Objectives

Understand the relationship between an advertiser

and the agency What happens after a client chooses an agency Agency compensation different methods of paying the agency

Objectives
Running the relationship the meetings
Looking at the advertising budget

Advertising Agency Organization

Creative Services

Link the agency with the client

Act as liaisons so that

Media Services

Research Services

the client does not need to interact directly with several different service departments and specialists

Account Management

Ad-Investment
Consistent investment spending is the key factor underlying successful advertising.

Arguments for Investing in Advertising

Investment in advertising requires that

incremental revenue > advertising expense

Arguments for Disinvesting in Advertising

Decreased expenses in advertising

mean increased profits (everything else held equal)

Investment in the Brand Equity Bank

Strong advertising represents a

deposit in the brand equity bank. Strong- that is, different, unique, clever, memorable

Informing Advertising Functions

Persuading
Reminding Adding Value Assisting Other Company Efforts

Advertising Functions Informing

Makes consumers aware, educates them about the features and benefits, and facilitates the create the creation of positive brand images Facilitates the introduction of new brands and increases demand for existing brands Performs another information role by teaching new uses for existing brands (Usage expansion advertising)

Advertising Functions
Persuading
Persuades customers to try advertised products and

services Primary demand- creating demand for an entire product category Secondary demand- the demand for a specific companys brand

Advertising Functions
Reminding
Keeps a companys brand fresh in the consumers

memory Influences brand switching by reminding consumers who have not recently purchased a brand that the brand is available and that it possesses favorable attributes

Advertising Functions
Adding Value
Three basic ways by which companies can add value innovating improving quality altering consumer perceptions Advertising adds value to brands by influencing

consumers perceptions

Setting The Terms

After choosing an agency
- Need to define what the clients objectives are in detail. - Need to look at method of payment

Setting The Terms

Agency and client need clear understanding on many

issues Draw up a contract

Note that contract is usually of most importance when

things go wrong.

Setting The Terms

Of importance to the client is meeting the objectives

they have set for the campaign

Setting Advertising Objectives

Expression of management consensus Guides the budgeting, message, and media aspects of

advertising strategy Provide standards against with results can be measured

Setting Good Advertising Objectives

Include a precise statement of who, what, and when Be quantitative and measurable

Specify the amount of change

Be realistic Be internally consistent

Be clear and put it in writing

Sales Volume as an Advertising Objective

Traditional View
Sales volume is the consequence of a host factors in addition to advertising Effect of advertising is delayed

Sales Volume as an Advertising Objective

Heretical View
Advertisings purpose is to generate sales Sales measures are vaguely right

Setting The Terms

Of most import to the agency is how they will get paid.
Client wants to get the most bang for its buck Agency must ensure that their responsibilities are

clearly laid out in the contract

Agency Compensation
Commissions from media (15%) Reduced commission system(<15%)

Three Sources

Labor-based fee system

Outcome-based

Commission Issues
Its absolute level
Whether it should vary with different media, levels of

spending How to apply non-media items - eg. Production costs

Commission Issues
Key problems
- Distorts an agencys advice - - using TV campaigns can reduce the creative work

needed per commercial - Very profitable for the agency

Fees
Time-based fee systems
- Agency is paid for work done on clients behalf. - Every option is given equal weight in

recommendations.

Fee problems
Requires effective and efficient time-sheet system
Agency and client need to agree on rate of each

member of team. The creative teams time is most valuable.

Menu System/work-unit pricing

Cost-per-task basis
Main virtue is transparent price structure Tight cost controls Meshes well with cost accounting

Menu System/work-unit pricing problems

Does not allow for the synergy
Client can shop around for best price Does not deal with quality

Result Based Payment

Usually combined with other approach
Allows agency to earn a bonus for above target

performance.

Result Based Payment Problems

Developing attainable targets
Measuring progress Will discuss in chapter 8

The creative fee

Two part charging system

1) Monthly fee - based on proportion of work of individual assigned to account 2) Determined value for the creative idea

Running the relationship

Agency will need to learn everything
- Visits to offices/factories - Conversations - Review available market research - Getting to know each others teams

Structuring contact
Primary contact is the account manager
- Responsible for smooth running of account - Effective use of agency resources on behalf of client

*large agencies can be 2 or 3 levels

Structuring contact
Client side is the marketing director
- Responsible for the advertising - Marketing mix

*large companies may have specialist advertising or communications directors

Formalizing contacts
Day-to-day contact
- Meetings could be weekly, biweekly, monthly - Discuss new work or progress etc

Major meetings
- New briefs for major campaigns - Presentation of new campaign proposals,

- Research debriefs..

The advertising Budget

How do you decide how much to spend ? What do you

spend it on?
Establishing budgets is difficult Practice lags behind theory

Advertising Budgeting in Theory The best(optimal) level of any investment is the

level that maximizes profits(MR=MC) Advertisers should continue to increase their advertising investment as long as it is profitable to do so

MC

MR

= (Change in total cost) = (Change in total Revenue) (Change in quantity) (Change in quantity)
= TC/Q = TR/Q

Budgeting Considerations in Practice

What is the Ad objective?

How much are competitors spending?

How much money is available?

Budgeting Methods Percent-of-Sales Budgeting

Objective-and-Task Method
Competitive Parity Method

(match competitors method) Affordability Method

Percentage-of-Sales Budgeting
A company sets a brands advertising budget by

simply establishing the budget as a fixed percentage of past or anticipated sales volume Criticized as being illogical Sales=f(Advertising) (o) Advertising=f(Sales) (x)

Objective-and-Task Method
The most sensible and defendable advertising

budgeting method Specify what role they expect advertising to play for a brand and then set the budget accordingly

The Competitive Parity Method

Sets the ad budget by basically following what

competitors are doing

Summary
Working with an agency should be a professional business relationship and structured accordingly.
This requires a formal contract, with especial attention paid to the thorny question of how the agency will be remunerated for its efforts. The contract should also cover a range of other details.

Summary
The agency will aim to tailor its account team to fit

with the clients structure, with the main contacts going through the account management team and the client marketing departments of the agency.

Summary
The relationship will inevitably revolve around a series of meetings, which need to be call reported to provide a record of the decisions taken.
The budget will be central to the relationship. Setting a budget is difficult, but the difficulties are often avoided by using simple rules of thumb.