Advertising industry structure

Advertising industry structure Learning Objectives After studying this chapter students should be able to: Identify three types of advertising agencies and discuss when each type of advertising agency might be appropriate for an advertising client. Explain the structure of advertising agency compensation methods. Classify the various types of clients with which advertising agencies might interact. Review the advertising careers mentioned and personally rate the careers.
Types of agencies
Full-service agencies Full-service agencies provide clients with all the services they need for the entire advertising function. This includes planning, creating, producing and placing the ads, as well as research before the campaign and evaluation after it to assess the campaign's effectiveness. Full-service agencies have expanded in recent years through consolidation—larger agencies buy them when they want to provide a global one-stop-shop for their global clients. In the process, the types of services that agencies provide has expanded to include PR, design and event planning.
Limited and in-house service agencies Some agencies focus on one aspect of the creative process, such as creative production work or media buying. They refer to themselves as limited agencies. And, some companies prefer to retain control over advertising and set up in-house agencies within the corporation. An advertising director typically runs the in-house agency; she chooses which services to buy and which to perform internally. For example, the in-house agency could retain creative services in-house, create advertisements itself and then purchase media-buying services from the outside. The inside agency may buy services from a limited service agency or buy services a la carte from a full service agency. Why bother to form an in-house agency? The two main reasons are to save the company money and to give the company greater control over the entire process. In addition, internal employees may have a deeper understanding of the company and its customers than would an outside agency. Insiders can also coordinate the promotion better with the firm's overall marketing program and other functions, such as ensuring that enough products are made and delivered in advance of a promotion. Dig Deeper The traditional approach to farm out different functions may change if some big clients get their way. Johnson & Johnson and Dell are but two of several major advertisers that are dissatisfied with this strategy. More specifically, they join Procter & Gamble and others to call for more collaboration between the people who do the consumer research and the people who actually create the ads. In most cases, separate companies carry out communications planning and creative functions so coordination can be difficult and self-serving biases may color some decisions. For example, an advertising agency might be tempted to suggest a network television campaign because it would be involved in creating the ads (and billing more in the process). Instead, advertisers prefer a media agnostic approach where the agency picks whatever medium works best for a specific campaign. P&G reacted to this problem when it shifted all its ad and marketing duties for its Oral B brand to a newly created team at Publicis Groupe that will not work on any other brands. As P&G's global marketing officer explained, “We find many of our brands are working with lots of agencies who all have their own creative people, their own planners, their own account people, and it gets to be unmanageable.” Only time will tell if other advertisers follow P&G’s lead. Suzanne Vranica, “Ad Houses Will Need to be More Nimble: Clients are Demanding More And Better Use of Consumer Data, Web,” The Wall Street Journal (January 2, 2008): B3; Suzanne Vranica, “J&J Joins Critics of Agency Structure: Consumer Researchers And Creative Teams Shouldn’t Be Separate,” The Wall Street Journal (May 11, 2007): B4.
How do we get paid? Historically, an agency receives a commission based on the cost of the media it buys on behalf of the client. The commission covers the agency’s copywriting, art direction and account service charges. Today, this compensation model makes less sense because many advertising services no longer include a traditional media buy. The straight 15 percent commission remains, but now some agencies charge less than 15 percent, or have sliding scales based on how much the client spends (the more money spent, the lower the percentage fee). Some agencies offer flat-fee arrangements which clients and the agency agree upon, while others charge on an hourly basis. Other innovative models include licensing fees or royalties for ideas. Some even use performance fees, in which the agency's fee depends on the success of the campaign. The client and the agency define what they mean by “success” at the start; they might measure this by looking at how well consumers recall the ads or might measure actual product sales. Agencies using performance-based models can earn much more—or much less—than the standard 15% commission. The rationale, however, is that the compensation would be tied to the value of the ideas. As we’ll see later, the question of just how—and whether—we should quantify the effect of advertising is one of the burning issues the industry faces.
Types of clients We group clients into three main categories: Manufacturers and service providers (like Boeing and Bank of America) Trade resellers (namely retailers like Best Buy or Starbucks, as well as wholesalers and distributors) Government and social organizations (such as local, state or federal governments and their specialized offices like tourism boards; and social organizations from national groups like the United Way or local hiking clubs.)
