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ORGANIZATION FOR ADVERTISING
THE ADVERTISING AGENCY AND THE CLIENT
Organization for Advertising: TheAdvertising Agency and the Client
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I. Overview of Advertising Agency Work
A. Organization of the Advertising Industry
Five players of advertising:
(1) Advertiser (client)—The advertising’ssponsor.
(2) Ad agency—A marketing services firm thatassists adverisers in planning, preparing, and
placing, and evaluating all or portions of theiradvertising programs.
(3) Media—Advertising messagecommunication carrier.
(4) Vendors (suppliers, external facilitatingagencies, collateral services)—Specializedadvertising services firms
Organization for Advertising: TheAdvertising Agency and the Client
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Collateral Services/Suppliers(5) Marketing communications specialist
organizations
Art studios &
web designersPrinters &
related specialists
Film & video
housesResearch
companies
Jingle houses
Freelance writers, artists/graphic
designers, directors, photography studios,
etc.
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Participants in the IMC Process
**Marketing
communications
specialist
organizations
Media organizations
Advertiser (Client)
Advertising agency
Collateral services
Direct-responseagencies
Salespromotionagencies
Interactiveagencies
Publicrelationsfirms
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I. Overview of Advertising Agency Work
Organization for Advertising: TheAdvertising Agency and the Client
The client —Small co’ies might use sales or mktg
dept to do adv. (next slide).o Large co’ies have an advertising dept.
(second slide).
o Large companies have an Advertising director (advertising manager, mktg comm. director
[manager], mktg services manager, chief comm.
officer, etc.)Might use an in-house agency (third slide)
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Small Firm: Advertising Department Under Marketing Department
President
Production Finance Marketing Research anddevelop-ment
HR
Marketing
researchAdvertising Sales
Product
planning
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Large Firm: Advertising Department Under Marketing
Department
Organization for Advertising: TheAdvertising Agency and the Client
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Pros & Cons of In-House Agencies
More
control and
consistency
Costsavings (if strong in-
house resources) and
time savings due to
market familiarity &
proximity
Better coordination,
lower employee
turnover, more
connection to the C-suite
Lessobjectivity/loose
outside perspective
Less
experience and talent
The
In-house
Agency
+ Positive - Negative
Less
Flexibility—more set
in ways
More
Attention to the brand
Lesscreative quality
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I. Overview of advertising agency work
Organization for Advertising: TheAdvertising Agency and the Client
The advertising agency bzns: (OHD) Standard Directory of
Advertising Agencies (“Red Book”) (Agency lists)
Perceived as glamorous, but...
Commercial bzns and show bzns
(awards shows) A “people” bzns: teamwork
A “service” (serve us) bzns
A “sales” bzns: clients, client’s customers A “creative” bzns
A young person’s bzns
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I. Overview of advertising agency work
Organization for Advertising: TheAdvertising Agency and the Client
B. Structure and work of an advertising agency
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Agencies: Defined
AgencyRoles
Strategy: Develop marketing & ad plans
Creative: Develop ads & promotions
Media: Purchase ad space and time
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Agencies: Types
Specialty
Boutiques Media Buyers
Interactive
Full ServiceConsumer
B2B
Reach
Local National
Regional
Global
Internatio-
nal
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Services Provided by Agencies
Agency Services (e.g., Hill Holiday)
(1) Researchdepartment
May includeaccount planners – Integrate customerresearch into adstrategy
Brand insight &customer insight forproper connection& communication
(2). Media dept.obtains mediaspace & time
2. Marketing
Services
The communicationlink between agencyand client (ad mgr.)
