Dr. H. Ronald Moser Cumberland University

Dr. H. Ronald Moser

Cumberland University

Kleppner’s Advertising Procedure

Chapter 5 The Advertising Agency, Media Services, and Other Services

Kleppner’s Advertising Procedure, 18e

Lane * King * Reichart

Learning Objectives -1

• Describe the character of an agency.

• Discuss the development of advertising agencies.

• Explain the nature of a full-service agency.

• Discuss the continuing evolution of the agency.

Learning Objectives - 2

• Describe the agency and client relationship, how agencies compete for accounts, and the meaning of agency of record.

• Explain the global agency.

• Describe other advertising services.

• Describe the forms of agency compensation.

What is an Advertising Agency? The Agency

• An agency is an independent business composed of creative people and business people who develop, prepare, and place advertising in advertising media for sellers seeking to find customers for their goods or services.

– There are more than 10,000+ agencies in the United States.

– There are about 2,000 agencies listed in the New York Yellow Pages alone.

– The majority of agencies are small one-to-ten- person shops.

– Agencies advertise themselves in all appropriate media including the web sites.

Advertising Red Books: Agency Directory - The Agency

• Company Name.

• Annual Billings.

• Company Address.

• Breakdown of Billings By Media.

• New Accounts.

• Key Personnel.

• The LexisNexis Red Book of Advertising Agencies (also know as the “Agency Red Book”) lists more that 5,000 agency profiles, including full-service agencies, house agencies, media-buying services, sales promotion agencies, cyberagencies, and public relations firms.

• Branch Offices.

• Specializations.

• Number of Employees.

How Agencies Developed

• Before we discuss present-day agencies further, let us take a look at how advertising agencies got started and how they developed into worldwide organizations that play such a role in the marketing and advertising process.

The Early Age (Colonial Times To 1917)

The No-Rebate Age (1918 To 1956)

The Age of Negotiation (1956 To 1990)

The Reengineering Age (1990 To 2000)

Media and the Digital Age (Since 2000)

The Early Age (Colonial Times to 1917)

• Space Salesman - Volney B. Palmer was the first ad salesman to work for a commission.

• Space Wholesalers – During the 1850s in Philadelphia, George P. Rowell bought large blocks of space for cash from publishers at very low rates, less agents’ commissions. He might be considered in advertising as the Father of Selling by List.

• First Rate Directory – In 1869, Rowell shocked the advertising world by publishing a directory of newspapers’ rates and his own estimates of their circulation.

• It is not generally known that the first Americans to act as advertising agents were colonial postmasters.


• The Agency Becomes A Creative Center – Scholars indicate that help for establishing the advertising agency as the creative center for advertising ideas in the 1870s is credited to Calkins and Holden.

• Agency-Client Relationship Established – In 1875, Francis Ayer established N.W. Ayer & Son (which was merged into The Kaplan Thaler Group in 2002). Ayer billed advertisers for what he actually paid the publishers (that is, the rate paid the publisher less the commission).



• Curtis ‘No-Rebating’ Rule – In 1891, the Curtis Publishing Company announced that it would pay commissions to agencies only if they agreed to collect the full price from advertisers.

• Standard Commissions For Recognized Agencies Established – In 1917, newspaper publishers, through their associations, set 15 percent as the standard agency commission, a percentage that remains in effect for all media (except for local advertising, in which the media deal directly with the stores and pay no commission) to this day.



• The American Association of Advertising Agencies – Characteristics of the American Association of Advertising Agencies include: It is about 93 years old. At first, national trade association representing lonely United States advertising agencies. It is now known as 4As. In 2009, admitted associate member from outside United Stated.


Canada

United States

Mexico

American Association of Advertising Agencies founded 1917

How Agencies Develop - The No-Rebate Age (1918 to 1956)

• Radio – One of the main new events in 1925 was the notorious Scopes trial, and the main advent was radio. This trial helped establish radio as a prime new vehicle. The radio boom lasted until television came along.

• Television – Television became popular after 1952, when nationwide network broadcasts began. Between 1950 and 1956, television was the fastest growing medium. It became the major medium for many agencies.

• The events of this era that left their mark on today’s agency world are summarized here.

How Agencies Develop - The No-Rebate Age (1918 to 1956)

• Electronic Data Processing – The computer entered advertising through the accounting department. By 1956, the computer was changing the media department, the marketing department, and the research department—all having grown in competence with the increasing number of syndicated research services.

• Websites, radio, television and newspaper advertising are effective for conveying information about an agency’s offering and pricing.

• The events of this era that left their mark on today’s agency world are summarized here.

