Advertising Agencies

views updated Jun 08 2018

Advertising Agencies

Advertising agencies are full-service businesses able to manage every aspect of an advertising campaign. They vary widely in size and scope and cater to different kinds of customers. Some agencies have only one or two major clients whose accounts they manage. Others have hundreds of clients spread throughout the country or the world serviced from many field offices. In general, an advertising agency will be able to manage an account, provide creative services, and purchase media access for a client.

STRUCTURE OF ADVERTISING AGENCIES

An agency, depending on its size, will likely have different departments which work on the separate aspects of an account. An account manager or the account planning department will coordinate the work of these departments to ensure that all the client's needs are met. The departments within a full-service agency will typically include:

Research

The research department will be able to provide clients with some details about the prospective audience of the final advertising campaign as well as information about the market for the product being advertised. This should include specific market research which leads to a very focused ad campaign, with advertising directed to the ideal target audience.

Creative Services

Advertising agencies employ experts in many creative fields that provide quality, professional services. Copywriters provide the text for print ads, and scripts for television or radio advertising. Graphic designers are responsible for the presentation of print ads, and the art department is responsible for providing the necessary images for whatever format advertisement is decided upon. Most advertising agencies also have a technical staff with expertise in web design and implementing an online advertising campaign. Some agencies have in-house photographers and printers; others regularly employ the services of contractors.

The individuals involved in creative services are responsible for developing the advertising platform, which sets the theme and tone of the ad campaign. The advertising platform should draw upon specific, positive features of the product advertised and extrapolate the benefits the consumer could expect to receive as a result of using the product. The campaign, through the development of this platform, should prove to be eye-catching, memorable, and in some way unique. The ads consumers remember stand out from the rest; it is the advertising agency's (and specifically the creative services department's) responsibility to provide this quality for clients.

The final advertising provided by an agency should be fully developed and polished. Television commercials should be produced with professionalism. Print ads should be attractive, informational, and attention-getting. Radio spots should be focused and of high audio quality. Online ads should be well placed and drive traffic to the clients own web site or a site through which the client's products or services are offered.

Media Buying

An important function of the agency (and a major source of its revenues) is the placement of the ad in various media. The activity is aimed at achieving the largest targeted audience at the lowest cost. The research conducted by the agency will inform any media-buying decisions.

An agency will be able to negotiate the terms of any contracts made for placing ads in any of various media. A full-service agency will deal confidently with television, radio, newspapers, magazines, and on the World Wide Web. Some agencies are also branching into direct mail marketing and point of purchase incentives. Another area in which agencies will look for ad placements is in the local yellow pages, on outdoor advertising locations which can include billboards, and commercial signs on public buses, subways or trains.

The media-buying staff draws on its experience and research. Some factors to be considered in the development of the media plan include:

Cost Per Thousand: This refers to the cost of an advertisement per one thousand potential customers reached. Media-buyers use this method to compare the various media avenues they must choose between. For example, television ads are considerably more expensive than newspaper ads, but they also reach many more people. Cost per thousand is a straightforward way to evaluate how to best spend advertising dollars: if a newspaper ad costs $100 and potentially reaches 2,000 customers, the cost per thousand is $50. If a television ad costs $1,000 to produce and place in suitable television spots and reaches a potential of 40,000 viewers, the cost per thousand is only $25.

Cost Per Click and Click: Through Rate Media Buying are new measurement methods used in assessing the cost of accessing potential customers on the Internet. Agreements are often made today under which a company places a small ad on another entity's web site. There is often no fee for placing this ad; rather a fee is assessed only if and when the visitor to the host site clicks on the ad. Sophisticated systems are used to track the number of clicks an ad generates and the owner of the ad is charged on a weekly, monthly, or quarterly basis for resulting service of forwarding potential clients. The fees are based on a prearranged cost per click basis. This also referred to by many as a pay-per-click agreement. Unlike the more widely applicable cost per thousand figure, cost per click measurements are only useful in assessing online ad campaign activity levels.

Reach: This term is used when discussing the scope of an advertisement. The reach of an ad is the number of households which can safely be assumed will be affected by the client's message. This is usually expressed as a percentage of total households. For example, if there are 1,000 households in a town and 200 receive the daily paper, the reach of a well-placed newspaper ad could be expressed as 20 percent: one-fifth of the households in the community can be expected to see the advertisement.

Frequency: The frequency of a message refers to how often a household can be expected to be exposed to the client's message. Frequency differs widely between media and even within the same medium. Newspapers, for example, are read less often on Saturdays and by many more households (and more thoroughly) on Sundays. Fluctuation like this occurs in all media.