Managed by theaccount executive
(1) Strategic work -planning ad strategy
(2) Project mgt. – Organizing &managing resourcesso project completedon time & w/inbudget
1. Account
Services/Mgt. (“The
suits”)
Creation,execution ofads
Copywriterartists, other
specialists
a. Ideate
b. Create
3. Creative
Services
Accounting
Finance
Humanresources
New bznsgeneration
4. Mgmt &
Finance
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Full-Service Agencies
Creating advertising
Planning advertising
Producingadvertising
Performing research
Selecting media
Sales promotions
Strategic marketplanning
Direct marketing
Interactivecapabilities
Package design
Full range of marketingcommunication andpromotion services
Nonadvertising
services (“Marketing
services”)
Public relations and
publicity
T i l F ll S i A O i ti (b th f f ti )
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Typical Full-Service Agency Organization (by the four functions)(OHD: VPs Cartoon)
Writers Art directors
TVproduction
Traffic-Liason between creative
sevices & acct. services to me
sure everyone has the info
needed to get the job done on
time. Shepherds creative work
from conception to completion.(OHD: Types of Agencies)
production
AccountExecutive
Accountsupervision
VP account
services
Media
Research
SalesPromotion
VP marketing
services
Personnel
Accounting
Finance Office
management
VP management
and finance
President
Board of
directors
VP creativeservices
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The Role of Creative Boutiques
Creative
Boutiques (e.g.,
Mother, Strawberry
Frog)
Provide only creative services
Full-service agencies may subcontract
with creative boutiques, especially
when overloaded
Ability to turn out inventive creative
work quickly
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Media Buying Can be Specialized
Specialize in buying media, especially
broadcast time
Agencies and clients develop media
strategy
Media Specialist
Companies
Media buying organizations implement the
strategy and buy time and space. Video: Want A Job in Advertising? (10 min.)
. Video: Crispin Porter + Bogusky (7:40). Video: Strawberry Frog; Inside an Advertising Agency
(12:17)
d d
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II. Hiring and Compensating an ad agency
Organization for Advertising: TheAdvertising Agency and the Client
A. Why hire an agency? (Hint: Why outsource in general?)
Objective advice (Analogy: independent auditor)
Outsider perspective (vs. groupthink)Collective experience working wth many different clients
and situations, and training/marketplace and specialtyservices experience (OHD-Make own paper clips? )
People and management skillsSupportive creative environment and account varietyattracts top strategic & creative talent—the best ad ideascome from agencies (e.g., Coke, Pepsi, Apple, McD’s, BK, etc.)
Cost savings (If lack in-house resources, peak periods, asve
on media commissions)Industry connections
Fun to work withVideo: Mad Dogs and Englishmen: Part I: Advertising Foundations and the Environment (8 min.)
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Agencies: Compensation
Ad rate
cardprice:
$100,000
Agency
buys ad
at 15%discount:
$85,000
Agency
bills client
full adamount:
$100,000
Agency
keeps
$15,000
Differenceas part of
compensati
on by client
B. Agency compensation
1. Commission (billings based) – In a commission-based compensation system, the
agency is paid a percentage of the media space or
time that it places for a client.
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II. Hiring and Compensating an Ad Agency
- Commission Problems:
• Incentive to inflate media expenditures :
- There is a bias toward recommending more expensive media (e.g., network TV
advertising, not local radio).- Bias toward commending high volume/frequency of advertising. Consequenty,there isn’t necessarily a relationship between agency work and compensation (e.g., just run one ad over and over).
. The agency would be taking money out of its own pocket if it everrecommended that the client cut its advertising media expenditures, even thoughthere will be times when cutting one’s advertising budget is the right thing to do.
• If compensation is dictated by ad placements in traditional mass media, this maydiscourage the agency from recommending nontraditional noncommissionablemedia (e.g., event sponsorship or product placements) or promotional outlets.
• There is no incentive to do excellent work—it’s quantity of advertising run, notquality of creative and media strategies.
•
The percentage (traditionally 15%) is arbitrary and has been whittled down byadvertisers in recent years.
• There is no guarantee of agency profits (especially if inexpensive media are used orvolume of ads run is low).