The Age of Negotiation (1956 to 1990)

• In 1956, a change occurred in the advertiser-agency relationship.

• The U.S. Department of justice held that the no-rebating provision between media associations and agencies limited the ability to negotiate between buyer and seller and therefore, was in restraint of trade and in violation of antitrust laws.

• 15% commissions remained but total compensation became an issue.

I need to be paid more.

The Reengineering Age (1990 to 2000)

• During the 1980s, many corporations merged created giant communications.

• Integrated services became a buzzword phrase relating to efforts to coordinate a client’s entire marketing mix which is a response to changing clients’ needs including:– Advertising.– Public relations.– Package design.– Web design.– Sponsorship.– And more…

Media and the Digital Age (Since 2000)

• Agency Holding Companies - Created mega-media buying and planning agencies (also called Media Service Agencies.

• Media Services Agencies - Became profit centers to attract global clients.

• Global Clients - Created the possibility for agencies to become more efficient and cost effective.

• Interactive Agencies - Have risen in importance as clients have attempted to deal with the mobile, web, iPhone, blog, BlackBerry, and consumer-generated advertising world.

The Full-Service Agency

• A Full-Service Agency - Is one that handles planning, creation, production, and placement of advertising (and other aspects of IMC) for its clients.

• In simple terms, a full-service agency offers to manage integrated marketing communications.

• After research is completed in a full-service agency, the account planning department is likely to lead the way in setting objectives and developing strategy.

The Agency Process for New Clients

Diagnosing the Marketing and Brand Strategy

Setting Objectives and Developing Strategy

Creating the Communication

Notify Trade of Forthcoming Campaign

Billing and Payments

• When a new account or a new product is assigned to a full- service agency, work on it will generally proceed as described in the following sections:


Diagnosing the Marketing and Brand Strategy

• When a new account or a new product is assigned to a full- service agency, work on it will generally proceed as described in the following sections:

• The process begins with the collection of all that you know about the product category, the brand, and its competitors.

• Research or brand planning takes the lead as the agency looks at consumer attitudes to develop penetrating Insights into the prospects and to define the brand’s core.

• Who are the prime prospects? Where are they? What are their demographic and psychographic characteristics and how does the product fit into their lifestyle?


Setting Objectives and Developing Strategy

• When a new account or a new product is assigned to a full-service agency, work on it will generally proceed as described in the following sections:

• Here we may say that a strategy may formulate the positions the product is in relation to the

prime prospect customer and emphasize the attribute that will

appeal to the prime prospect.



• When a new account or a new product is assigned to a full-service agency, work on it will generally proceed as described in the following

sections:

• Large clients may separate out the media function, assigning it to media service agency.

• Once the overall strategy is determined, you decide on the creative strategy, write copy, and prepare rough layouts and storyboards.

• A Media Plan process should define media strategy, check objectives to ensure they mesh with marketing objectives, select media, and prepare media schedules.

• The Total Plan is where you present roughs of the copy, layouts and production cost along with media schedules and cost.

• The Evaluation Plan should include double checking of media schedule, presentation of copy and layout roughs, assignment of total costs and refined objectives.


The Media Plan

The Total Plan

The Evaluation Plan


Notify Trade of Forthcoming Campaign

Billing and Payments

• When a new account or a new product is assigned to a full-service agency, work on it will generally proceed as described in the following sections:

• For many product categories, you inform dealers and retailers of the campaign details early enough so that they can prepare

to take advantage of the advertising campaign.

• When advertisements are run, you bill the client and pay the bills invoiced by the

media and product vendors.

The Traditional Agency Organization

• In this section, we first examine the traditional approach to the full-service agency structure, and then we look at the reengineering of this process.

• All agencies do not structure themselves in exactly the same manner. For discussion purposes, we have chosen a typical traditional organizational structure under the command of major executives: the vice presidents of (1) Creative Services, (2) Account Services, (3) Marketing Services, and (4) Management and Finance (see Exhibit 5.2).

Exhibit 5.2. Organizational Structure

• EXHIBIT 5.2. Organization of a Typical Full-Service Agency

The Traditional Agency Organization - Creative Service


• (1) Creative Services – Agencies are generally hired on the basis of their creative abilities—the promise that they can create campaigns that will build business for the client.

• In a traditional agency, if Mary Lou is ultimately responsible for the finished products-ads and commercials—she is likely the Creative Director.

This is the ad we want to run on this product.

The Traditional Agency Organization - Account Service


• (2) Account Services – The vice president in charge of account services is responsible for the relationship between the agency and the client and is, indeed, a person of two worlds: the client’s business and advertising (see Exhibit 5.3).

