Advertising Industry

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ADVERTISING INDUSTRY

The earliest forms of advertising included simple signs that merchants put over their doors to inform the public about what was for sale inside. Posters, pamphlets, and handbills began appearing in England following the invention of movable type in Germany around 1450. Advertising became a part of newspapers when they first appeared in England in the seventeenth century and in America at the beginning of the eighteenth century. Magazine advertising followed in the early nineteenth century.

During the 1700s Great Britain made great advances in advertising. Handbills and trade cards were common. A wide variety of goods were advertised. For example, one of the most exciting subjects of advertising was the New World. Historians have commented that posters and handbills lauding the wonders of the New World may have hastened emigration there.

During the eighteenth century advertising could be found in the British colonies in America—a practice that, centuries later, achieved a great level of refinement and popularity in the new nation. Advertising in the colonies, however, initially had little impact. Since America was predominantly wilderness and farm country, many people lived in comparative isolation. In addition, ads appearing in newspapers were often illegible and poorly written.

Improvements in printing technology and a new advertising philosophy led to advances in U.S. advertising in the larger cities during the 1820s and 1830s. New York's penny press newspapers began to make their advertising more understandable and accessible to common readers. Finally in 1848 the New York Herald began changing the newspaper's ads daily. This expansion created a need for advertising agencies.

Advertising agencies began to emerge in the United States in the 1840s. They sold space in newspapers and magazines for commission. The commission system allowed the agency to collect a fee for placing an ad in a given newspaper or journal. It became established that agencies were compensated by their clients, that is, agencies represented the newspapers and periodicals in which advertising appeared. In 1875 George Rowell, who pioneered buying advertising space in bulk, announced that he would reverse the relationship and act on behalf of the advertisers. Soon F.W. Ayer introduced a new arrangement, the "open contract," in which terms were vague, and the agency was permitted to represent the advertiser over an indefinite period of time. It created a dynamic, long-term relationship between advertiser and agency that was generally healthy for the industry.

Changes in the American marketing system in the 1880s made modern advertising models possible. Previously the market was dominated by wholesalers who purchased goods in large lots and sold them in smaller lots for a profit. During the 1880s, however, manufacturers of packaged goods began to package, brand, and distribute their products throughout the country. This change introduced a need for advertising on a national level. These advertisers provided agencies with a new set of clients with higher standards than those who sold to only local markets. For example, packaged goods manufacturers wanted their advertising to create a bond of trust with the consumer, so their advertising needed to be more truthful.

Throughout the nineteenth century the most widely advertised products were patent medicines. Even as late as 1893 more than half of all advertisers who spent more than $50,000 annually on advertising were patent medicine manufacturers.

For firms making durable and non-durable goods advertising served many purposes. It helped introduce new products and suggested new uses for those already existing. It could also reach new audiences to inform them about established products that were unfamiliar to them. Heavily advertised products were safer to stock and easier to sell because advertising created consumer demand and brand loyalty.

During the 1890s the advertising industry grew dramatically. By 1897 more than 2,500 companies were conducting large-scale advertising campaigns. This expansion was the result of the increased use of brand names and trademarks and growing newspaper distribution. Copywriters also contributed to the growth. In 1892 N.W. Ayer & Son agency in Philadelphia hired its first copywriter to create an advertisement. Previously it had simply bought advertising space from newspapers and magazines and sold it to advertisers. Now agencies could provide both art and copy for their clients.

In 1900 the major agencies included J. Walter Thompson, N. W. Ayer & Son, and Lord & Thomas. In the nineteenth century J. Walter Thompson had persuaded several literary magazines to carry advertising, and by 1900 his agency was creating ads for thirty of the most popular women's and general interest monthly periodicals. J. Walter Thompson can be credited with transforming magazines into an advertising medium.

The Chicago agency Lord & Thomas, which later became Foote, Cone & Belding, is credited with developing a now-common form of advertising that stressed salesmanship. It originated with Albert Davis Lasker, who joined the agency in 1898 and was its sole owner from 1912 to 1942. Lasker, along with copywriter John E. Kennedy, were the founders of the "reason-why" school of advertising. Until its advent, the industry was mainly concerned with keeping the client's name before the public. Lasker innovated by adding the element of persuasion (stressing benefits to the consumer). He argued that an advertisement must give the consumer a specific reason for buying a product. This new approach later earned him the title, "the father of modern advertising."

