ORGANIZATION FOR ADVERTISING: THE

ADVERTISING AGENCY AND THE CLIENT

Organization for Advertising: The

Advertising Agency and the Client
I. Overview of Advertising Agency Work

A. Organization of the Advertising Industry

Five players of advertising:
(1) Advertiser (client)—The advertising’s sponsor.
(2) Ad agency—A marketing services firm that
assists adverisers in planning, preparing, and placing,
and evaluating all or portions of their advertising
programs. www.AAAAgencysearch.com
www.AgencyPreview.com

(3) Media—Advertising message communication

carriers
(4) Vendors (suppliers, external facilitating
agencies, collateral services)—Specialized
advertising services firms.
www.blackbook.com

Organization for Advertising: The

Advertising Agency and the Client
 Participants in the IMC Process

Advertiser
Advertiser (Client)
(Client)

Advertising
Advertising agency
agency

Media
Media organizations
organizations Direct-
Direct- Sales
Sales
response
response promotion
promotion
**
**Marketing
Marketing agencies
agencies agencies
agencies
communications
communications
specialist
specialist
Public
Public
organizations
organizations Interactive
Interactive
relations
relations agencies
agencies
Collateral
Collateral services
services firms
firms
Collateral Services/Suppliers
(5) Marketing communications specialist organizations

Art studios & Printers &

web designers related specialists

Film & video Research

houses companies

Freelance writers, artists/graphic

Jingle houses designers, directors, photography studios,
etc.
 I. OVERVIEW OF ADVERTISING AGENCY WORK

The client—Small companies might use sales or

marketing department to do adv. (next slide).
o Large companies have an advertising dept.

(second slide).
o Large companies have an Advertising director

(advertising manager, marketing communications

director [manager], marketing services manager,
chief communications officer, etc.)
Might use an in-house agency (third slide)

Organization for Advertising: The

Advertising Agency and the Client
 Small Firm: Advertising Department Under Marketing
Department

President
President

Research
Research and
and Human
Human
Production
Production Finance
Finance Marketing
Marketing develop-
develop- resources
ment resources
ment

Marketing
Marketing Product
Product
Advertising
Advertising Sales
Sales
research
research planning
planning
Large Firm: Advertising Department Under
Marketing Department

Organization for Advertising: The

Advertising Agency and the Client
 Pros & Cons of In-House Agencies

+ Positive - Negative
Cost
Cost
savings
savings (if
(if strong
strong in-
in- More
More Less
Less
house
house resources)
resources) Attention
Attention to
to the
the experience
experience and
and
and
and time
time savings
savings brand
brand talent
talent
due
due to
to market
market
familiarity
familiarity & &
proximity
proximity Less
Less
The objectivity/loose
objectivity/loose
The
More outside
outside perspective
perspective
More In-house
In-house
control
control and
and Agency
Agency
consistency
consistency
Less
Less
creative
creative quality
quality
Better
Better coordination,
coordination,
lower
lower employee
employee
turnover,
turnover, more
more Less
Less
connection
connection to
to the
the C-
C- Flexibility—more
Flexibility—more
suite
suite set
set in
in ways
ways
 I. OVERVIEW OF ADVVERTISING AGENCY WORK
The advertising agency business: (OHD) Standard Directory of
Advertising Agencies (“Red Book”) (Agency lists)
 Perceived as glamorous, but...
 Commercial business
and show business
(awards shows)
 A “people” business: teamwork
 A “service” (serve us) business (OHD)
 A “sales” business: clients, client’s customers
 A “creative” business
 A young person’s business (OHD)
Organization for Advertising: The
Advertising Agency and the Client
 I. OVERVIEW OF ADVERTISING AGENCY WORK

B. Structure and work of an advertising agency

Organization for Advertising: The

Advertising Agency and the Client
 Agencies: Defined

Strategy: Develop marketing & ad plans

Agency Creative: Develop ads & promotions

Roles

Media: Purchase ad space and time

 Agencies: Types
Local National Global
Reach
Internatio
Regional
-nal
Consumer
Full Service
B2B

Boutiques Media Buyers

Specialty
Interactive
 Services Provided by Agencies

Agency
Agency Services
Services (e.g.,
(e.g., Hill
Hill
Holiday)
Holiday)

1.
1. Account
Account 2.
2. Marketing
Marketing 3.
3. Creative
Creative 4.
4. Mgmt
Mgmt &
&
Services/Mgt.
Services/Mgt. (“The
(“The Services
Services Services
Services Finance
Finance
suits”)
suits”)

