ad agency

© SHH Kazmi, Satish K Batra 2007

Excel BooksAdvertising and Sales Promotion, S H H Kazmi, Satish K Batra4-1

CLIENT AND ADVERTISING AGENCY





LEARNING OBJECTIVES The role of advertisers in organizing advertising

The different types of advertising agencies

The typical full-service agency structure and its functions

Agency compensation and evaluation




IMPORTANT PLAYERS IN THE ADVERTISING SYSTEM Clients or advertisers (Those who want to communicate with the target

audience and provide the necessary funds for the ads and media purchase depending on their marketing programme)

Advertising agency (act as partners with clients for developing the marketing and promotional programmes)

Media organizations (provide information regarding the right choice of media for purchase of space or time and reaching the target audience in a cost effective manner)

Marketing communication specialists

Collateral service providers




ADVERTISING AGENCY DEFINED “Advertising agency is an independent business, composed of creative

and business people who develop, prepare and place advertising in advertising media for sellers seeking to find customers for their goods or services.” - (The American Association of Advertising Agencies or 4A’s)




IMPORTANT PLAYERS IN ADVERTISING

ADVERTISER (Client Organization)

Advertising Agency Media Organizations

Various service specialists & collateral services: Direct response, sales promotion, research, package design,

video production, photographers, or printers, etc.




CLIENT OR ADVERTISER’S ROLE IN ORGANIZING FOR ADVERTISING Organizing for advertising and promotion depends on several factors such

as company size, number of products, role of advertising in the promotion-mix, the budget, etc.

Some popular organizing systems are:

The centralised system

The decentralised system

In-house advertising agency




THE CENTRALISED SYSTEM Marketing activities are divided along functional lines such as advertising,

sales, marketing research, product planning, etc.

The advertising manager looks after all promotional activities concerned with

the company’s products and services, excluding sales management.

Following basic functions are performed by the advertising department

under the centralised system:

Planning and budgeting

Administration and execution

Coordination within the company

Coordination with ad agencies and collateral service providers




Place of Advertising Department under a Centralised System

COMPANY PRESIDENT

Production department

Finance department

Marketing department

Research department

Human resource

department

Marketing research

Product planning

Sales management

Advertising management




MORE ABOUT CENTRALISED SYSTEM

Used by such companies that do

not have many divisions, products

or service lines, or brands.

The system makes it easier for the

top management to participate in

decision making.

Better operational efficiency due to

involvement of fewer people in

decisions.

Often it gets difficult for the

advertisement department to

comprehend the overall strategy.

Centralised advertisement

department is unsuitable and

impractical for large sized

organizations.




THE DECENTRALISED SYSTEM Decentralised system is followed in large corporations with many product

lines and brands, e.g. HLL

The company has many strategic business units with separate manufacturing, R & D, marketing, sales, product or brand management department.

Each brand manager is responsible for managing the assigned brand that includes planning, budgeting, sales and profits.

All functions associated with advertising and other promotions are the responsibility of the brand manager.




Brand Management under Decentralised System Vice President Marketing

Sales management

Product management

Marketing services

Advertising department

Marketing researchBrand manager -1

Brand manager - 2

Brand manager - 3

Sales promotion

Package design

Merchandising

Ad agency

Ad agency

Ad agency




THE DECENTRALISED SYSTEM The disadvantage of this system is that often brand managers lack training

and experience, hence develop brand strategy without a deeper understanding of what the promotions can accomplish.

The pressure to show profits often results in short-term strategies.

This system also leads to undesirable rivalries amongst brand managers, and disproportionate fund allocations.

The authorities of brand managers are not matching their responsibilities.

P&G considered these problems and switched to category management system.




Category Management SystemVice President – packaged soap and detergent division

Category General Manager, dishwashing products

Category General Manager, laundry products

Category General Manager, specialty products

Advertising Managers

Associate Advertising Managers

Brand Managers

(Each category manager will have one or more advertising managers reporting to him or her for each specific brand, e.g. Ariel advertising manager)

Assistant Brand Managers




IN-HOUSE ADVERTISING AGENCY Some large companies own and operate in-house advertising agency, e.g.

Calvin Klein, Benetton, etc.

Major considerations for using in-house agency are:

Decrease advertising and promotional costs

Exercise greater control over advertising activities

Bad experience with outside agencies

The company has more knowledge and understanding of the market

and they think that they can do a better job than outside agency.




