Chapter 2

The Promotion Industry

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1. Discuss important trends transforming the promotion industry.

2. Describe the promotion industry’s size, structure, and participants.

3. Summarize what advertising and promotion agencies do and how they

are compensated.

4. Identify experts who help plan and execute integrated marketing

communication (IMC) campaigns.

5. Discuss the role played by media organizations in IMC campaigns.

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Promotion Industry Trends

• Consolidation into giant full-service advertising agencies to provide a large array

of fully integrated services. Limitations of these giant agencies include a possible

lack of specialization and creativity of smaller shops, conflicts of interest with

multiple businesses, unwieldy size and debt. The “unconsolidation” of some of

these agencies seems inevitable.

• Narrower media control due to relaxed FCC regulations and media consolidation

• Media clutter due to new and increased media options and resulting in fewer

focused media outlets to reach target audiences

• Consumer control has increased due to interactive media such as Internet, social

media, DVRs, etc.

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Industry Scope and Structure

• Marketers are business, not-for-profit, and government organizations that use

advertising and other promotional techniques to communicate with target markets

and to stimulate awareness and demand for their brands.

• Marketers include: manufacturers and service firms; trade resellers; federal,

state, and local governments; social and not-for-profit organizations.

• Marketers who hire advertising and promotional agencies are responsible for

defining and managing the brand values and objectives as well as the market

position, target, and supply/demand chains.

• Advertising and Promotion Agencies An advertising agency is an organization

that provides creative and business services to clients in planning, preparing, and

placing advertisements. Promotion agencies handle specific promotional efforts,

including sampling, event promotions, or promotional tie-ins.

• External facilitators are organizations or individuals that provide specialized

services to marketers and agencies that may need more expertise in areas such as

research, consulting, production, and software.

• Media organizations own and manage the media access to consumers.

• Target audiences are the consumers advertising and promotional efforts are

directed towards. If there is no audience no communication can take place.

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Advertising and Promotion

Agencies

• Most marketers use the services of an advertising agency. It is up to the marketer to

determine which agency or set of agencies fulfill the marketing company’s needs.

• Full service agencies include an array of advertising professionals to meet all the

advertising needs and even some promotional needs of their clients. These firms can be

large, medium, or even small in size.

• Creative boutiques emphasize creative concept development, copywriting, and artistic

services. A marketer can employ this alternative for the strict purpose of infusing greater

creativity into the message theme or individual advertisement.

• Interactive agencies help advertisers prepare communications for new media such as

the Internet, podcasting, interactive kiosks, CDs, and interactive television. They focus

on ways to use Web-based solutions for direct marketing and target market

communications.

• In-house agencies are the advertising departments in a firm that take responsibility for

the planning and preparation of advertising materials. This offers greater coordination

and control of all phases of the IMC process, marketer’s personnel have direct control

over and knowledge of marketing activities, and the ability to cut outside spending.

Limitations include a possible lack of objectivity, resources, and specialized expertise.

• Media specialists are organizations that specialize in buying media time and space and

that offer media strategy consulting to advertising agencies and advertisers. Strategic

coordination of media and promotional efforts has become more complex because of the

proliferation of media options and extensive use of promotional tools beyond advertising.

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Advertising and Promotion Agencies, Continued

• Different types of promotion agencies handle different promotional outlets and tools.

• Direct marketing agencies and database agencies maintain and manage large

databases of mailing lists to target customers. They also develop direct-marketing

campaigns and promotional materials and execute campaigns. Fulfillment centers

ensure consumers receive products ordered in response to direct marketing efforts.

• E-commerce agencies handle a variety of planning and execution activities related to

promotions using electronic commerce. They differ from interactive agencies (a type of

advertising agency). Rather than creating websites or banner ads, they help firms

conduct all forms of promotion (sweepstakes, coupons, sampling, etc.) through

electronic media, particularly the Internet.

• Sale promotion agencies design and then operate contests, sweepstakes, special

displays, or coupon campaigns for advertisers. Consumer sales promotions focus on

price-off deals, coupons, sampling, rebates, and premiums. Trade-market sales

promotions designed to help advertisers use promotions aimed at wholesalers,

retailers, vendors, and trade resellers, such as incentive programs, trade shows, sales

force contests, in-store merchandising, and point-of-purchase materials.

• Event-planning agencies are experts in finding locations, securing dates, and putting

together a team of people to pull off a promotional event.

• Design firms provide experts such as designers and graphics specialists. Designers

specialize in the execution of creative ideas and efforts by designing logos and other

visual promotional pieces.

