Organizing for Advertising

and Promotion:
The Role of Ad Agencies and Other
Marketing Communications
Organizations

Whats new
1. Viral marketing through social networks
2. Buzz marketing word of mouth marketing
3. Undercover marketing subtle product placement
4. Astroturfing disguising company messaging as an authentic
grassroots movement
5. Experiential marketing interaction with product
6. Tissue-pack marketing hand-to-hand marketing
7. Live-in marketing real life product placement
8. Wait marketing when and where consumers are waiting
(such as medical offices and gas pumps) and receptive to
communications

Chapter Objectives

To understand how companies organize for advertising and

other aspects of integrated marketing communications.
To examine methods for selecting, compensating, and
evaluating advertising agencies.
To explain the role and functions of specialized marketing
communications organizations.
To examine various perspectives on the use of integrated
services and responsibilities of advertisers versus agencies.

Participants in the IMC Process

This chapter examines the various organizations that

participate in the integrated marketing communications
process, their roles and responsibilities, and their relationship
to one another.

Today, more marketers are looking for agencies that can offer
a range of integrated marketing communication capabilities
and help them compete in the rapidly changing world of
advertising and promotion.

It is particularly important to note that with the movement

toward IMC, marketing communication specialist
organizations such as direct response agencies, sales
promotion agencies, public relations firms, and interactive
agencies are playing an increasingly important role in the
promotional process.

Participants in the IMC Process

Advertiser
Advertiser (Client)
(Client)
Advertising
Advertising Agency
Agency
Media
Media Organizations
Organizations
Marketing
Marketing
Communications
Communications
Specialist
Specialist
Organization
Organization
Collateral
Collateral Services
Services

Direct
Direct
Response
Response
Agencies
Agencies

Sales
Sales
Promotion
Promotion
Agencies
Agencies

Public
Public
Relations
Relations
Firms
Firms

Interactive
Interactive
Agencies
Agencies

Participants in the IMC Process

Advertiser

The most visible player in the advertising process

The coolest one.

Beauty soap of Film stars..
Lifes Good.

The advertisers desire to sell something is what drives the

entire advertising process.

Once an advertiser agrees to use the services of an ad

agency, the advertiser becomes that agencys Client.

Participants in the IMC Process

Advertising agency
Is an outside firm that specializes in creation, production and
placement of the
communication messages. It may provide other services to
facilitate the
marketing and promotions process.
Hiring an agency can result in several benefits:

Offers objective advice.

Draw on the collective experience and training of its
staff.
Provide people and management skills to accomplish
advertising objectives.
Provide supportive environment for professional
advertising people.

Participants in the IMC Process

Media Organizations
Provides information and entertainment to their subscribers,
viewers or readers.
Provides an environment for the firms markcom messages.
Reach their TA and provides messages effectively

Participants in the IMC Process

Specialized marketing communications
Direct Response Agencies Handle communications with their
customers through telemarketing, direct mail and other forms of
direct-response advertising. These agencies provide their clients a
variety of services including data base development and
management.

Sales Promotions Agencies There are many companies specializing

in the provision of
sales promotions such as contests, games, sweepstakes, and refund and
rebate offers.

Public Relations/Publicity Agencies Public relations firms develop

and implement programs to manage an organizations publicity and
image, with consumers and other relevant publics including
employers, suppliers, stockholders, government, labor and the
general public.
Interactive Agencies with the rapid growth of the Internet a new

Participants in the IMC Process

Vendors
These are the group of service organizations that assist the
advertisers, the ad agencies & media.
Are useful when advertisers
need expertise (in stuff that is not their core competence)
Overloaded
Fresh perspective
Cost aspect
Members of this group are called
Freelancers
Consultants
Self employed professionals.
These could be freelance copywriters, graphic artists,
photographers, songwriters, printers market researchers,
telemarketers etc.

Organizing for Advertising and Promotion in the

firm :
The clients Role
How a firm organizes for advertising and promotions is a function of a
number of factors including (1) the size of the organization, (2) the
number of products it markets, (3) the role that advertising and
promotion assume in the product mix, (4) the advertising and
promotions budget, and (5) the structure of the firm.
Three organizational designs are discussed:

The Centralized System - In this design, marketing

activities are organized along functional lines. A
common form is to have an advertising manager (or
marketing communications manager) responsible for
all advertising and promotions activities including

planning and budgeting,

administration and execution, and
coordination with other departments and outside
agencies.