CRITICS OF IN-HOUSE AGENCY Some critics of in-house agency say:

It cannot match the exposure, experience and objectivity of outside agencies.

Cannot have the range of activities provided by outside agencies.

In-house personnel likely to have narrow perspective and may become stale working on the same product.

Cost savings need to be viewed vs. the quality of advertising.




Different Advertising Organization Systems

System Advantages Disadvantages

Centralised More efficient communications

Requires fewer personnel

Continuity of staff

More involvement of top management

possible

Less involvement & understanding

of overall marketing goals

Longer response time

Limited ability to handle many

product lines

Decentralised Concentrated, individual manager’s attention

Rapid response to problems and emerging

opportunities

Increased flexibility

Less effective decision making

Unhealthy internal conflicts

Misallocation of funds

Managers lack sufficient authority

In-house ad

agencies

Cost savings

More control on activities and costs

Increased coordination

Less experience

Less objectivity

Less flexibility




TYPES OF ADVERTISING AGENCIES Full-service Agencies

Specialized Service Agencies

Marketing Research Agencies

Media Buying Services

Creative Boutiques

Film production services




FULL-SERVICE AGENCIES These agencies offer full range of services to their clients in the area of

marketing, communications and promotions.

These services include marketing and advertising planning, creating

and producing the ad, media selection, research, package design, sales

training, sales promotion, event management, trade shows, publicity

and PR.




FULL-SERVICE AGENCY It is composed of various departments responsible to serve the client by

performing various inter-related functions.

The agency generally has five functional areas:

Account Management

Creative

Media Services

Support Services

Finance and Administration




FUNCTIONAL AREAS OF A FULL-SERVICE AGENCY Account Management (Account Services) – Responsible for the relationship

between the agency and the client.

Marketing / Support Services – Research department to gather and interpret data for situation analysis and developing effective ads.

Media Services – Responsible for developing a media plan and buy media that can reach the target audience in a cost effective manner.

Creative Services – Responsible for creation and execution of the ads. ‘Copywriters’ are creative specialists.

Management and Finance – Responsible for internal administration, HR, Finance and accounting.




Organisation Chart of a typical Full-service Agency Board of directors

President

VP, Creative services

VP, Account Services

VP, Marketing services VP, Management

& Finance

Account Supervision

Accountexecutive

Research

MediaSales promotion

Copywriters/ Art directors

TV production

Printproduction

Traffic

Finance

Accounting

Office Management

Personnel




AGENCY COMPENSATION Three Methods of Compensation:

Commission – The agency is paid a fixed commission from the media on any advertising space or time purchased for the advertiser.

Negotiated fee – Agencies and their clients negotiate some type of fee system or cost-plus arrangement for compensation. Some also use an incentive-based system combining the fee.

Percentage charges – When various services are purchased from the agency, a mark-up of percentage charges is added to the bill to cover up for the administrative costs and for a reasonable profit.




AGENCY EVALUATION Financial assessment – focuses on how the agency conducts its business

vis-à-vis costs and expenses.

Qualitative assessment – explores the agency’s efforts devoted to planning, developing and implementing the advertising campaign and its achievements.

Both formal and informal methods of evaluation are used.




HOW THE AGENCIES ACQUIRE NEW CLIENTS?

Referrals

Solicitations

Presentations




PRINCIPLES OF CLIENT-AGENCY RELATIONSHIP Develop a spirit of real partnership based on mutual respect of

intelligence and expertise The clients should be less concerned with what other advertisers are

doing, or the trend in advertising industry. It is a great sin in advertising to imitate a trend.

Great clients take time to really know the agency people as people and treat them as well as human beings. People work harder for their friends.

Outstanding clients encourage risk-taking and experimentation and are willing to pay if experiments go wrong.

Unless an account is profitable, it is less important to the agency and gets only as much attention.




PRINCIPLES OF CLIENT-AGENCY RELATIONSHIP Great clients encourage and make the agency totally absorbed in the

company’s product, personnel and corporate culture.

Great clients define or agree upon the precise purpose of advertising to

help develop outstanding creative work.

Great clients make the agency responsible for the advertising and

delegate the authority it needs.

Great clients are honest in their praise and polite in their disapproval.

The agency must win the client’s trust and give the best it can. The

reputation an agency builds is sticky and word of mouth carries immense

power.

ad agency

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