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Chapter 3Organizing for Advertising and
Promotion: The Role of Ad Agencies
and Other Marketing Communication Organizations
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Learning Objectives
To understand how companies organize for
advertising and other aspects of integrated
marketing communications
To evaluate the advantages and disadvantages of
the various ways companies organize for
advertising and promotion
To understand the role of advertising agencies and
the services they perform as well as the various
types of agencies and media specialist companies
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Learning Objectives
To examine methods for selecting, compensating,
and evaluating advertising agencies
To explain the role and functions of specialized
marketing communication organizations
To examine various perspectives on the use of
integrated services and responsibilities of
advertisers versus agencies
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Participants in the Integrated Marketing
Communications Process
Advertisers or clients
• Have the products, services, or causes to be marketed
• Provide the funds that pay for advertising and promotions
• Responsible for developing marketing program
Advertising agency
• Specializes in the creation, production, and/or placement of the communications message
• Facilitates the integrated marketing communications proess?
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Participants in the Integrated Marketing
Communications Process
Media organizations
• Provide information, entertainment, or an environment for a firm’s marketing communications message
Specialized marketing communication services organizations
• Direct-marketing agencies
• Sales promotion agencies
• Digital/Interactive agencies
• Public relations firms
Collateral services organizations
• Collateral services: Support functions used by advertisers, agencies, media organizations, and specialized marketing communication firms
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Factors Affecting How Companies
Organize for IMC
Size of the organization
Number of products it markets
Role of advertising and promotion in the marketing
mix
Allocated budget
Marketing organization structure
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Figure 3.2 - The Advertising
Department under a Centralized System
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Centralized System
Marketing activities are divided along functional
lines
Advertising manager: Responsible for:
Planning and budgeting
Administration and execution
Coordination with other departments
Coordination with outside agencies and services
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Figure 3.3 - Decentralized Brand
Management System
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Decentralized System
Used by firms with multiple divisions and many
different products
Each product or brand is assigned to a brand
manager
Brand manager: Responsible for the total
management of the brand, including planning,
budgeting, sales, and profit performance
Category management system: Additional layer of
management above the brand managers
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In-House Agencies
Advertising agency that is set up, owned, and operated by the advertiser
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Figure 3.4 - Comparison of Advertising
Organizational Systems
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Advertising Agencies
Service organizations that specialize in planning
and executing advertising programs for its clients
Superagencies: Large agencies that merged with or
acquired other agencies and support organizations
Have now evolved into 4 major agency holding
companies?
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Reasons for Using an Ad Agency
Highly skilled specialists
Specialization in a particular industry
Objective viewpoint of the market
Broad range of experience
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Full-Service AgenciesPerforming research
Selecting media
Full range of marketing
communication and promotion
services
Creating advertising
Planning advertising
Producing advertising
Interactive capabilities
Package design
Nonadvertising services
Public relations and publicity
Sales promotions
Strategic market planning
Direct marketing
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Figure 3.6 - Full-Service Agency
Organization Chart
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Account Services
Link between the ad agency and its clients
Account executive: Understands the advertiser’s
marketing and promotion needs and interprets them
to agency personnel
Presents agency recommendations and obtains client
approval
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Marketing Services
Research department - Gathers, analyzes, and
interprets useful information
Account planners: Gather information that is
relevant to the client’s product or service
Media department - Analyzes, selects, and contracts
for space or time in the media
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Creative Services
Responsible for the creation and execution of
advertisements
Copywriters: Conceive ideas for the ads and write
the headlines, subheads, and body copy
Art department - Responsible for how the ad looks
Traffic department - Coordinates all phases of
production
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Agency Organization and Structure
• All agency functions are set up as a separate department
Departmental system
• Individuals from each department work together in groups to service particular accounts
Group system
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Creative Boutiques
Small ad agencies that provide only creative
services
Advantages
Turn out inventive creative work quickly
Provide more attention and better access to creative
talent
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Media Specialist Companies
Specialize in the buying of media
Agencies and clients develop media strategy
Media buying organizations implement strategies,
and buy time and space
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Agency Compensation Methods
Commissions
from media
Fee, cost, and
incentive-based
systems
Percentage
charges
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Commission System
Receiving specified commission from the media on
any advertising time or space purchased for the
client
Negotiated commission system
Based on a sliding scale that becomes lower as the
clients’ media expenditures increase
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Fee, Cost, and Incentive-Based Systems
Fee arrangement
Fixed-fee method: Basic monthly fee is charged for
services provided and media commissions earned
are given to the client
Fee-commission combination: Media commissions
received are credited against the fee
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Fee, Cost, and Incentive-Based Systems
Cost-plus system
• Agency is paid a fee based on the costs of its work plus some agreed-on profit margin
Incentive-based system
• Agencies are compensated above their basic costs, if they achieve or exceed results as measured by agreed-upon metrics
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Percentage Charges
Adding a markup of percentage charges to various
services purchased from outside providers
Market research
Artwork
Printing
Photography
Other services or materials
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Evaluating Agencies
Financial audit
Costs, expenses
Personnel hours billed
Payments to media
Payments to suppliers
Qualitative audit
Planning
Program development
Implementation
Results achieved
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Figure 3.9 - How Agencies Add Value
to Client’s Business
Source: “Report on the Agency–Advertiser Value Survey,” American Association of Advertising Agencies and Association of National Advertisers, August
2007
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Why Agencies Lose Clients
Poor performance or service
Poor communication
Unrealistic demands by the client
Personality conflicts
Personnel changes
Changes in size of the client or agency
Changes in the client’s corporate and/or marketing strategy
Conflicts of interest
Declining sales
Conflicting compensation philosophies
Changes in policies
Disagreements over marketing and/or creative strategy
Lack of integrated marketing capabilities
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How Agencies Gain Clients
Solicitations
Referrals
Presentations
Public relations
Image and reputation
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Direct-Marketing Agencies
Provide a variety of services
Database analytics and management
Direct mail
Research and media services
Creative and production capabilities
Has following departments
Account management
Creative
Media
Database development/management
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Sales Promotion Agency
Involved with the developing and managing of sales promotion programs
Provide following services
Promotional planning, creative research, and tie-in coordination
Fulfillment
Premium design and manufacturing
Catalog production
Contest/sweepstakes management
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Public Relations Firm
Develops and implements programs to manage
organization’s:
Publicity
Image
Affairs with consumers and other relevant publics
Employees, suppliers, stockholders, government, labor
groups, citizen action groups, and the general public
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Functions Performed by Public
Relations Firms
Strategy
development
Generating
publicityLobbying
Public
affairs
News releases,communication
Research
Managingcrisis
Specialevents
Coordinationw/promotional
areas
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Digital/Interactive Agencies
Specialize in the development and strategic use of
various digital marketing tools
Websites for the Internet
Banner ads
Search engine optimization
Mobile marketing
Social media campaigns
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Collateral ServicesMarketing research
Package design
Consultants
Photographers
Printers
Video production
Event marketing
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Pros and Cons of Integrated Services
Pros
Greater synergy
Convenience
Single image for product or
service
Cons
Budget politics
Poor communication
No synergy
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Responsibility for IMC: Agency versus
Client Key Obstacles
Lack of people with a broad perspective and the skills to make it work
Internal turf battles
Agency egos
Fear of budget reductions
Ensuring consistent execution
Measuring success
Compensation
