ALI ZULFIKAR ZAHEDI

BBA, PGDPM, MBA, DIP in AD (UK)

NEED AND FEED

Foundation

www.needandfeed.org

Meant by ‘In House’ and ‘External’ advertising

agencies. What are the benefits or disadvantages of
each?
Assignment
ALI ZULFIKAR ZAHEDI

YEAR 2008
ADVERTISING AGENCY HOUSE
The field of advertising is emerging as a big player in the game of business today. Without
advertising, no business can flourish as there will be no significant profits. No matter how
good the products are, if company don’t have great ads to promote the brand name and the
product with the brand label, company cannot expect any breakthrough profit.
Advertisements are a way of reaching out to millions of people out there and create the
interest in them to buy products. Important facts about advertising and teaches how you can
use advertisements to promote the company’s products.

The Type of advertising agency born in the early days of advertising when some large
advertisers established their own agencies primarily in order to save media commissions
and achieving total control of their advertisement. A agency house is a firm that

 Creates new promotional ideas,

 Designs print, radio, television, and internet advertisements,
 Books advertisement space and time,
 Plans and conducts advertising campaigns,
 Commissions research and surveys,
 Provides other such services that help a client in entering and succeeding in a
chosen market.

These agencies were financially backed by the advertiser and were set up as independent
full-service agency to perform all advertising functions on behalf of the advertiser.
The concept of the house agency has changed over time. Today, many large advertisers
utilize an in-house agency operation. This in-house service differs from the external house
agency in that it works internally and provides a kind of advertising administrative centre with
a minimum of staff that coordinates and directs advertising efforts to outside services.

So, there is clearly come out for two kinds of advertising agency like ‘In House’ Agency and
the ‘External House’ Agency. Below is the brief of each:

Meant by ‘In House’ Advertising Agency:

An in-house agency is an agency responsible within the advertiser's organization for all
advertising activities. An "In-House" agency simply means placing own ads for them self,
instead of paying an outside agency the commission. Company insert the ads; deduct the
commission (usually 15%). However, COMPANY MUST USE THE PROPER FORM. An
order placed under ordinary business letterhead will not do. Also, it is a good idea to preface
masthead on own FORM with words "Advertising Agency." For example, Smith's advertising
Agency instead of Smith & Company. The three essentials while operating an "In-House"
advertising agency –

 Proper FORM
 Advertising agency masthead
 Remittance with order.

It could be some time before in-house agencies become the norm, but in a world where
speed and integration of communications are key, the idea of having an agency on tap and
on site could prove irresistible. Below some example of company who are operating there in
house agencies are:
Samsung
Besides producing its own creative work, Cheil has the authority to recommend and call
pitches. It was also instrumental in arranging Samsung's sponsorship of Chelsea FC.

Benetton
The retailer's often controversial 'United Colors of Benetton' ad campaign has been
developed by its in-house ad team. The group also owns design research centre Fabrica.

Hyundai
The Korean marque launched a London office of in-house agency Innocean last year. It
handles strategy and agency brief-ings for Hyundai, but has not yet produced any creative
work.

No doubt; bringing functions in-house can save on cost. But it can end up costing in
other ways.

Meant by ‘’External House’ Advertising Agency:

External agencies are those which are not in-house operated by the advertiser. It’s a
deferent individual firm which is work for the advertiser with a commission.
An external house advertising agency or ad agency is a service business dedicated to
creating, planning and handling advertising (and sometimes other forms of promotion) for its
clients. An external agency is independent from the client and provides an outside point of
view to the effort of selling the client's products or services. An external agency can also
handle overall marketing and branding strategies and sales promotions for its clients.
Typical external agency clients include businesses and corporations, non-profit
organizations and government agencies. Agencies may be hired to produce single ads or,
more commonly, ongoing series of related ads, called an advertising campaign.

The right advertising agency can give the marketing strategy a professional shot in the arm,
helping the company to attract new customers and hang on to existing ones. The external
agencies take the compensation and that is derived from three different sources:

 15% commissions from the media on the rate charged for media space or time

 Fees charged for services (usually non commissionable, such as a market survey);
however, situations will occur when the price-value relationship between media
placement and creative services is out of balance (e.g., when a client uses the same
broadcast commercial for a long period of time, incurring no creative costs, but incurring
millions of dollars in broadcast billing), and agencies will be compensated by the
substitution of a fee system in place of the 15% commission.

 Percentage charges on materials and services used in the preparation of

advertisements; in this area, clients are charged cost plus 17.65%

Benefits or Disadvantages of ‘In House’ and ‘External’ Advertising Agency

It's legitimate, practical and effective, but like so many other promises, there are pros and
cons involved. While hiring an advertising agency has its share of benefits and advantages,
the prospect is not devoid of a set of drawbacks and disadvantages either. Nevertheless the
decision to hire an advertising agency or depend upon the company’s marketing division for
the advertising of the products and / or services, differs from organization to organization
and depends heavily upon the nature of the product offerings in the product line and
sometimes even the organization structure as well. Many companies also have an in-house
agency that is an advertising agency that is under the umbrella of the parent company. Both
the agency got some advantage and disadvantage to broadcast. Here is a little brief about
this as below:

Benefits of ‘In House’ Advertising Agency

Economic prospect: By setting up company’s own advertising agency and placing

advertising under own agency name, most magazines will allow the standard 15% agency
commission plus and extra 2% cash discount. So, if the annual ad budget is $5,000 this
amounts to a saving of $850 a year, which is a considerable piece of change.
If company handle own advertising correspondence, work with layout artists and write own
ads, its well worth the while to set up company’s own in-house ad agency and could save a
ton of money.