• The vice president must be knowledgeable about the client’s business, profit goals, marketing problems, and advertising objective.

Exhibit 5.3. Typical Team Responsibilities

• EXHIBIT 5.3. Typical Agency Team Responsibilities

The Traditional Agency Organization – Marketing Service

• In this section, we first examine the traditional approach to the full-service agency structure and then we look at the reengineering of this process.

• (3) Marketing Services – The vice president in charge of marketing services is responsible for media planning and media buying (if the creative agency handles media), for research, and for sales promotion.

The Traditional Agency Organization – Management and Finance


• (3) Management and Finance – Like all businesses, an advertising agency needs an administrative head to take charge of financial and accounting control, office management, and personnel (including trainees).

The Continuing Evolution of the Agency

• Decades ago, clients sought agency powerhouse talents.

• Then agencies that were less driven by famous individuals and more often driven by a collection of bright talent became popular.

• Agencies of the 1980s might best be described as responding to clients merging to be more financially competitive.

• Advertising agencies reengineered in the 1990s to better serve the integrated and Web needs of their clients.

• Most traditional agencies today are treated by most clients as vendor-order takers.

The Continuing Evolution of the Agency – Specialty Agencies• Most advertising agencies are primarily general

consumer agencies, however, some agencies specialize in certain kinds of business.

• Doremus is an agency that specializes in corporate and financial marketing.

• Kang & Lee, Uniworld and Diesti are specialty agencies that focus on multiculturalism.

• Another big growth area includes digital agencies (Digitas, Organaic Ogilvy Interactive, Avenue A/Razorfish) which might think of themselves as mainstream agencies.

Accounting

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The Continuing Evolution of the Agency – Brand Innovation Companies and Agency Size

• Most agencies are involved with their client’s product development, but in 2006 Zag, a brand-invention company and a division of Bartle Bogle Hegarty advertising agency in London, developed and launched their own brands, bringing them to market with joint venture partners. They develop, find partners, then market.

• Brad Majors, CEO of Brand Reps, LLC, indicates that medium-sized agencies will continue to produce provocative work as they grow.

• Regarding small agencies, Brad Major indicates their key to success is strong financial management.

Moser’s

Competing Accounts

• Because the client-agency relationship is a professional one, it may involve sensitive and confidential information in all of the areas dealing with profit and loss, new marketing strategies, new product strategies and sales data.

• As a result, most clients will not approve of an agency’s handling companies or products in direct competition.

• Coca-cola isn’t going to allow its agencies to handle Pepsi products. In some cases, agencies will handle accounts for the same type of product or service if they do not compete directly— for example, brands that do not compete in the same market.

Client-Agency Relationship Length

• Clients generally retain agencies as long as the relationship seems to be working. However, most contracts allow for a 90-day cancellation by either party if the relationship goes sour.

• Agencies can resign an account if they find their philosophies conflict with the client’s goals and the account isn’t profitable.

• Both client and agency can terminate a relationship.

• 4As’ data indicates the average tenure of client-agency relationships has declined for 7.2 years to 5 years since 1984.

• GE and Pepsi have been with BBDO worldwide for almost 50 years.

Agency of Record

• The agency-of-record relationship offers marketer an advertising team to work solely on their brand, creating a stable team of experts in that particular industry.

• The following pertains to an agency of record:

• This lend agency will make the corporate contracts under which other agencies issue their orders.

• This lend agency will coordinate the total media buy for products.

• This lend agency maintains a record of all advertising placed.

• This lend agency coordinates programming of products in a network buy.

Agency Multiple Offices and Global Agencies and Global Markets• Many major agencies have offices in cities through-

out the United States.

• For the most part, each office functions as an autonomous agency that serves different clients and is able to draw on a the talents and services of the other offices as needed.

• A parent agency with multiple offices does not try to secure accounts globally.

• Globalization has become a necessary part of business and advertising.

• Globalization in advertising essentially is about the need to learn and understand consumers, markets, and cultures from a global perspective.

• JWT opened its first office outside the United States in 1891 in London. JWT is one of the world’s best-known marketing communications brands.

United Kingdom

JWT’s Global Agency Network

Global Agencies and Global Markets

• Global Ad Centers – The cities handling the most local advertising billings are New York and Tokyo—fighting neck and neck for world leadership.

• For United States agencies, setting up a foreign office can be very complex. Each country is a different market, with its own language, buying habits, ways of living, mores, business methods, marketing traditions, and laws.

• Global Marketing – To market and use advertising globally and effectively, companies need to consider creating advertising locally from a worldwide plan and strategy.