Organization for Advertising: TheAdvertising Agency and the Client
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Agencies: Compensation2. Fee – a. Labor-based (hourly rate): Cost
reimbursement for:
(a) staff time
(b) overhead (marked up—cost plus pricing,
see below), plus a fair profit (most common)
b. Project-based: Fixed/flat project fee
Mark ups:
Agencybuys
materials
for
campaign
Materialscost
$85,000
Agency
bills for
materials
plus a
17.65%
markup
Agency
bills$100,000
(cost plus
markup)
B A ti
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B. Agency compensation
• Fee Advantage:
- Agency gets paid for their work & can make a
“fair” profit
• Fee Disadvantages:
- Values inputs, not quality of
work/outputs/results
- Incentive to featherbed (build in unnecessary
costs; do slow, inefficient work)
Organization for Advertising: TheAdvertising Agency and the Client
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B. Agency compensation
3. Incentive-based (performance based, pay for performance,value based)) – Based on quality of work and achieving
advertising objectives Reasons to prefer performance-based pay over commissions or
fees:
• This system helps align the agency’s objectives with those of
the client, so they can better work as partners (vs. vendormentality)
• It gives the agency less incentive to featherbed orrecommend expensive commissionable media
• It splits commercial risk between the marketer and theagency as well as rewards
• It gives agencies more incentive to do good work since theyhave some “skin in the game”
Organization for Advertising: TheAdvertising Agency and the Client
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III. Agencies: Client Relationships
ReferralsPresentations— ”Pitch the bzns”
Community relations
& networking
Solicitation
+ Finding and Attracting New Clients
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III. Agency/Client Relationships
A. Agency Reviews (“Pitching the bzns”) www.AdForum.com “Find an agency”
Or www.AgencyPreview.com
+ Typical agency review process: Advertiser sends out RFP with budget constraints andagency hiring criteria. The list of respondees is whittled
to a “short list” of agencies that are invited to make a presentation (“pitch the bzns.” )to the advertiser’s new bzns committee. (OHD Cartoons)
+ How agencies “pitch the bzns”:
1. Standard New bzns Presentation (Credentials Presentation,Capabilities Presentation, Nonspeculative Presentation)
Acquaint the advertiser with the agency’s
history, organization, talent, philosophy, past successes, case
histories, etc.
2. Speculative Presentation (Creative Shootout, Spec Creative) Propose a creative solution to the advertiser's communication problem(usually in rough form) in a presentation to the advertiser, usually basedon a limited amount of marketplace information.
•
- An R&D lab for testing new strategies and ideas.
III A /Cli t R l ti hi
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III. Agency/Client Relationships
Why are speculative presentations controversial?• Waste of agency resources (time & $$--$50-$100K), whichmust be paid for by somebody (either current clients—adistraction from current accounts—or the agency, althoughthey view it as an investment) (OHD-VW)
• Sometimes unethically used to pick creatives' brains for ideaswithout hiring and paying them.
• Usually done with insufficient situation analysis or client input,and with limited resources.
• Usually based on a rough version of creative work, whichmight not give a good indication of what the finished work willlook like
• Most work that is shown during the pitch ends up not gettingused
• Too much focus is on the creative work .
• Agencies try to please the client, not their customers.
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III. Agency/Client Relationships
How can we overcome/minimize these problems? If thead agency:
• Reimburse the agency for their time and expenses.• Gives the agency plenty of time so no rush job
• Rely on a credentials presentation instead
•
Provide the ad agency with marketing research andplenty of guidance.
• Have the agency sign a confidentiality agreement
• Have the agency present other strategic work too
(e.g., media plan, budget recommendation, etc.)• Pose an artificial situation far enough removed from
the client’s actual bzns so that ideas couldn’tactually be used/stolen.
Organization for Advertising: TheAdvertising Agency and the Client
III Agency/Client Relationships
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III. Agency/Client Relationships
B. Criteria to Consider in Selecting an Ad Agency• No account conflicts/current accounts (type and size)
• Size (large [small] clients prefer large [small] agencies)• Creativity that also sells (persuades)
• Quality of agency personnel (skill, talent, expertise, judgment,
reputation)
• Quality of agency research• Cost consciousness/compensation packages
• Quality of agency production work
• Media creativity and efficiency, and relations with the media
• Marketing and strategic planning skills
Organization for Advertising: TheAdvertising Agency and the Client
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III. Agency/Client Relationships
• "Chemistry" between agency and client
employees (human relations)
• Courage of convictions, i.e., willing tochallenge the advertiser
• Willingness to learn about the client's bzns
• Agency philosophy, policies, and style
• Agency facilities and services
• Capabilities across multiple disciplines (PR, DM, digital, etc.)
• Agency location (less important)
•
Taste, legal, and ethical guidelines• Proven track record of results
• Ability to meet deadlines
Organization for Advertising: TheAdvertising Agency and the Client
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