Continuity: The media-buyer will also need to consider the timing of advertisements. Depending on the client's product, the ads can be evenly spread out over the course of a day (for radio or television advertisements), a week (for radio, television, or print advertisements), or a month (radio, television, print, or other media). Of course, seasonal realities influence the placement of advertisements as well. Clothing retailers may need to run more advertisements as a new school year approaches or when new summer merchandise appears. Hardware stores may want to emphasize their wares in the weeks preceding the Christmas holiday. Grocery stores or pharmacies, however, might benefit from more evenly distributed advertising, such as weekly advertisements that emphasize the year-round needs of consumers.

SETTING AN ADVERTISING BUDGET

Deciding on an advertising budget is highly subjective; it depends on the type of business, the competitive atmosphere, and the available funds. It will also depend on how well established the business is and what the goal of the advertising is. Trade publications are often good resources to consult in pondering this matter; many provide information on industry standards for advertising budgets.

Price Structures

Advertising agencies charge their clients for all the itemized expenses involved in creating finished ads, including hiring outside contractors to complete necessary work. The client should receive invoices for all such expenses. For example, the client may receive an invoice for a television ad that includes a photographer's fee, a recording studio's fee, an actor's fee, and the cost of the film itself. The client will also be charged for the cost of placing the final advertisement in whatever media the agency has chosen (and the client has agreed to, of course).

Beyond these expenses, easily invoiced and itemized for the client, advertising agencies include a charge for their services. This fee pays for the extensive account management, creative services, research, and media placement provided by the agency, all the hidden costs involved in the production of a quality advertising campaign, and profit margin.

When working with a new client, and particularly with a small business, an agency may ask that the client put the agency on a retainer. This retainer will consist of the full advertising budget agreed upon, and will be used to pay all production expenses and media buying costs, as well as provide the agency with its fee. The client should still insist on detailed and accurate invoices for expenses taken from the retainer.

DECIDING TO USE AN AGENCY

Depending upon how important advertising is to the overall health of the particular business, and the amount of resources available for use in advertising, the small business owner should consider whether an investment in the services of advertising agency will yield meaningful benefit.

Benefits of Advertising Agencies

Advertising agencies provide a valuable resource for any enterprise seeking to increase its customer base or its sales. They bring together professionals with expertise in a wide array of communication fields, and often—though not always—produce polished, quality ads that are well beyond the capacities of the client. Agencies are generally knowledgeable about business strategy and media placement as well. The media-buying experts at an agency will develop a strategic, targeted media plan for their clients, drawing upon years of experience and close relationships with media professionals. This experience and these connections are likely not available to the small business owner, and can be important factors in launching a successful media campaign.

Drawbacks of Advertising Agencies

One drawback to using an agency, of course, is the added stress of dealing with unfamiliar people and unknown territory. Choosing the right agency will take time; the process of reaching a satisfactory ad campaign can be taxing and time-consuming (especially if the client is vague about his or her desires or expects a top-dollar campaign at a bargain-basement price). Work will have to be reviewed, changed, and reviewed again. And the account will have to be monitored closely. As with any outside contractor, the small business owner will need to keep careful tabs on what is received for his or her hard-earned dollar.

Cost is another factor that must be weighed carefully by the small business owner. Although advertising agency campaigns are often extremely valuable in terms of shaping market share, product recognition, and public image, the small business owner will have to carefully consider the potential benefits against the costs associated with hiring an agency of any size. When deciding whether or not to use an agency, the small business owner should consider if the advertising he or she envisions really requires a team of experts working on it. If the ads will be fairly simple, or if they will be placed only in one medium (such as a local newspaper), the owner should probably attempt to create the ads without the aid of an agency. It will be more economical to hire one expert, such as a graphic designer, and to place the ads personally than to hire an agency.

SELECTING A PARTICULAR ADVERTISING AGENCY

It is important for a small business to work with an agency able to devote the time needed to insure a successful ad campaign. Smaller, local agencies can usually offer more one-on-one attention. Large agencies with a stable of large corporate clients may not pay the small business owner the attention he or she thinks needed. Difficult choices arise when a business is mid-sized and needs the "heavy hitters" before it has become one itself.

Ideally, an agency should be familiar with the specific set of concerns shared by most small businesses: a limited advertising budget, finding a niche in a community, and establishing a loyal customer base. Finding a well-informed agency experienced in the customer's line is very helpful. If the potential client's business is a bookstore, for example, and the agency has never promoted a bookstore before, it does not mean they will necessarily be a poor choice to create and manage an advertising campaign. They may have done work for other local retail stores that have faced the same obstacles and challenges.