Employee prospect: In house agency employee are advertiser recruited and they are
controlled by the company’s rules and easily could work for over time to create
advertisement and there is scope to be trained up on this job for the future requirement.

Product knowledge prospect: : ‘In House’ Advertising Agency are known fully
understand the product value or the customers as well as the company rules that take things
out of control such as delivery schedule, importance, and company’s competition.

Security prospect: In house agency could keep hide some important information for
them self that could not be out to a third party. But external agency might come to know
some important information which could be flash to outside after break the relation between
advertisers and the external advertising agency.

Concentration prospect: In house agency will give more priority and accurate
concentration to own advertisement always whether it is small or big. And they will try to
make it in timely without any delay.

Disadvantage of ‘In House’ Advertising Agency

Establishing prospect: The negative side to this operation involves the initial cost of
establishing the new agency, which isn't very difficult, but it might be considered time-
consuming. To initiate an agency company will have to have a name for it other than the
regular business name. Example: If company name is Nationwide Electronics and the owner
name is John Smith, it could be the agency like John Smith Advertising or The J.S.
Advertising Agency,

Correspondence prospect: The in house agency address will have to be different than
the mother company's, but this can be resolved by renting a post office box for the ad
agency and using home or office address for the other.
Banking prospect: Company have to open a separate checking account under the
agency name because all advertising payments will be issued thru the agency, and probably
be required to register the agency as a new business.

Experience prospect: In house agency does not have sufficient creative and artistic
resources, past multi advertising experience, so output could be poor rather than an external
professional agency. They also might not have better information on demographics across a
broader region of the country or internationally, so, gathering information is to be not up to
mark, however from sales and marketing department the in house agency could gain some
information.

Benefits of ‘External House’ Advertising Agency

Experience prospect: They have creative and artistic resources, they can provide
access to these resources more cheaply or for short term requirements, they provide an
independent view of your product, they may have better information on demographics across
a broader region of the country or internationally, they can normally buy advertising at rates
lower than individual companies can, they give you someone to sue if it is screwed up.

Communication prospect: The RIGHT agency can give the target and how to best
communicate the product's benefits to market. They know the challenges and the
opportunities by using their experience.

Creativity prospect: Advertising agencies are the professionals who can take the
company’s basic ideas and make them incredible. With an agency company get the synergy
of having many diverse ideas come together rather than relying on only one or two minds.
An agency will give to advertiser fresh ideas from another perspective.

Money saving prospect: One of the biggest benefits beyond the creativity is that ad
agencies can save businesses money in the long run by acquiring the below:

 They have the ability to buy media in bulk at rates that a single business cannot
obtain.
 They are educated as to the best times and places to run ads to reach company’s
target market, ultimately minimizing wasted spending.
 They can help the advertiser fine tune the target market so that the message is
designed to reach that company want to reach.
 An Agency will usually provide a full creative recommendation at no additional charge

Experienced Staffing Prospect: Another benefit provided by the advertising

agencies is the benefit of experienced staffing with expertise in the field of advertising.
Since their focus is narrow, they are able to generate more prolific results as compared
to the company itself.

Disadvantage of ‘External House’ Advertising Agency

Economic prospect: Ad agencies are a too expense/investment. The heavy payment

that an advertising agency charges from the organizations is another matter of concern that
could be classified as a disadvantage

Product knowledge prospect: External House’ Advertising Agency take things out of
advertiser’s control such as delivery schedule, they can be more expensive, they can have a
conflict if they also advertise for company’s competition, they may not fully understand the
product value or the customers as well as the company knows.

Time prospect: It usually takes advertising agencies a great amount of time and effort to
update their creation and even more so if they have to redesign their advertisement. Though
it is not operated in house, so communicate could be extensive between agency and the
advertiser.

Concentration prospect: As the advertising agency would have a number of other

accounts to work upon, the attention of the advertising agency would be divided and not
exclusive, giving the product a definite disadvantage. The external agency give more priority
with their old and big client rather than new.

Security prospect: external agency could gain some internal information of advertiser,
and might come to know some important information which could be flash to outside or to
competitor after break the relation between advertisers and the external advertising agency

Conclusion

Nevertheless before reaching a final decision, a company should always weigh the pros and
cons of each option against each other and should base its decision in the light of their
interpretation. Advertising has become such a specific and exclusive field that it has its own
mechanics of operations, its own experts to seek advice from and its own distinct
significance not just in the arena of marketing but also in the entire dimension of branding
the product.

Therefore companies are investing a great deal in their advertising fully aware of the
manifold benefits and returns that it brings back to their brand and the role it plays in
entrenching brand equity and fulfilling the brand contract. For that purpose, many successful
organizations are now seeking the succor of advertising agencies to deal with the advertising
aspect of their product or more precisely the promotional aspect of their product as besides
advertising, the ad. Agencies are also involved in designing many other innovative promotion
techniques such as sales promotion techniques, direct marketing etc.