Organizing for Advertising and Promotion:

The Role of Ad Agencies and Other Marketing Communication Organizations

Organizing for Advertising and Promotion:

The Role of Ad Agencies and Other Marketing Communication Organizations

3

McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Participants in the IMC Process

Marketing communications specialist organizations

Marketing communications specialist organizations

Media organizationsMedia organizations

Advertiser (Client)Advertiser (Client)

Advertising agencyAdvertising agency

Collateral servicesCollateral services

Direct-response agencies

Direct-response agencies

Sales promotion agencies

Sales promotion agencies

Interactive agencies

Interactive agencies

Public relations

firms

Public relations

firms

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

PresidentPresident

ProductionProduction FinanceFinance MarketingMarketingResearch

and develop-

ment

Research and

develop-ment

Human resourcesHuman

resources

Marketing research

Marketing research AdvertisingAdvertising SalesSales Product

planningProduct planning

Pros & Cons of a Centralized System

Fewerpersonnel

Fewerpersonnel

Bettercommunications

Bettercommunications

ContinuityContinuity

Longerresponse time

Longerresponse time

Less goalinvolvementLess goal

involvement

TheCentralized

System

TheCentralized

System

+ Positive+ Positive - Negative- Negative

Impractical formultiple brands,

products, divisions

Impractical formultiple brands,

products, divisionsMore top

management involvement

More top management involvement

Decentralized Advertising System

Production Finance

Sales

Brand Manager

Ad agency

ProductManagement

Sales promotion

Package design

Marketingservices

Marketing R & D Human Resources

Corporate

Brand Manager

Ad agency

AdvertisingDept

Marketing Research

Merchandising

Pros & Cons of Decentralization

Internal conflicts Internal conflicts

Ineffective decision making

Ineffective decision making

Rapid problemresponse

Rapid problemresponse

Concentratedattention

Concentratedattention

Increasedflexibility

Increasedflexibility

TheDecentralized

System

TheDecentralized

System

+ Positive+ Positive - Negative- Negative

Unequal distribution

of funds

Unequal distribution

of funds

Lack ofAuthorityLack of

Authority

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

Benetton’s in-house agency works with outside agencies to develop ads

Pros & Cons of In-House Agencies

MorecontrolMore

control

CostsavingsCost

savings

Bettercoordination

Bettercoordination

Lessobjectivity

Lessobjectivity

Lessexperience

Lessexperience

TheIn-houseAgency

TheIn-houseAgency

+ Positive+ Positive - Negative- Negative

Lessflexibility

Lessflexibility

The Ad Agency’s 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

ArtistsArtists WritersWriters ResearchersResearchers

PhotographersPhotographers Media AnalystsMedia Analysts Other SkillsOther Skills

Full-Service Agencies

Creating advertisingCreating

advertising

Planning advertisingPlanning

advertising

Producing advertisingProducing advertising

Performing research

Performing research

Selecting mediaSelecting media

Sales promotions

Sales promotions

Strategic market planning

Strategic market planning

Direct marketing

Direct marketing

Interactive capabilitiesInteractive capabilities

Package designPackage design

Full range of marketing

communication and promotion

services

Full range of marketing

communication and promotion

services

Nonadvertising services

Nonadvertising services

Public relations and publicity

Public relations and publicity

Typical Full-Service Agency Organization

WritersArt directors

TVproduction

Traffic

Printproduction

AccountExecutive

Accountsupervision

VP accountservices

Media

Research

SalesPromotion

VP marketingservices

Personnel

Accounting

FinanceOffice

management

VP managementand finance

President

Board ofdirectors

VP creativeservices

Services Provided by Agencies

Agency ServicesAgency Services

Research department

May include account planners

Media dept. obtains media space, time

Research department

May include account planners

Media dept. obtains media space, time

Marketing Services

Marketing Services

The link between agency and client

Managed by the account executive

The link between agency and client