In an article for Entrepreneur, Kim T. Gordon outlined a series of questions for small business owners should ask in picking an agency. First, they should ascertain whether the agency is familiar with the target audience and knows how to reach them. Second, the small business should make sure that the agency has done extensive work in the media they plan to use most extensively. Third, small business owners should ask potential agencies about the results the agency has achieved in working with similar clients. Finally, the business owner should ask for a clear picture of what they should expect to accomplish with their specific advertising budget.

One of the best ways to choose an agency is the same way you would choose a bank, a doctor, or a house-painter: ask others you trust whom they are using. If your friends, neighbors, or fellow business owners have used an agency they were pleased with, it is worth further inquiry. If you see advertising you really like, call the business and compliment them on their good taste; then ask who prepares their ad copy. The agency-client relationship is very much trust-based; the creative work agencies do is subjective. You should work with an agency whose collective personality and creative work make you feel comfortable. These services will cost a considerable amount; starting off with a firm you feel optimistic about will help insure your satisfaction throughout the relationship. The American Association of Advertising Agencies (AAAA) helps match agencies and clients through their New Business Web site, located at www.aaaa.org.

During the introductory meeting, the agency will be prepared to show samples of their work. These are called case histories; they should be relevant to your business. These samples should reflect the agency's understanding of the needs of your small business—including who your customer base is—and a working knowledge of the kind of marketing necessary to sell your product. As a potential client, you should feel free to ask many questions concerning the approach of the advertisements, the audience reached by certain media, and what media plans have been developed for businesses similar to yours. An agency, though, should never be asked to do work "on spec." Advertising agencies cannot afford to use their considerable creative resources doing free work for potential clients. The case histories they provide, along with the answers to any questions you may have, should be sufficient to decide whether to give them your business.

Once you have found an agency you feel comfortable with, and you have together agreed upon a budget and a timeline for the advertising, the agency will begin producing copy for you to approve. Laying a strong foundation, including asking all the questions you have as they arise, will pave the way for a productive, mutually beneficial relationship.

see also Marketing

BIBLIOGRAPHY

Adams, Richard. Www.Advertising. Watson-Guptill, March 2003.

"Checking the Local Market, Asking Media Can Help Start Long-Term Relationship." Arkansas Business. December 27, 1999.

Gordon, Kim T. "Call in the Pros." Entrepreneur. December 2000.

Larry, D. Kelly and Donald W. Jugenheimer. Advertising Media Planning. M.E. Sharpe, September 2003.

Peppers, Don. Life's a Pitch and Then You Buy. Doubleday, 1995.

Poteet, G. Howard (editor). Making Your Small Business a Success: More Expert Advice from the U.S. Small Business Administration. Liberty Hall Press, 1991.

"Select an Advertising Agency." Milwaukee Business Journal. February 11, 2000.

Hillstrom, Northern Lights

updated by Magee, ECDI

Encyclopedia of Small Business

Advertising Agencies

views updated May 21 2018

ADVERTISING AGENCIES

Advertising agencies are independent businesses that evolved to develop, prepare, and place advertising in advertising media for sellers seeking to find customers for their goods, services, and ideas (American Association of Advertising Agencies, 2000). Advertisers use agents when they believe the agency will be more expert than they are at planning and creating advertisements or at developing an advertising campaign. As businesses have become more complex and diversified, many of them have consulted agencies to help them carry out their marketing communication efforts.

The modern advertising agency provides a variety of important services to clients, including media planning and buying, research, market information, sales promotion assistance, campaign development and creation of advertisements, plus a range of services designed to help the advertiser achieve marketing objectives. The first advertising agency in the United States was opened in Philadelphia by Volney Palmer in 1841 (John Hartman Center, 2000). At this time, advertising agents were largely space brokers agents who solicited ads from businesses and then sold them to newspapers that had difficulty getting out-of-town advertising (Lane, King, & Russell, 2005).

EVOLUTION OF THE ADVERTISING AGENCY FROM THE 1870S TO THE EARLY 1900S

While the invention of printing paved the way for the development of modern advertising, the influence of salesmanship began to influence the evolution of advertising toward more like what we recognize today. The advertising agency, working on a commission basis, has been chiefly responsible for this evolution. During the late nineteenth century, most advertising appeared in newspapers, on posters, and in handbills (Wells, Burnett, & Moriarty, 2000). Because it was difficult to reproduce illustrations, most of these ads were simple text-based items.