Advertising Department Under

Centralized System
President
President

Production
Production

Finance
Finance

Advertising
Advertising

Marketing
Marketing

Marketing
Marketing
Research
Research

Research
Research
and
and
DevelopDevelopment
ment

Sales
Sales

Human
Human
Resources
Resources

Product
Product
Planning
Planning

Pros & Cons of Centralization

+ Positive

- Negative

Better
Better
Communications
Communications

Less
Less Goal
Goal
Involvement
Involvement

Fewer
Fewer
Personnel
Personnel

Continuity
Continuity
Of
Of Staff
Staff

The
The
Centralized
Centralized
System
System

Longer
Longer
Response
Response Time
Time
Cant
Cant Do
Do
Multiple
Multiple Product
Product
Lines
Lines

Organizing for Advertising and Promotion in the

firm :
The clients Role

The Decentralized System - In this system, individual

products or brands are the responsibility of the product
manager or brand manager. All advertising and promotion for
the brand or product will be this persons responsibility
(including responsibilities for working with all external
agencies) and s/he will be in charge of all planning,
implementation and control for that product or brand.

Decentralized Brand Management

System
Corporate
Production

Finance

Sales

Marketing

Research
and
Development

Product
Management

Marketing
Services

Brand
Manager

Brand
Manager

Ad agency

Ad agency

Advertising
Department

Sales
Promotion
Nestle, HUL
P & G Category Mgt
System

Human
Resources

Merchandising

Marketing
Research

Package
Design

Pros & Cons of Decentralization

+ Positive

- Negative

Concentrated
Concentrated
Attention
Attention

Lack
Lack of
of
Experience
Experience
in
in IMC
IMC

Rapid
Rapid Problem
Problem
Response
Response

Increased
Increased
Flexibility
Flexibility

The
The
Decentralized
Decentralized
System
System

Competition
Competition for
for
Resources
Resources

Lack
Lack of
of
Authority
Authority

Organizing for Advertising and Promotion in the

firm :
The clients Role

The In-House Agency - Some companies develop their own

internal ad agencies. The design of these agencies may vary from as
small as an advertising department to as large as an external
agency. In the latter case, the in-house agency will operate as a
separate entity and control advertising and promotional
expenditures.

Organizing for Advertising and Promotion in the

firm :
The clients Role
Advantages of this system include:

Cost savings - Since media commissions that would go to an

outside agency go to the in- house agency
More control over the advertising function since it is handled
within the company rather than by an outside agency
Better coordination of advertising and promotion with the
firms other marketing activities

Negative aspects of this system include:

Less advertising experience than is available from an outside

agency with has a variety of specialists in various areas of
advertising
Less objectivity since those working for an in-house agency
are part of the company rather than an outside agency
Less flexibility as outside agencies can be changed much
more easily whereas changes among in-house agency

Pros & Cons of In-House Agencies

+ Positive

- Negative

Cost
Cost
Savings
Savings

Less
Less
Experience
Experience

More
More
Control
Control

Better
Better
Coordination
Coordination

The
The
In-house
In-house
Agency
Agency

Less
Less
Objectivity
Objectivity

Less
Less
Flexibility
Flexibility

 Refer to document Top 10 ad agencies

Add activities to Scrap book

Advertising Agencies

The Ad Agencys Role

External agencies provide a variety of services to their clients,
Advertisers elect to use outside agencies for the following reasons:
(1)the skills offered
(2)objectivity and
(3)experience.

Ad Agencies Have Skilled Specialists

Artists
Artists

Writers
Writers

Researchers
Researchers

Photographers
Photographers

Media
Media Analysts
Analysts

Other
Other Skills
Skills

Full-Services 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

Strategic
Strategic market
market
planning
planning
Sales
Sales promotion
promotion
and
and training
training
Trade
Trade show
show
materials
materials

Non-Advertising
Non-Advertising
Services
Services

Performing
Performing
research
research
Selecting
Selecting media
media

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

Typical Full-Service Agency Organization

Board of
Directors
President
VP Creative
Services
Writers
Art Directors

TV
Produciton
Traffic

Print
Production

Traffic

VP Account
Services
Account
Supervision
Account
Executive

VP Management
and Finance

VP Marketing
Services
Media

Research

Sales
Promotion
Personnel

Office
Management
Accounting

Finance

Services Provided by Agencies

Agency
Agency Services
Services
Account
Account
Service
Service

Marketing
Marketing
Services
Services

The
The link
link between
between
agency
agency and
and client
client
Managed
Managed by
by the
the
Account
Account Executive
Executive

Research
Research
department
department may
may
design
design and
and execute
execute
research
research programs
programs
Media
Media department
department
may
may analyze,
analyze, select
select
and
and contract
contract media
media
resources
resources

Creative
Creative
Services
Services
Creation
Creation and
and
execution
execution of
of ads
ads
Copywriters,
Copywriters,
artists,
artists, other
other
specialists
specialists

Full-Service Agency
There are many activities and many personnel involved in the
planning, creating and producing of ads. The coordination of
their effort is critical to the success of an IMC program.
Account services this is the link between the agency and its
clients. The account executive is the liaison and focal point of the
agency-client relationship. The AE is responsible for understanding
the advertisers marketing and promotions needs and interpreting
them to agency personnel.
Marketing services includes marketing research and media
planning. Marketing research is growing in importance as
advertisers realize they need a good understanding of the target
audience if they are to effectively communicate. Media
departments analyze, select, and contract media sources.
Creative services is responsible for the creation and execution
of advertisements. Copywriters and artists are specialists in this
department. Additionally there is a production department that
coordinates all phases of production of advertising and other
creative work.