The
The communication
communication (1)
(1) Research
Research
link Creation,
Creation, Accounting
Accounting
link between agency
between agency department
department execution
and
and client (ad mgr.)
client (ad mgr.) execution ofof Finance
May
May include
include ads
ads Finance
Managed
Managed by by the
the account
account planners
planners –– Human
Human
account executive Integrate Copywriter
Copywriter
account executive Integrate customer
customer artists, resources
resources
research
research into ad
into ad artists, other
other
(1)
(1) Strategic
Strategic work
work specialists
specialists New
New business
business
strategy
strategy
-planning ad strategy
-planning ad strategy generation
generation
Brand a.
a. Ideate
Ideate
(2) Brand insight
insight &&
(2) Project
Project mgt.
mgt. –– customer
Organizing
Organizing && customer insight
insight for
for b.
b. Create
Create
proper
proper connection
connection &&
managing
managing resources
resources communication
communication
so project completed
so project completed
on
on time
time && w/in
w/in (2).
(2). Media
Media dept.
dept.
budget
budget obtains media
obtains media
space
space && time
time
 Full-Service Agencies

Planning
Planning
advertising
advertising Performing
Performing
Full
Full range
range of
of research
research
Creating
Creating marketing
marketing
advertising
advertising communication
communication andand
promotion
promotion services
services Selecting
Selecting media
media
Producing
Producing
advertising
advertising

Strategic
Strategic market
market Interactive
Interactive
planning
planning capabilities
capabilities
Nonadvertising
Nonadvertising
Sales services
services
Sales promotions
promotions Package
Package design
design
(“Marketing
(“Marketing
services”)
services”) Public
Direct
Direct marketing
marketing Public relations
relations
and
and publicity
publicity
 Typical Full-Service Agency Organization (by the four
functions) (OHD: VPs Cartoon)

Board of
directors

President

VP creative
VP account VP marketing
services VP management
services services
and finance

Writers Print
Art directors production Sales
Media
Promotion
Account
TV supervision
production
Research Office
management Finance

Traffic-Liason between creative Account

sevices & acct. services to me sure Accounting
Executive
everyone has the info needed to get
the job done on time. Shepherds Personnel
creative work from conception to
completion. (OHD: Types of
Agencies)
 The Role of Creative Boutiques

Creative
Creative
Boutiques
Boutiques (e.g.,
(e.g., Provide
Provide only
only creative
creative services
services
Mother,
Mother, Strawberry
Strawberry
Frog)
Frog)

Full-service
Full-service agencies
agencies may
may
subcontract
subcontract with
with creative
creative boutiques,
boutiques,
especially
especially when
when overloaded
overloaded

Ability
Ability to
to turn
turn out
out inventive
inventive
creative
creative work
work quickly
quickly
 Media Buying Can be Specialized

Media
Media Specialize
Specialize in
in buying
buying media,
media,
Specialist
Specialist especially
especially broadcast
broadcast time
time
Companies
Companies

Agencies
Agencies and
and clients
clients develop
develop media
media
strategy
strategy

Media
Media buying
buying organizations
organizations
implement
implement the
the strategy
strategy and
and buy
buy time
time
and
and space
space
.
Video:
.
Video:Want
WantAAJobJobin
inAdvertising?
Advertising?(10
(10min.)
min.)
Video:
..
Crispin Porter + Bogusky (7:40)
Video: Crispin Porter + Bogusky (7:40)
..
Video:
Video:Strawberry
StrawberryFrog;
Frog;Inside
Insidean
anAdvertising
AdvertisingAgency
Agency
(12:17)
(12:17)
II. HIRING AND COMPENSATING AN AD AGENCY
A. Why hire an agency? (Hint: Why outsource in general?)
Objective advice (Analogy: independent auditor)
Outsider perspective (vs. groupthink)
Collective experience working wth many different clients and
situations, and training/marketplace and specialty services
experience (OHD-Make own paper clips? )
People and management skills
Supportive creative environment and account variety attracts top
strategic & creative talent—the best ad ideas come from agencies
(e.g., Coke, Pepsi, Apple, McD’s, BK, etc.)
Cost savings (If lack in-house resources, peak periods, asve on
media commissions)
Industry connections
Fun to work with
Video: Mad Dogs and Englishmen: Part I: Advertising Foundations and the Environment (8 min.)

Organization for Advertising: The

Advertising Agency and the Client
 Agencies: Compensation
B. Agency compensation
1. Commission (billings based) –
In a commission-based compensation
system, the agency is paid a percentage of the
media space or time that it places for a client.

Agency
keeps
Agency Agency
Ad rate $15,000
buys ad bills client
card Difference
at 15% full ad
price: as part of
discount: amount:
$100,000 compensat
$85,000 $100,000
ion by
client
 II. Hiring and Compensating an Ad Agency
- Commission Problems:
 Incentive to inflate media expenditures :

- There is a bias toward recommending more expensive media (e.g., network TV

advertising, not local radio).
- Bias toward commending high volume/frequency of advertising. Consequenty,
there isn’t necessarily a relationship between agency work and compensation (e.g., just
run one ad over and over).
. The agency would be taking money out of its own pocket if it ever
recommended that the client cut its advertising media expenditures, even though there
will be times when cutting one’s advertising budget is the right thing to do.
 If compensation is dictated by ad placements in traditional mass media, this may

discourage the agency from recommending nontraditional noncommissionable media

(e.g., event sponsorship or product placements) or promotional outlets.
 There is no incentive to do excellent work—it’s quantity of advertising run, not quality

of creative and media strategies.

