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The Role of Ad Agencies and Other Marketing Communication Organizations

Organizing for Advertising and Promotion:

McGraw-Hill/Irwin

Copyright 2009 by The McGraw-Hill Companies, Inc. All rights rese

Participants in the IMC Process

Advertiser (Client) Advertiser (Client) Advertising agency Advertising agency Media organizations Media organizations Marketing Marketing communications communications specialist specialist organizations organizations Collateral services Collateral services DirectDirectresponse response agencies agencies Public Public relations relations firms firms Sales Sales promotion promotion agencies agencies

Interactive Interactive agencies agencies

Organizing for Advertising and Promotion

The way a company (the client) organizes depends on

Its size The number of products it markets The role of advertising and promotion in the marketing mix The budget Its marketing organization structure

Advertising Dept. Under Centralized System

President President

Production Production

Finance Finance

Marketing Marketing

Research Research and and developdevelopment ment

Human Human resources resources

Marketing Marketing research research

Advertising Advertising

Sales Sales

Product Product planning planning

Pros & Cons of a Centralized System

+ Positive
Better Better communications communications Fewer Fewer personnel personnel Continuity Continuity More top More top management management involvement involvement

- Negative
Less goal Less goal involvement involvement

The The Centralized Centralized System System

Longer Longer response time response time Impractical for Impractical for multiple brands, multiple brands, products, products, divisions divisions

Decentralized Advertising System

Corporate Production Finance Marketing R&D Human Resources Marketing services Advertising Dept Marketing Research

Sales

Product Management Brand Manager Ad agency Brand Manager Ad agency

Sales promotion Package design Merchandising

Pros & Cons of Decentralization

+ Positive
Concentrated Concentrated attention attention

- Negative
Ineffective Ineffective decision making decision making

Rapid problem Rapid problem response response

The The Decentralized Decentralized System System

Internal conflicts Internal conflicts Unequal Unequal distribution distribution of funds of funds Lack of Lack of Authority Authority

Increased Increased flexibility flexibility

Test Your Knowledge

A major reason why some companies choose to use an in-house agency is to: A) Maintain creative freshness B) Reduce advertising and promotions costs C) Better understand how advertising works D) Win advertising awards that will enhance the image of their brands E) Do all of the above

In-House Agencies

Benettons in-house agency works with outside agencies to develop ads

Pros & Cons of In-House Agencies

+ Positive
Cost Cost savings savings

- Negative
Less Less experience experience

More More control control

The The In-house In-house Agency Agency

Less Less objectivity objectivity

Better Better coordination coordination

Less Less flexibility flexibility

The Ad Agencys Role

Reasons for using an ad agency

Highly skilled specialists Specialization in a particular industry Objective viewpoint of the market Broad range of experience

Ad Agencies Have Skilled Specialists

Artists Artists

Writers Writers

Researchers Researchers

Photographers Photographers

Media Analysts Media Analysts

Other Skills Other Skills

Full-Service Agencies
Planning Planning advertising advertising Creating Creating advertising advertising Producing Producing advertising advertising Strategic market Strategic market planning planning Sales Sales promotions promotions Direct Direct marketing marketing

Full range of Full range of marketing marketing communication communication and promotion and promotion services services

Performing Performing research research Selecting media Selecting media

Interactive Interactive capabilities capabilities

Nonadvertising Nonadvertising services services

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

Typical Full-Service Agency Organization

Board of directors President VP creative services Print production Account supervision VP account services VP marketing services VP management and finance

director s

Writ Art ers

Media

TV production

Sales Promot ion Office management Finance

Research Account Executive

Traffic

Accounting Personnel

Services Provided by Agencies Agency Services Agency Services

Account Account Services Services Marketing Marketing Services Services Creative Creative Services Services Mgmt & Mgmt & Finance Finance

The link The link between between agency and agency and client client Managed by Managed by the account the account executive executive

Research Research department department May include May include account account planners planners Media dept. Media dept. obtains obtains media space, media space, time time

Creation, Creation, execution of execution of ads ads Copywriter Copywriter artists, other artists, other specialists specialists

Accounting Accounting Finance Finance Human Human resources resources New New business business generation generation