Global Agencies and Global Markets

• Global Production Efficiencies – In theory, cost efficiencies in production of global advertising motivate advertisers to seek a single world execution for advertising concepts.

• While a single advertising execution helps build the same global brand equity, the reality is every international brand starts as a successful local brand and is reproduced often.

• Despite being a global advertiser for many decades, Coca-Cola didn’t launch it first global adverting campaign until 1992 with all the advertisements being similar in each country. Exhibit 5.6. shows an advertisement that was developed by Coca-Cola Company- Japan.

• A brand and its advertising must be presented in relevant and meaningful ways in the context of local environment, or consumers won’t buy or care.

Coca-Cola Creates a Global Dialogue

• EXHIBIT 5.6.

Coca-Cola (Japan) Co. Lid. tries to

create a dialogue with young

consumers in an attempt to develop

a lasting relationship

between the brand and the reader.

Agency Networks

• Independent agency networks should not be confused with the multinational agency networks owned by huge holding companies.

• Usually the relationship is centered around a single client’s needs where the agency has the capabilities to serve without their agency network partner or partners.

• As a rule there is only one network member in each market or region.

• International agency networks are established primarily to provide information and financial skills to enhance member agencies’ operations.

Agency Networks

• The Mega-Agency Holding Companies – Marion Harper set out his holding company vision for the Interpublic Group of companies in 1960, and the mega-agency was born.

• The major advantage that mega-agencies offer their clients is greater reservoir of talent to draw upon.

• A major disadvantage of mega-agencies for their clients is conflicts with competing accounts.

• An inherent reality that mega-agencies seem to forger when they decide to create an agency to serve a single account is the need for top create who don’t mind working on a single account.

Agency Networks - Top 5 Mega-Agencies

• Omnicom Group.

• WPP Group.

• Publicis Groupe.

• Dentsu.

Advantages of Mega-agencies

• Inventory of talent.

• Shifting of work among agencies.

With the Product.

With the Service.

With the Technology.

Other Advertising Services

• Talent and Production Agencies Creating Creative.

• Independent Creative Services.

• A La Carte Agencies.

• In-House Agency.

• Rolodex Agency.

• Outside Media Buying Services.

• In-House Media Services.

• Media As Client Creative Resource.

Other Advertising Services –Talent and Production Agencies Creating Creative• New services are continually springing up in competition with

advertising agencies. Each new service is designed to serve clients’ needs a little differently. This competition has impacted agency structure and operations. Today, we’re seeing a lot of innovation related to gaming, mobile, and interactive services.

• Talent and Production Agencies Creating Creative – A few major clients attempt to meld Hollywood talent and related skills sources into their advertising planning.

• Some production and talent agencies get entertainment stars, writers, and directors involved; and they develop advertising concepts and commercials for advertisers.

Other Advertising Services – Independent Creative Services Agency• Independent Creative Services - Some advertisers seek top

creative talent on a freelance, per-job basis.

• Many creative people do freelance work.

• Some open their own creative shops or boutiques.

• In general these creative people have no media department, no researchers, and no account executives.

• The purpose to the shop is strictly to develop creative ideas for clients.

• With a combined 20 years of experience creating award winning advertising, Martin + Owen is a source for Branded Content and Original programming, say their promotions (see Exhibit 5.7). ”Quite simply we are storytellers.

• We write and produce original content for a variety of clients such as television networks, movie studios, websites, and traditional markets.

Creative Shop

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Exhibit 5.7. Independent Creative Services Agency – Other Advertising Services

• EXHIBIT 5.7. Martin+Owen

write and produce original

content for television

networks, web site marketers, and agencies.

Other Advertising Services – A La Carte Agency and Rolodex Agency

• A La Carte Agency – La Carte Agency arrangement primarily offers creative service for a fee.

• The La Carte Agency arrangement is used mostly for creative services and for media planning and placement.

• Rolodex Agency – The kind of agency arrangement where several advertising specialists-usually account and/or creative people-have no basic staff but hire specialists is called Rolodex Agency.

• Clients are told a Rolodex agency has a major advantage over a small full-service agency because of its access to expertise that the small full- service agency just can’t match.

Other Advertising Service – In-House Agency• In-House Agency – A major reason to create an in-

house agency is to allow for more control over every aspect of their business.

• As a rule, the in-house agency is an administrative center that gathers and directs various outside service for its operation and has a minimum staff.

• Companies are always seeking the best means to deliver their marketing services efficiently and at lower costs.

• Broyhill Furniture’s constantly has to educate account people about the furniture business.

• Broyhill solved its problem by building a strong in- house agency (see Exhibit 5.8.)