By 1900, the first specialized magazines had begun to appear in the United States. Magazines such as Field & Stream (in 1895) and Good Housekeeping (in 1900) established niche markets, which allowed for mass marketing to consumers with varied interests. Also, print technology had evolved considerably, making full-color illustrations possible. Advertising agencies began to use the new technology to create more attractive advertisements for the new niche markets, thus becoming creative centers rather than merely space brokerages.

The late nineteenth and early twentieth centuries were also times of public concern about unethical business practices. Many professions formed their own organizations to create ethical standards of operation. The American Association for Advertising Agencies (AAAA) was founded in 1917 to represent the agencies, partially in response to these ethical concerns.

Newspapers also set their own ethical standards concerning rates charged for advertisements. By 1917, publishers had agreed to set a flat rate of 15 percent as the standard commission an advertising agency would receive with the exception of local advertising, for which there was generally no predetermined commission (Lane et al., 2005).

In addition, two laws were passed to alleviate concerns about unethical advertising practices. The Federal Trade Commission Act of 1914 was originally designed to make all unfair methods of competition unlawful. It was not until 1922 that advertising was legally regulated under this act. The case that set this legal precedent was FTC v. Winsted Hosiery Company (1922) (Lane et al., 2005). The Pure Food and Drug Act of 1906 was the first act that limited the advertising of patent medicines—drugs that were advertised using exaggerated claims of effectiveness—for use by children.

EVOLUTION OF THE ADVERTISING AGENCY FROM 1920 TO THE EARLY 1950S

During the first part of the twentieth century, agencies expanded their role from one largely comprised of selling space to one of "full service" to clients—involvement in all advertising functions, from market research to ad production, to space buying (Jones, 2004). Agency development was stimulated after World War I when consumers were demanding more goods and services (Wells et al, 2000).

By the 1920s, market research suggested the role of women in making many family purchasing decisions. Thus, advertising agencies created full-color magazine advertisements for goods such as automobiles, refrigerators, and radios. Newspapers continued to use simple advertisements. In the 1920s and 30s, radio also became popular for home and family use as an inexpensive form of entertainment (Wells et al., 2000). Advertising agencies produced radio programs for the sole purpose of attracting consumers for popular national products. For example, the term "soap opera" was coined by the American press in the 1930s to denote these popular serialized domestic radio dramas. The "soap" in soap opera alluded to their sponsorship largely by manufacturers of household cleaning products (Museum of Broadcast Communications, 2005).

The 1930s were a time of renewed public interest in legislation concerning unfair and deceptive business practices. The Robinson-Patman Act of 1936 prevented manufacturers from providing promotional allowances to a retail customer unless it also offered promotional allowances to that customer's competitors. The 1938 Wheeler-Lea Amendments to the Federal Trade Commission Act enabled the Federal Trade Commission (FTC) to protect consumers from deceptive advertising in the food, drug, therapeutic device, and cosmetic industries (Lane et al., 2005).

Although World War II suspended production of many peacetime goods and services, many advertising agents found employment working for the War Advertising Council, which was responsible for mobilizing public support for the war effort. This organization later became the Ad Council.

EVOLUTION OF THE ADVERTISING AGENCY FROM THE 1950S TO THE EARLY 1990S

The end of World War II saw a culmination of more than a decade of unsatisfied consumer demand as a result of the Great Depression and war. Most markets for goods and services found a willing consumer base for new products—including television sets. Because television is a medium that combines the visual element available in print ads with sound and motion, this created a change in the structure of advertising agencies. For example, prior to the 1950s, the main source of creativity was the person writing the advertising message—referred to as the copywriter. As television became more popular, the art director and artist became more important (Wells et al., 2000).

Between 1945 and 1960, large numbers of returning veterans began to marry and have children—the generation of children known as baby-boomers. For the first time in the United States, advertising agencies found it profitable to market certain goods and services directly to the youth market. Ads for blue jeans and stereo equipment appeared in newspaper inserts, in youth-oriented niche market magazines, and on television.

Advances in product design during the 1960s and 1970s forced advertising agencies to become more creative in order to differentiate their client's product from competitors' equally good products. The resulting newer, more creative advertisements proved both popular and profitable, allowing agencies to spend more money on advertising research—often employing behavioral psychologists to design elaborate studies of consumer buying behavior. All of this creativity had a cost: it became very expensive to produce lengthy TV advertisements. Advertising agencies addressed the cost issue by designing thirty-second television commercials with memorable advertising slogans short phrases designed to keep a consumer's attention and maintain recognition of a particular brand of good or service.