The Role of Creative Boutiques

Creative Creative Boutiques Boutiques

Provide only creative services Provide only creative services

Full-service agencies may Full-service agencies may subcontract with creative subcontract with creative boutiques boutiques

Ability to turn out inventive Ability to turn out inventive creative work quickly creative work quickly

Media Buying Can be Specialized

Media Media Specialist Specialist Companies Companies

Specialize in buying media, Specialize in buying media, especially broadcast time especially broadcast time

Agencies and clients develop Agencies and clients develop media strategy media strategy

Media buying organizations Media buying organizations implement the strategy and implement the strategy and buy time and space buy time and space

Test Your Knowledge

Which of the following statements about changes in the way advertising agencies are being compensated is true? A) Most clients do not pay full commissions to their agencies because they prefer fee- or incentive-based systems. B) From the viewpoints of both the client and the agency, the traditional commission system is superior to negotiated commissions. C) Most clients want their agencies to be in total charge of the integrated marketing communications process, so they prefer to compensate them based on media commissions. D) Statements A, B, and C are all true.

Methods of Agency Compensation

Commissions Commissions from media from media Fee, cost, and Fee, cost, and incentive-based incentive-based systems systems Percentage Percentage charges charges

Compensation Compensation Methods Methods

Evaluating Agencies

Financial Audit Verify costs, expenses

Qualitative Audit Planning

Personnel hours charged

Program development

Payments to media

Implementation

Payments to suppliers

Results achieved

Top Agency Value-Add Activities

Integrated disciplines & functions Creative ideas

New media guidance, solutions

Brand driver evaluation

Collaboration

Talented people

Ideas/programs for multi comm. programs

Loyalty to a Single Agency

Young & Rubicam has handled the Dr Pepper account for over 30 years

Why Agencies Lose Clients

Poor performance Declining sales Personnel changes Changes in size of client or agency Conflicts of interest Change in clients strategy

Poor communications

Payment conflicts

Unrealistic Client demands

Policy Changes

Personality conflicts

Policy Changes

How Agencies Gain Clients

Referrals Referrals

Presentations Presentations

Solicitations Solicitations

Public Relations Public Relations

Image, Reputation Image, Reputation

The Hottest Agency in the Ad Business

Direct-Marketing Agency Activities

Database Database management management Direct Direct mail mail

DirectDirectMarketing Marketing Agencies Agencies

Media services Media services

Creative Creative Database Database development, development, management management

Research Research

Production Production

Direct-Marketing Agency

Departments in a typical directmarketing agency

Account management Creative Media Database development and management

Sales Promotion Agencies

Promotional planning Promotional planning Creative research Creative research Tie-in coordination Tie-in coordination Fulfillment Fulfillment Premium design and Premium design and manufacturing manufacturing Catalog production Catalog production Contest/sweepstakes Contest/sweepstakes management management

Functions Performed by Public Relations Firms

Strategy development

Public affairs

Special events

Generating publicity

News releases, communication

Managing crises

Lobbying

Research

Coordination with promotional areas

Functions Performed by Interactive Agencies

Web Web banner ads banner ads Web sites Web sites Interactive Interactive Media Creation Media Creation Kiosks Kiosks

CD-ROMs CD-ROMs Text messages Text messages

Search engine Search engine optimization optimization

Website for the California Milk Advisory Board

Marketing Research Companies

Help clients underHelp clients understand target stand target audience audience

Qualitative research Qualitative research

Quantitative studies Quantitative studies

Pros and Cons of Integrated Services

+ Positive
Greater synergy Greater synergy

- Negative
Budget politics Budget politics

Convenience Convenience

Integrated Integrated Services Services

Poor Poor communication communication

Single image for Single image for product or service product or service

No synergy No synergy

Test Your Knowledge

Marketing executives say the biggest obstacle to implementing IMC is: A) Lack of management support B) Insufficient budgets C) Lack of people with the right perspective and skills D) Inexperienced ad agencies

Obstacles to Implementing IMC

Key obstacles
Lack of people with the broad perspective and skills to make it work Internal turf battles Agency egos Fear of budget reductions Ensuring consistent execution Measuring success Compensation