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Other Advertising Service – In-House Agency –The Broyhill’s In-House Agency

• EXHIBIT 5.8. Created by

Broyhill’s In-House Agency.

In-House Media Services – Outside Media-Buying Services – Media As Client Creative Resource

• In-House Media Service - A few large advertisers have taken the media-buying function in-house so they will have more control over the buying operation.

• It is more likely that advertisers will keep a seasoned media consultant on staff to ride herd on their agency or media service’s performance.

• Outside Media-Buying Services – One of the major changes that began in the mid-1990s was the way advertising agencies handle media.

• Media As Client Creative Resource – Companies such as Procter & Gamble, Johnson & Johnson, Kimberly- Clark Corp., have enlisted media companies lately, not only as conduits to reach consumers but also as co-creators of programs to do so.

Other Services – Barter – Research/Planning Service – Managing Integrated Brands• Barter - Is the original business model. Long before

monetary systems came into existence, trade was the primary form of commerce.

• In bartering, the one item that neither an agency nor an advertiser offers media is cash.

• Research/Planning Service – The advertiser, the agency, or an independent research firm can conduct any needed original research. Large agencies may have substantial in-house research departments.

• Managing Integrated Brands – A brand needs a single architect, someone who will implement and coordinate a cohesive strategy across multiple media and markets. The advertising agency is often a strong candidate for this role.

Other Services – Managing Integrated Brands

• Managing Integrated Brands – The challenge for today’s agency is to develop an integrated program that accesses and employs a wide range of communication vehicles which may include the following:

• Agency Conglomerate – The hope is that advertisers will buy one-stop coordinated communications.

• In-House Generalist Agency – Another option is to expand the agency’s capabilities to include such functions as promotion and public relations.

• Service Cluster – A service cluster is a group of people drawn together from all agency affiliate organizations and whose purpose is to create ideas rather than ads.

• Communication Integrator – In the communication integrator approach, the agency draws from sources outside the agency and integrates these services for the brands.

Approaches to Integrating Brand Communications – Brand Strategy In-House

• Agency Conglomerate.

• In-House Generalist Agency.

• Service Cluster.

• Communication Integrator.

• Brand Strategy In-House – Many advertisers choose not to rely on the agency at all for managing brand strategy.

• Their view may be that agencies may be great at creating advertisements, but the brand management team may be better at planning brand strategy.

Forms of Agency Compensation

• Media Commissions.

• Production Commissions or Markups.

• Fee Arrangements.

• Performance Fees.

• EXHIBIT 5.10. This complex production piece involved many photos

pieced together in PhotoShop. There had to be a mutual

understanding between client and agency over production

changes.


• Media Commissions – The traditional 15 percent commission remains a form of agency income, especially for modestly budgeted accounts. Clients and agency may agree to a relationship in which the rate is fixed at less than 15 percent. This generally applies to large-budget accounts-the larger the budget, the lower the rate for the agency.

• The types of work for which an agency can negotiate a fixed fee include artwork charges based on the salary of the personnel involved.


• Production Commissions or Markups – Agencies subcontract production work (all outside purchases such as type, photography, or illustrators) and charge the client the cost plus a commission-17.65 percent is the norm. Exhibit 5.10. involved different photos for each plate of food, plus the background.


• Fee Arrangements – The form of compensation an agency might receive for its variety of work could include:

• Flat-fee arrangement – Is an agreed-on payment based on the type of work being done.

• Labor-based fee-plus-profit-arrangement – Covers the agency’s cost for servicing the account plus a markup.

• Sliding scale based on client expenditures – Here the agency and client may negotiate a fee arrangement based on the client cost.

• Mark-ups – Here we are talking about the difference between the cost and the selling price.


• Performance Fees – The type of compensation an agency can ask for based on an agreed-upon goal is called a performance fee.

• A predetermined performance goal may determine the compensation fee.

• If the agency meets the goals, compensation may be at the 15 percent level; if it exceeds them, a bonus could give the agency a 20 percent level.

Extending Clients Credit and Cost-Based Versus Performance-Based Fees

• Extending Clients Credit - What happens to the bills, if clients don’t pay? Always a sticky point in any business relationship.

• In 2009, Omnicom standardized the language in its contract to emphasize that “production companies will be paid when agencies are paid by marketers.

• Cost-Based Versus Performance-Based Fees – The industry has moved in the direction of cost-based fee arrangements, rather than moving in the direction of value-and performance-based arrangement.

• This shift to cost-based arrangements, which are predominant today, is not optimal for either agencies or advertisers.

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Dr. H. Ronald Moser Cumberland University