• Public relations firms manage an organization’s relationships with the media, the local

community, competitors, industry associations, and government organizations. Their

tools include press releases, feature stories, lobbying, spokespersons, and company

newsletters.

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Agency Services

• Before hiring an agency to provide services, marketers need to identify which

services they need.

• Account services work with clients to determine how the brand can benefit most

from promotion and then to develop a complete promotion plan. Account service

managers work with the creative and media services to ensure the best

promotional message is delivered via the most effective media strategy. Account

services also works to keep various agency teams on budget and schedule.

• Marketing research services locate studies (conducted by research agencies and

organizations) that relate to the client’s market or promotional objectives. This

department also helps translate research data for the client or other departments

and may engage in some consumer testing to check the efficacy of the promotional

message.

• Account planners coordinate research efforts to ensure that the input is

included at each stage of the campaign development.

• Creative services come up with the concepts that express the value of a

company’s brand in interesting and memorable ways. Clients will push their

agencies hard to come up with interesting and expressive ways to represent the

brand.

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Agency Services, Continued

• Production services include producers (and sometimes directors) who take

creative ideas and turn them into advertisements, direct-mail pieces, or events

materials.

• Media Planning and Buying Services Full-service advertising agencies also

provide media planning and buying services similar to those of the specialized

agencies to determine how a client’s message can most effectively and efficiently

reach the target audience.

• Administrative services manage the agency’s business affairs. Agencies have

personnel departments, accounting and billing departments, and sales staffs that

go out and sell the agency to clients. The traffic department is responsible for

monitoring projects to be sure that deadlines are met.

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Agency Compensation

• Different agencies get paid somewhat differently. Traditionally advertising agencies

work on a commission basis, but this is changing. Promotion agencies usually

work on a fee basis.

• Commission systems are based on an agreed-upon percent (traditionally 15%) of

the total amount billed by a media organization. This amount is retained by the

advertising or promotion agency as compensation for all costs in creating

advertising/promotion for the advertiser. Some agencies and clients wonder if this

system encourages agencies to choose the most expensive methods rather than

the most effective.

• Markup charges are based on adding a percentage charge to a variety of services

the agency purchases from outside suppliers. This became prevalent because so

many agencies were providing services that did not use traditional media and thus

could not be charged under the commission system. A typical markup on outside

services is 17.65 to 20 percent.

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Agency Compensation, Continued

• Fee systems use an agreed-upon hourly rate across all services. Another version

is the fixed fee, or contract, set between the client and agency for compensation of

all work. The agency and the marketer agree on precisely what services will be

provided, by what departments in the agency, and over what specified period of

time. In addition, the parties must agree on which supplies, materials, travel costs,

and other expenses will be reimbursed beyond the fixed fee. Advertising agencies

are often opposed to this system, arguing that creativity cannot be measured in

“work hours.”

• Pay-for-results programs use results criteria of communications objectives such

as the target audience’s brand awareness, brand identification, or knowledge of

brand features and then base the fee upon achieving these results. Sales volumes

are not used as result criteria because they are also related to factors outside the

agency’s control (product features, pricing strategy, distribution programs).

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External Facilitators

• External facilitators provide specialized services in areas that full-service ad or

promotional agencies may not have the expertise.

• Marketing and Advertising Research Firms Marketing research firms

perform original research for marketers, using focus groups, surveys, or

experiments to assist in understanding the potential market for consumer

perceptions of a product or services. Other research firms routinely collect

data (from grocery store scanners, for example) and have these data

available for a fee.

• Consultants specialize in areas related to the promotional process.

Consultants can provide expert advise on marketing planning, creativity,

communications, event planning, public relations, media mix and placement,

database identification and management, website development and

management, and customer relationship management (CRM).

• Production facilitators provide the elements to produce a broadcast

production or print advertisement, including studio facilities, producers,

directors, actors, models, technicians, etc. This is the area where advertisers

rely most heavily on external facilitators.

• Software firms provide software that gathers and analyzes data on the

behavior of Web surfers, streams audio and video files, and manages

relationships with trade partners.

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Media Organizations

• Media organizations are essential to the IMC process because they own and

manage access to consumers.

• Broadcast media include television and radio.

• Print media include magazines, newspapers, direct mail, and specialty

publications (handbills, theater programs, etc.).

• Interactive media include online computer services, home-shopping

broadcasts, kiosks, CDs, podcasts, and cell phones.

• Support media include outdoor ads, directories, premiums, point-of-

purchase displays, event sponsorships, and brand placements in

entertainment.

• Media conglomerates own multiple media outlets usually including broadcast,

cable, film, print, and Internet organizations.

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