing clients

Solicitations: seeking out &
establishing contact with new
clients
Presentations
Public Relations
Image & Reputation