Organizing for Advertising and Promotion:

The Role of Ad Agencies and Other Marketing Communication Organizations

3

McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Participants in the IMC Process

Marketing communications specialist organizations

Media organizations

Advertiser (Client)

Advertising agency

Collateral services

Direct-

response

agencies

Sales

promotion

agencies

Interactive

agencies

Public

relations

firms

Organizing for Advertising and Promotion

• The way a company (the client) organizes depends on

– Its size

–The number of products it markets

–The role of advertising and promotion in the marketing mix

–The budget

– Its marketing organization structure

Advertising Dept. Under Centralized System

President

Production Finance Marketing

Research and

develop-ment

Human resources

Marketing research

Advertising SalesProduct planning

Pros & Cons of a Centralized System

Fewerpersonnel

Bettercommunications

Continuity

Longerresponse time

Less goalinvolvement

TheCentralized

System

+ Positive - Negative

Impractical formultiple brands,

products, divisions

More top management involvement

Decentralized Advertising System

Production Finance

Sales

Brand

Manager

Ad agency

Product

Management

Sales promotion

Package design

Marketing

services

Marketing R & D Human

Resources

Corporate

Brand

Manager

Ad agency

Advertising

Dept

Marketing

Research

Merchandising

Pros & Cons of Decentralization

Internal conflicts

Ineffective decision making

Rapid problemresponse

Concentratedattention

Increasedflexibility

TheDecentralized

System

+ Positive - Negative

Unequal distribution

of funds

Lack ofAuthority

Test Your Knowledge

A major reason why some companies choose to use an in-house agency is to:

A) Maintain creative freshness

B) Reduce advertising and promotions costs

C) Better understand how advertising works

D) Win advertising awards that will enhancethe image of their brands

E) Do all of the above

In-House Agencies

Benetton’s in-house agency works with outside agencies to develop ads

Pros & Cons of In-House Agencies

Morecontrol

Costsavings

Bettercoordination

Lessobjectivity

Lessexperience

TheIn-houseAgency

+ Positive - Negative

Lessflexibility

The Ad Agency’s Role

• Reasons for using an ad agency

–Highly skilled specialists

–Specialization in a particular industry

–Objective viewpoint of the market

–Broad range of experience

Ad Agencies Have Skilled Specialists

Artists Writers Researchers

Photographers Media Analysts Other Skills

Full-Service Agencies

Creating advertising

Planning advertising

Producing advertising

Performing research

Selecting media

Sales promotions

Strategic market planning

Direct marketing

Interactive capabilities

Package design

Full range of marketing

communication and promotion

services

Nonadvertising services

Public relations and publicity

Typical Full-Service Agency Organization

WritersArt directors

TV

production

Traffic

Print

production

Account

Executive

Account

supervision

VP account

services

Media

Research

Sales

Promotion

VP marketing

services

Personnel

Accounting

FinanceOffice

management

VP management

and finance

President

Board of

directors

VP creative

services

Services Provided by Agencies

Agency Services

Research department

May include account planners

Media dept. obtains media space, time

Marketing Services

The link between agency and client

Managed by the account executive

Account Services

Creation, execution of ads

Copywriterartists, other specialists

Creative Services

Accounting

Finance

Human resources

New business generation

Mgmt & Finance

The Role of Creative Boutiques

CreativeBoutiques

Provide only creative services

Full-service agencies may subcontract with creative

boutiques

Ability to turn out inventive creative work quickly

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

Test Your Knowledge

Which of the following statements about changes in the way advertising agencies are being compensated is true?

A) Most clients do not pay full commissions totheir agencies because they prefer fee- or incentive-based systems.

B) From the viewpoints of both the client and the agency,the traditional commission system is superior tonegotiated commissions.

C) Most clients want their agencies to be in total chargeof the integrated marketing communications process,so they prefer to compensate them based on mediacommissions.

D)Statements A, B, and C are all true.

Methods of Agency Compensation

Commissionsfrom media

Fee, cost, and incentive-based

systems

Percentagecharges

CompensationMethods

Evaluating Agencies

Financial Audit

Qualitative Audit

Verify costs, expenses

Personnel hours charged

Payments to media

Payments to suppliers

Planning

Program development

Implementation

Results achieved

Top Agency Value-Add Activities

New media guidance, solutions

Integrated disciplines & functions

Creative ideas

Collaboration

Ideas/programs for multi comm.

programs

Talented people

Brand driver

evaluation

Loyalty to a Single Agency

Young & Rubicam has handled the Dr Pepper account for

over 30 years

Why Agencies Lose Clients

Poorperformance

Poorcommunications

UnrealisticClient demands

Personalityconflicts

Personnelchanges

Changesin size of client

or agency

Conflicts ofinterest

Change in client’s strategy

Decliningsales

Paymentconflicts

Policy Changes

Policy Changes

How Agencies Gain Clients

Referrals

Solicitations

Presentations

Public Relations Image, Reputation

The Hottest Agency in the Ad Business

Direct-Marketing Agency Activities

Directmail

Databasemanagement

Research

Creative

Media services

Direct-MarketingAgencies

Production

Database development, management

Direct-Marketing Agency

• Departments in a typical direct-marketing agency

–Account management

–Creative

–Media

–Database development and management

Sales Promotion Agencies

Catalog production

Promotional planning

Creative research

Tie-in coordination

Fulfillment

Premium design and manufacturing

Contest/sweepstakes management

Functions Performed by Public Relations Firms

Strategydevelopment

Generatingpublicity

Lobbying

Publicaffairs

News releases,communication

Research

Managingcrises

Coordinationwith promotional

areas

Special events

Functions Performed by Interactive Agencies

Webbanner ads

Search engine optimizationKiosks

Interactive Media Creation

CD-ROMs

Web sites Text messages

Website for the California Milk Advisory Board

Marketing Research Companies

Quantitative studies

Qualitative research

Help clients under-stand target audience

Pros and Cons of Integrated Services

Convenience

Greater synergy

Single image for product or service

Poor communication

Budget politics

Integrated Services

+ Positive - Negative

No synergy

Test Your Knowledge

Marketing executives say the biggest obstacle to implementing IMC is:

A) Lack of management support

B) Insufficient budgets

C) Lack of people with the right perspective and skills

D) Inexperienced ad agencies

Obstacles to Implementing IMC

• Key obstacles

– Lack of people with the broad perspective and skills to make it work

– Internal turf battles

–Agency egos

–Fear of budget reductions

–Ensuring consistent execution

–Measuring success

–Compensation