Job functions inside the agency Account managers (with titles like account executive, account supervisor or account manager) work with clients to identify the benefits a brand offers, to whom it should focus its messages (the target audience) and the best competitive position. They then develop the complete promotion plan. On the market research side, account planners from the agency work with clients to obtain or conduct research that will help clients understand their markets and audiences. Creative services staff (such as an art director or copywriter) work with clients to develop the concepts and messages that will catch consumers' interest and attention. Media buyers and media planners evaluate the multitude of options available for ad placement—now greatly expanded by the Internet. They decide how best to allocate the client's budget to use the best media to most effectively reach the target audience.
Job functions outside the agency A variety of ancillary companies support ad agencies by providing specialized services. Art studios and design firms create a company's logo, stationery, business cards, and packaging design for products. Film/video companies produce film and video for TV and the web, including infomercials. Web designers create Internet media for advertising. Printers produce printed material for a variety of media channels. Sales promotion agencies handle price discounts, sampling, rebates, premiums, trade shows, in-store merchandising and point-of-purchase displays. Research companies assess channel viewership, ad response, consumer attitudes, and trends.
Careers in advertising If you're interested in advertising, you can work at an ad agency, at an advertiser (manufacturer, trade reseller or service firm) or in the media. Jobs in ad agencies (including in-house agencies) typically fall into four main categories:
Account Services Account managers act as the client's representative at the agency, getting the best work from the agency for the client while still generating a profit for the agency. Account managers must be good at working with people and acting as leaders or strategists to communicate the client's needs to the agency team. The best account managers learn as much as they can about the client's business. The career ladder of position titles in account services is: assistant account executive, account executive, senior account executive, accounts supervior/accounts manager.
Creative services The creative department generates the ideas, images and words of the advertising message. Art directors (assistant art director, junior art directors, art directors, senior art directors) develop the artistic strategy of the client campaign, often presenting several concepts for the client to choose among. Copywriters (junior copywriter, copywriter, senior copywriter, copy chief) are responsible for developing the words of the campaign. Production staff (layout workers, graphic artists, production managers) select photos, choose the print size and type, and oversee the actual printing, filming or audio recording of the campaign.
Media services Media planners gather information about people's viewing or reading habits and combine it with information about specific media vehicles (such as a specific magazine's target audience, circulation size and advertising space costs) in order to find the best placement for the advertising. They use their judgment to balance reaching the greatest number of people in the target group versus keeping the client's costs to a minimum. Media buyers purchase the advertising space and negotiate prices. They must be good with numbers but also skilled negotiators—they'll be working with budgets and responsible for spending their client's money wisely.
Market research Market researchers learn all they can about the target customer—their wants, desires, fears and goals. They use focus groups, one-on-one interviews, test reactions to campaigns and purchase secondary information (such as the total market size in a given location). Job titles include public opinion researcher, research supervisor, project director, associate research director, research director and executive research director.
Media jobs Advertising jobs in the media include the advertising director, who heads the advertising sales department and oversees advertising rate policies, promotion and the sales staff, including sales planners and sales reps.
Corporate advertising Within a company, the jobs of the advertising department typically parallel those in ad agencies, but there is also an additional category: brand manager. Brand managers are responsible for all the advertising and marketing for their product or brand. This includes the marketing strategy, business planning and market research associated with the brand. The brand manager works closely with account services and creative staff to develop and implement campaigns best suited for that brand. Brand managers oversee the selection and work of any outside ad agencies used by the corporation. SS+K Spotlight SS+K needs to have a formal management structure, and this is what it looks like. However, the agency doesn’t tend to pay much attention to formalities, so these little boxes aren’t as solid as they look….
Key Takeaways The advertising industry is complex and many different types of skills are required to create a successful ad campaign. Career possibilities abound for people who are artistic, good writers, analytical and creative. Key Terms full-service agencies limited agencies in-house agencies performance fees manufacturers trade resellers government and social organizations account managers account planners creative services staff art studios and design firms film/video companies Web designers printers sales promotion agencies research companies account managers art directors copywriters production staff media planners media buyers market researchers advertising director brand managers Exercises What type of advertising agency would a marketer be most likely to choose if the marketer wanted to introduce a new product on a nation-wide scale? Explain your rationale. Briefly, explain how advertising agencies link to clients. In your explanation, focus on the management and planning staff found in agencies. Be specific with your terms. Pick one of the careers mentioned in the chapter and describe how you could get more information on the career, find potential employers, and secure an interview. Be creative in your response.