Managed by the account executive

Account ServicesAccount Services

Creation, execution of ads

Copywriterartists, other specialists

Creation, execution of ads

Copywriterartists, other specialists

Creative ServicesCreative Services

Accounting

Finance

Human resources

New business generation

Accounting

Finance

Human resources

New business generation

Mgmt & FinanceMgmt & Finance

The Role of Creative Boutiques

CreativeBoutiquesCreative

Boutiques Provide only creative servicesProvide only creative services

Full-service agencies may subcontract with creative

boutiques

Full-service agencies may subcontract with creative

boutiques

Ability to turn out inventive creative work quickly

Ability to turn out inventive creative work quickly

Media Buying Can be Specialized

Specialize in buying media, especially broadcast time

Specialize in buying media, especially broadcast time

Agencies and clients develop media strategy

Agencies and clients develop media strategy

Media Specialist Companies

Media Specialist Companies

Media buying organizations implement the strategy and

buy time and space

Media buying organizations implement the strategy and

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

Commissionsfrom media

Commissionsfrom media

Fee, cost, and incentive-based

systems

Fee, cost, and incentive-based

systems

Percentagecharges

Percentagecharges

CompensationMethods

CompensationMethods

Evaluating Agencies

Financial Audit

Qualitative Audit

Verify costs, expenses

Personnel hours charged

Payments to media

Payments to suppliers

Planning

Program development

Implementation

Results achieved

Top Agency Value-Add Activities

New media guidance, solutions

Integrated disciplines & functions

Creative ideas

Collaboration

Ideas/programs for multi comm.

programs

Talented people

Brand driver

evaluation

Loyalty to a Single Agency

Young & Rubicam has handled the Dr Pepper

account for over 30 years

Why Agencies Lose Clients

Poorperformance

Poorcommunications

UnrealisticClient demands

Personalityconflicts

Personnelchanges

Changesin size of client

or agency

Conflicts ofinterest

Change in client’s strategy

Decliningsales

Paymentconflicts

Policy Changes

Policy Changes

How Agencies Gain Clients

ReferralsReferrals

SolicitationsSolicitations

PresentationsPresentations

Public RelationsPublic Relations Image, ReputationImage, Reputation

The Hottest Agency in the Ad Business

Direct-Marketing Agency Activities

Directmail

Directmail

Databasemanagement

Databasemanagement

ResearchResearch

CreativeCreative

Media servicesMedia services

Direct-MarketingAgencies

Direct-MarketingAgencies

ProductionProduction

Database development, management

Database development, management

Direct-Marketing Agency

• Departments in a typical direct-marketing agency– Account management– Creative– Media– Database development and management

Sales Promotion Agencies

Catalog productionCatalog production

Promotional planningPromotional planning

Creative researchCreative research

Tie-in coordinationTie-in coordination

FulfillmentFulfillment

Premium design and manufacturing

Premium design and manufacturing

Contest/sweepstakes management

Contest/sweepstakes management

Functions Performed by Public Relations Firms

Strategydevelopment

Generatingpublicity

Lobbying

Publicaffairs

News releases,communication

Research

Managingcrises

Coordinationwith promotional

areas

Special events

Functions Performed by Interactive Agencies

Webbanner ads

Webbanner ads

Search engine optimization

Search engine optimizationKiosksKiosks

Interactive Media Creation

Interactive Media Creation

CD-ROMsCD-ROMs

Web sitesWeb sites Text messagesText messages

Website for the California Milk Advisory Board

Marketing Research Companies

Quantitative studiesQuantitative studies

Qualitative researchQualitative research

Help clients under-stand target

audience

Help clients under-stand target

audience

Pros and Cons of Integrated Services

ConvenienceConvenience

Greater synergyGreater synergy

Single image for product or serviceSingle image for

product or service

Poor communication

Poor communication

Budget politicsBudget politics

Integrated Services

Integrated Services

+ Positive+ Positive - Negative- Negative

No synergyNo 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