As the cost of advertising rose, agency clients began to demand results for increasingly expensive ad efforts—in the form of consumer research. During the 1980s and 1990s, many advertising agencies merged in order to remain financially competitive in this period of consolidation and rising costs. Some agencies moved toward providing a range of marketing services options to clients, including direct marketing, sales promotion, and public relations (Lane et al., 2005). Some advertising agencies moved from traditional radio and TV advertising toward sales promotion techniques such as rebates, coupons, and sweepstakes that offered measurable proof of increased sales (Wells et al., 2000).

Evolution of the Advertising Agency from 1995 to the Present

The traditional advertising agency is now facing competition from many different directions. In recent years, a number of advertising media companies have consolidated their businesses. These large organizations have sought to blend media, such as television, print, cable, and Internet to be able to better design messages to meet individual consumer needs (Lane et al., 2005). Some large advertisers are directly employing branding specialists, media specialists and CRM specialists and dissolving their longstanding relationships with agencies in an effort to increase the effectiveness of their marketing dollars. Marketing, branding and research consultancy firms have developed, with each claiming to provide the strategic planning offered by agencies. In addition, media firms and production houses are now delving into concept development (Williams, 2004).

Present-day agencies employ many of the techniques that were popular in the early years of advertising. Newspapers continue to advertise primarily in text format, although color inserts are becoming popular. Advertising agencies continue to be able to advertise in smaller and smaller niche-market magazines. Radio remains a popular advertising medium in local markets. The widespread availability of cable TV and satellite transmission has fragmented television advertising into niche markets. However, new and enhanced technologies plus continuing innovation in product development are adding an interactive flavor to advertising. With the development of new media channels new marketing opportunities will arise. These developments in the advertising industry continue to influence how agencies operate. The changes are discussed next.

Globalization and International Marketing

Advertising agencies are under increasing pressure to create ads for products distributed in a global market. Costs for producing and executing advertising campaigns across international markets can be very high. Success often depends on a brand maintaining a uniform position across the markets in different countries. Agencies must often consider culture, language, and customs when designing an advertisement tailored to the international market. In order to meet the demands of a global market, advertisers are forming large multinational agencies and continuing to debate whether to standardize advertising globally or to segment advertisements by culture or nationality (Wells et al., 2000).

Interactive Marketing and the Internet

Since 2000, interactive marketing has been the fastest growing area within marketing. Interactive marketing includes Internet advertising, permission e-mail, marketing web sites, mobile media (including digital mobile communication devices) and other new media (Stafford & Faber, 2005). These media are distinctive among the mass media in that they permit people the chance to communicate outside the traditional medium limitations of time and space.

The Internet allows advertising agencies to target consumers worldwide and to conduct market research inexpensively. The easy access to market research information may permit advertising agencies to continue developing ads to reach smaller and smaller niche markets worldwide. At the same time, certain forces are reducing the availability and use of information gathered over the Internet. For example, the Children's Online Protection Act (1998), or COPA, is a U.S. law that affects business transactions by children using the Internet. COPA requires Web sites soliciting personal information from children under the age of 13 to prominently post a privacy policy and require parental consent for the release of personal information provided by those children before any business can be transacted. Many countries are developing laws similar to COPA, and it remains to be seen how COPA and other impending legislation will affect advertising agencies that conduct business globally.

The Role of Government in Advertising

Very few industries have been more thoroughly regulated than advertising. Advertising's visibility in society sometimes makes it a target for criticism. Consumers often believe that many advertisements are untruthful and manipulative, which draws attention from citizens, the media, government, and competitors (Wells et al., 2000). At these times, government often has taken steps to regulate advertising practices and content.

The Ad Council is a private, non-profit organization that marshals volunteers from advertising and communications, media facilities, and the resources of the business and non-profit communities to deliver messages to the American public. Since its founding in 1942 as the War Advertising Council, the Ad Council has produced public service ads and acted as an agency that addresses social issues such as improving the quality of life for children, preventative health, education, community well being, environmental preservation and strengthening families (The Ad Council, 2005).

Changing Incentives

Advertising agencies produce revenue and profits by charging commissions and fees for their services. The 15-percent commission has remained a common practice, with the rate sometimes negotiated downward are account budgets become large. In recent years, fees have become the largest source of revenue for agencies. Increasingly, agency revenues are based on sales or market distribution goals (Lane et al., 2005).

Evolving Career Fields in Advertising

Today's advertising agencies include a vast array of specialists who work together to create a complete and thorough advertising campaign. Account managers allocate agency resources, including time, money, and personnel for individual projects. An account manager often assembles a team of individuals, each bringing a particular advertising specialty to the project. The team includes an art director, creative director, artist(s), copywriters, and designers. The team may also include other specialists such as media analysts, product testers, researchers, and public relations consultants.

see also Advertising