ObjectivesUnderstand the relationship between an

advertiser and the agencyWhat happens after a client chooses an

agencyAgency compensation – different methods of

paying the agency

ObjectivesRunning the relationship – the meetingsLooking at the advertising budget

Advertising Agency Organization

Link the agency with the client

Act as liaisons so that the client does not need to interact directly with several different service departments and specialists

Creative Services

Account Management

Media Services

Research Services

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

Advertising FunctionsInforming

Persuading

Reminding

Adding Value

Assisting Other Company Efforts

Advertising FunctionsMakes 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)

Informing

Advertising Functions

Persuades customers to try advertised products and services

Primary demand- creating demand for an entire product category

Secondary demand- the demand for a specific company’s brand

Persuading

Advertising Functions

Keeps a company’s brand fresh in the consumer’s 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

Reminding

Advertising Functions

Three basic ways by which companies can add value innovatingimproving qualityaltering consumer perceptions

Advertising adds value to brands by influencing consumers’ perceptions

Adding Value

Setting The TermsAfter choosing an agency

- Need to define what the clients objectives are in detail.

- Need to look at method of payment

Setting The TermsAgency and client need clear understanding

on many issuesDraw up a contract

Note that contract is usually of most importance when things go wrong.

Setting The TermsOf importance to the client is meeting the

objectives they have set for the campaign

Setting Advertising ObjectivesExpression of management consensusGuides the budgeting, message, and media

aspects of advertising strategyProvide standards against with results can be

measured

Setting Good Advertising Objectives

Include a precise statement of who, what, and when

Be quantitative and measurableSpecify the amount of changeBe realisticBe internally consistentBe 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

• Advertising’s purpose is to generate sales

• Sales measures are “vaguely right”

Setting The TermsOf most import to the agency is how they will

get paid.Client wants to get the most bang for its buckAgency must ensure that their

responsibilities are clearly laid out in the contract

Agency Compensation•Commissions from media (15%)

•Reduced commission system(<15%)

•Labor-based fee system

•Outcome-based

Three Sources

Commission IssuesIts absolute levelWhether it should vary with different media,

levels of spendingHow to apply non-media items - eg. Production costs

Commission IssuesKey problems- Distorts an agency’s advice- - using TV campaigns – can reduce the

creative work needed per commercial- Very profitable for the agency

FeesTime-based fee systems- Agency is paid for work done on clients

behalf.- Every option is given equal weight in

recommendations.

Fee problemsRequires effective and efficient time-sheet

systemAgency and client need to agree on rate of

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

Menu System/work-unit pricingCost-per-task basisMain virtue is transparent price structureTight cost controlsMeshes well with cost accounting

Menu System/work-unit pricing problemsDoes not allow for the synergyClient can shop around for best priceDoes not deal with quality

Result Based PaymentUsually combined with other approachAllows agency to earn a bonus for above

target performance.

Result Based Payment ProblemsDeveloping attainable targetsMeasuring progress

Will discuss in chapter 8

The creative feeTwo part charging system1) Monthly fee- based on proportion of work of individual

assigned to account2) Determined value for the creative idea

Running the relationshipAgency will need to learn everything- Visits to offices/factories- Conversations- Review available market research- Getting to know each other’s teams

Structuring contactPrimary 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 contactClient side is the marketing director- Responsible for the advertising- Marketing mix

*large companies may have specialist advertising or communications directors

Formalizing contactsDay-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 BudgetHow do you decide how much to spend ?

What do you spend it on?

Establishing budgets is difficultPractice lags behind theory

Advertising Budgeting in TheoryThe 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

= (Change in total cost) (Change in quantity)

= TC/Q

MR

= (Change in total Revenue) (Change in quantity)

= TR/Q

Budgeting Considerations in Practice

What is the Ad objective?How much are competitors spending?How much money is available?

Budgeting MethodsPercent-of-Sales BudgetingObjective-and-Task MethodCompetitive Parity Method

(match competitors method)Affordability Method

Percentage-of-Sales BudgetingA company sets a brand’s advertising

budget by simply establishing the budget as a fixed percentage of past or anticipated sales volume

Criticized as being illogicalSales=f(Advertising) (o)Advertising=f(Sales) (x)

Objective-and-Task MethodThe most sensible and defendable

advertising budgeting methodSpecify what role they expect advertising to

play for a brand and then set the budget accordingly

The Competitive Parity MethodSets the ad budget by basically following

what competitors are doing

SummaryWorking 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.

SummaryThe agency will aim to tailor its account team

to fit with the client’s structure, with the main contacts going through the account management team and the client marketing departments of the agency.

SummaryThe 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.