 The percentage (traditionally 15%) is arbitrary and has been whittled down by

advertisers in recent years.

 There is no guarantee of agency profits (especially if inexpensive media are used or

volume of ads run is low).

Organization for Advertising: The

Advertising Agency and the Client
 Agencies: Compensation
2. Fee – a. Labor-based (hourly rate): Cost
reimbursement for:
(a) staff time
(b) overhead (marked up—cost plus
pricing, see below), plus a fair profit
(most common)
b. Project-based: Fixed/flat project fee

Mark ups: Agency

Agency
Agency Materials bills for
bills
buys cost materials
$100,000
materials $85,000 plus a
(cost plus
for 17.65%
markup)
campaign markup
 B. Agency compensation
Fee Advantage:
- Agency gets paid for their work & can make
a “fair” profit
Fee Disadvantages:

 Values inputs, not quality of

work/outputs/results
 Incentive to featherbed (build in

unnecessary costs; do slow, inefficient work)

Organization for Advertising: The

Advertising Agency and the Client
 B. Agency compensation
3. Incentive-based (performance based, pay for performance,
value based)) – Based on quality of work and achieving
advertising objectives
Reasons to prefer performance-based pay over commissions or
fees:
 This system helps align the agency’s objectives with those of

the client, so they can better work as partners (vs. vendor

mentality)
 It gives the agency less incentive to featherbed or recommend

expensive commissionable media

 It splits commercial risk between the marketer and the agency

as well as rewards
 It gives agencies more incentive to do good work since they

have some “skin in the game”

Organization for Advertising: The
Advertising Agency and the Client
III. Agencies: Client Relationships

+ Finding and Attracting New Clients

Presentations— Referrals
”Pitch the business”

Solicitation
Community relations
& networking
 III. Agency/Client Relationships
A. Agency Reviews (“Pitching the Business”)
www.AdForum.com “Find an agency”
Or www.AgencyPreview.com
+ Typical agency review process: Advertiser sends out RFP with budget constraints and
agency hiring criteria. The list of respondees is whittled
to a “short list” of agencies that are invited to make a presentation (“pitch the
business.” ) to the advertiser’s new business committee. (OHD Cartoons)
+ How agencies “pitch the business”:
1. Standard New Business Presentation (Credentials Presentation, Capabilities
Presentation, Nonspeculative Presentation)
Acquaint the advertiser with the agency’s
history, organization, talent, philosophy, past successes, case
histories, etc.

2. Speculative Presentation (Creative Shootout, Spec Creative)

 Propose a creative solution to the advertiser's communication problem
(usually in rough form) in a presentation to the advertiser, usually based on
a limited amount of marketplace information.
 - An R&D lab for testing new strategies and ideas.
 III. Agency/Client Relationships
 Why are speculative presentations controversial?
 Waste of agency resources (time & $$--$50-$100K), which
must be paid for by somebody (either current clients—a
distraction from current accounts—or the agency,
although they view it as an investment) (OHD-VW)
 Sometimes unethically used to pick creatives' brains for

ideas without hiring and paying them.

 Usually done with insufficient situation analysis or
O T client
No SW
input, and with limited resources.
 Usually based on a rough version of creative work, which

might not give a good indication of what the finished

work will look like
 Most work that is shown during the pitch ends up not y e s,
,
Yes es
getting used y
 Too much focus is on the creative work.

 Agencies try to please the client, not their customers.

 III. Agency/Client Relationships
 How can we overcome/minimize these problems? If the
ad agency:
 Reimburse the agency for their time and expenses.

 Gives the agency plenty of time so no rush job

 Rely on a credentials presentation instead

 Provide the ad agency with marketing research and

plenty of guidance.
 Have the agency sign a confidentiality agreement

 Have the agency present other strategic work too (e.g.,

media plan, budget recommendation, etc.)

 Pose an artificial situation far enough removed from the

client’s actual business so that ideas couldn’t actually be

used/stolen.
Organization for Advertising: The
Advertising Agency and the Client
 III. Agency/Client Relationships
B. Criteria to Consider in Selecting an Ad Agency

No account conflicts/current accounts (type and size)
 Size (large [small] clients prefer large [small] agencies)
 Creativity that also sells (persuades)
 Quality of agency personnel (skill, talent, expertise, judgment,
reputation)
 Quality of agency research
 Cost consciousness/compensation packages
 Quality of agency production work
 Media creativity and efficiency, and relations with the media
 Marketing and strategic planning skills

Organization for Advertising: The

Advertising Agency and the Client
 III. Agency/Client Relationships
 "Chemistry" between agency and
client employees (human relations)
 Courage of convictions, i.e., willing
to challenge the advertiser
 Willingness to learn about the client's business
 Agency philosophy, policies, and style
 Agency facilities and services
 Capabilities across multiple disciplines (PR, DM, digital, etc.)
 Agency location (less important)
 Taste, legal, and ethical guidelines
 Proven track record of results
 Ability to meet deadlines

Organization for Advertising: The

Advertising Agency and the Client