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

Other
Other Functions
Functions Provided
Provided by
by
the
the Internal
Internal Client
Client Departments
Departments

The Role of Creative Boutiques

They usually are hired for their creative talent and are paid on a fee
basis.
They can be hired directly by a company for their specialized services or
by a full service agency when they are very busy or do not want to hire
full time employees.
Creative boutiques have developed in response to some clients desire
to use only the creative talent of an outside agency while maintaining
the other functions internally.
Clients seek the help of creative boutiques when an extra creative effort
is required or because its own employees do not have sufficient skills in
this regard.
They can be used:
By client companies for creative services only
Full service agencies may subcontract for their creative services
when busy or when
not wanting to add permanent employees

Media Buying Can Be Specialized

Media
Media
Buying
Buying
Services
Services

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

Media Buying Can Be Specialized

Their use is growing as more companies look for ways to get more clout
from their advertising budgets.
The task of purchasing advertising media has grown more complex as
specialized media proliferate. As such, media buying services have
found a niche by specializing in the analysis and purchase of advertising
time and space.
Agencies and clients usually develop their own media strategies and hire
independent buying services to execute them.
Some of the characteristics of media buying services include:

They specialize in buying media time, particularly radio and

television time

Because the purchase large amounts of time and space, they

usually receive
large discounts and can save the
agency/company money on media purchases.

They are paid a fee or commission for their work.

The agency or client may often develop the media strategy

Media buying organizations may be used to implement the

Methods of Agency Compensation

Commissions
Commissions
Method
Method
Cost-Plus
Cost-Plus
Agreements
Agreements

Compensation
Compensation
Methods
Methods

Percentage
Percentage
Charges
Charges
Fee
Fee
Arrangements
Arrangements
Incentive-Based
Incentive-Based
Payment
Payment

Methods of Agency Compensation

Because the type and amount of service an agency performs can
vary from one client to another, a variety of methods are used to
compensate them for their services. Various ways for
compensating agencies are shown in this slide and include:

Commission method traditional method whereby the agency

receives a specified commission (usually 15%) from the media on
any advertising time or space it purchases for its client.

Cost-plus agreement the client pays a fee based on the

costs of its work plus some agreed-on profit margin (a percentage of
total costs). This method requires careful accounting and detailed
records of agency costs

Percentage Charges adding a markup to the various services

the agency purchases from outside providers. These may include
market research, artwork, printing, photography, etc. and range from
17.65 to 20 per cent.

Fee arrangement the agency charges a basic monthly fee for

all of its services. Agency and client agree on work to be done and
the amount to be paid. This is the primary method accounting for 68
percent of the compensation plans.

Incentive-based fee is based on how well the agency meets

its performance goals such as sales or market share. There is a

Why Agencies Lose Clients

Poor
performance
Unrealistic
demands

Personality
conflicts

Personnel
changes

Poor
communications
Changes
in size

Conflict of
interests

Changes
in strategy
Declining
sales
Payment
conflicts
Policy
changes

How Agencies Gain Clients

Referrals
Referrals

Presentations
Presentations

Solicitations
Solicitations

Public
Public Relations
Relations

Image,
Image, Reputation
Reputation

Direct Response Agency Activities

Data
Data Base
Base
Management
Management
Direct
Direct
Mail
Mail

Research
Research

Media
Media Services
Services
Direct
Direct
Response
Response
Agencies
Agencies

Creative
Creative

Production
Production

Activities performed by Sales

Promotion Agencies
Promotion
Promotion Planning
Planning
Creative
Creative Work
Work
Research
Research
Research
Coordination
Coordination With
With
Advertising
Advertising
Premium
Premium Design
Design
Contest/Sweepstakes
Contest/Sweepstakes
Development
Development
Data
Data Base
Base Marketing
Marketing
2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Functions performed by Public Relations Firms

Strategy
Development

Damage
Control

Generating
Publicity

Program
Planning
Image
Portrayal

Lobbying
Public
Affairs

Functions performed by Interactive Agencies

Web
Web
Banner
Banner Ads
Ads

Web
Web Sites
Sites

Interactive
Interactive
Media
Media Creation
Creation
CD-ROMs
CD-ROMs

Kiosks
Kiosks
Audio
Audio

Video
Video
Digital
Digital
Content
Content

Animation
Animation

Special
Special Effects
Effects

Marketing Research Companies

Planning
Planning and
and
Implementing
Implementing
Research
Research
Information
Information
Application
Application
Analysis
Analysis and
and
Interpretation
Interpretation
Primary
Primary Data
Data
Collection
Collection

Qualitative
Qualitative && Quantitative
Quantitative

Secondary
Secondary Data
Data
Collection
Collection