During the 1920s the introduction of radio in the United States gave advertising an impetus that carried it through the Great Depression (1929–1939) and World War II (1939–1945). When radio was first introduced, many people felt that radio advertising should be prohibited. This view was supported by then Secretary of Commerce Herbert Hoover (1874–1964). By the end of the decade, however, advertisers began to use radio's advantages as an advertising medium by injecting elements such as drama and immediacy into commercials.

With the formation of the NBC and CBS radio networks in 1926 and 1927, respectively, radio became an important medium for advertisers. Ad agencies created nighttime radio programs as a way to communicate their client's message. They also created daytime radio dramas that became known as "soap operas" (a term that was first applied to the dramas created for consumer product giant Proctor & Gamble).

During the 1920s advertising agencies were transformed into professional organizations offering specialized services. Market research was used to gain a better understanding of the prospective audience, and agencies developed separate departments and operating units, including research and art departments (which were added to complement copy-writing services). Ad budgets soared.

Following World War II, the introduction of television laid the foundation for an advertising boom in the 1950s. By 1948 one million U.S. homes had television sets; the first coast-to-coast network was established in 1951. It was a period marked by numerous changes: ad agencies added more staff; new agencies were formed; mergers strengthened those already existing. From 1950 to 1980 advertising expenditures increased tenfold.

After World War II the U.S. advertising industry began spread throughout the world. American companies began to sell again to markets that they had entered before the war and compete in new ones. Offices were set up abroad, and the major agencies became multinational to serve their multinational clients such as Coca-Cola, Ford Motor Company, Eastman Kodak, General Foods, and many others. In the 1980s and 1990s, U.S. advertising came to dominate the international market. There were, however, some notable exceptions. For example, London's Saatchi & Saatchi, became a giant by acquiring smaller shops located in strategic cities around the world. The Dentsu agency was the principal company in Japan. France also had its own dominant agencies.

By 1980 U.S. advertising expenditures were more than $55 billion, or about two percent of the gross national product. Sears, Roebuck and Co. was the nation's largest advertiser, spending $700 million in national and local advertising. From 1976 to 1988 U.S. spending on advertising grew faster than the economy as a whole. TV advertising was mainly responsible for this growth. In 1988, as the country began slipping into an economic recession, there was a slowdown in advertising spending. U.S. ad spending would not recover until 1993, when U.S. advertising spending reached $140.6 billion.

At the time of the economic recession industry analysts began to question the effectiveness of traditional advertising to sell products and services. They offered several possible explanations: consumers were becoming less receptive to the continual barrage of advertising messages, and they grew more price conscious and less brand loyal.

Technological innovations also had an impact on traditional advertising. The proliferation of alternative communication, including the rise of cable television, changed the way advertisers could reach their audience. Advanced market research techniques allowed companies to gather a wealth of data about their customers and consumers in general. This data could be effectively used to create a database marketing program. Direct marketing increased in usage and popularity. In addition to traditional advertising, clients began demanding agencies provide integrated marketing programs that combined a variety of elements such as direct mail, direct response, database marketing, coupon redemption, in-store promotions, and other, similar techniques. Although large advertising agencies could offer their clients a range of marketing services, smaller agencies seemed better able to adjust to the changing marketing needs of their clients. This ability made smaller agencies the fastest-growing segment of the advertising industry in the early 1990s.

In spite of the growth of smaller agencies, advertising in the 1990s was dominated by large marketing conglomerates that owned several well-known advertising agencies. These conglomerates were formed through acquisitions and mergers. The largest included WPP Group PLC (which, among others, owned ad agencies J. Walter Thompson and Ogilvy & Mather); Omnicom Group Inc. (which held BBDO Worldwide Network and DDB Needham Worldwide Network and several independent agencies); Interpublic Group of Companies (whose holdings included McCann-Erickson Worldwide, Lintas: Worldwide, Dailey & Associates, and The Lowe Group); and True North Communications Inc. (which, among other agencies, owned Foote, Cone & Belding and Bozell, Jacobs, Kenyon, & Eckhardt Inc.).