The document discusses the relationship between advertisers and advertising agencies. It covers how an agency is selected, setting terms of the contract including payment methods, organizing agency and client contact teams, structuring meetings, and setting the advertising budget. Determining budgets is challenging but agencies often use percentage-of-sales or matching competitors' spending as guidelines.

1. Objectives
 Understand the relationship between an advertiser
and the agency
 What happens after a client chooses an agency
 Agency compensation – different methods of paying
the agency

2. Objectives
 Running the relationship – the meetings
 Looking at the advertising budget

3. Advertising Agency Organization
 Link the agency with
the client
 Act as liaisons so that
the client does not need
to interact directly with
several different service
departments and
specialists
Creative Services
Account Management
Media Services
Research Services

4. Ad-Investment
Consistent investment spending is the
key factor underlying successful
advertising.

5. Arguments for Investing in Advertising
 Investment in advertising requires that
incremental revenue > advertising
expense

6. Arguments for Disinvesting in Advertising
 Decreased expenses in advertising
mean increased profits (everything
else held equal)

7. Investment
in the Brand Equity Bank
 “Strong advertising represents a
deposit in the brand equity bank.”
 Strong- that is, different, unique,
clever, memorable

8. Advertising Functions
Informing
Persuading
Reminding
Adding Value
Assisting Other Company Efforts

9. Advertising Functions
 Makes consumers aware, educates them about
the features and benefits, and facilitates the
create the creation of positive brand images
 Facilitates the introduction of new brands and
increases demand for existing brands
 Performs another information role by teaching
new uses for existing brands (Usage expansion
advertising)
Informing

10. Advertising Functions
 Persuades customers to try advertised products and
services
 Primary demand- creating demand for an entire
product category
 Secondary demand- the demand for a specific
company’s brand
Persuading

11. Advertising Functions
 Keeps a company’s brand fresh in the consumer’s
memory
 Influences brand switching by reminding consumers
who have not recently purchased a brand that the
brand is available and that it possesses favorable
attributes
Reminding

12. Advertising Functions
 Three basic ways by which companies can add value
 innovating
 improving quality
 altering consumer perceptions
 Advertising adds value to brands by influencing
consumers’ perceptions
Adding Value

13. Setting The Terms
 After choosing an agency
- Need to define what the clients objectives are in detail.
- Need to look at method of payment

14. Setting The Terms
 Agency and client need clear understanding on many
issues
 Draw up a contract
 Note that contract is usually of most importance when
things go wrong.

15. Setting The Terms
 Of importance to the client is meeting the objectives
they have set for the campaign

16. Setting Advertising Objectives
 Expression of management consensus
 Guides the budgeting, message, and media aspects of
advertising strategy
 Provide standards against with results can be measured

17. Setting Good Advertising Objectives
 Include a precise statement of who, what, and when
 Be quantitative and measurable
 Specify the amount of change
 Be realistic
 Be internally consistent
 Be clear and put it in writing

18. Sales Volume as
an Advertising Objective
Traditional View
• Sales volume is the consequence of
a host factors in addition to
advertising
• Effect of advertising is delayed

19. Sales Volume as
an Advertising Objective
Heretical View
• Advertising’s purpose is to generate
sales
• Sales measures are “vaguely right”

20. Setting The Terms
 Of most import to the agency is how they will get paid.
 Client wants to get the most bang for its buck
 Agency must ensure that their responsibilities are
clearly laid out in the contract

21. Agency Compensation
•Commissions from media (15%)
•Reduced commission system(<15%)
•Labor-based fee system
•Outcome-based
Three
Sources

22. Commission Issues
 Its absolute level
 Whether it should vary with different media, levels of
spending
 How to apply non-media items
- eg. Production costs

23. Commission Issues
 Key problems
- Distorts an agency’s advice
- - using TV campaigns – can reduce the creative work
needed per commercial
- Very profitable for the agency

24. Fees
 Time-based fee systems
- Agency is paid for work done on clients behalf.
- Every option is given equal weight in
recommendations.

25. Fee problems
 Requires effective and efficient time-sheet system
 Agency and client need to agree on rate of each
member of team.
 The creative teams time is most valuable.

26. Menu System/work-unit pricing
 Cost-per-task basis
 Main virtue is transparent price structure
 Tight cost controls
 Meshes well with cost accounting

27. Menu System/work-unit pricing
problems
 Does not allow for the synergy
 Client can shop around for best price
 Does not deal with quality

28. Result Based Payment
 Usually combined with other approach
 Allows agency to earn a bonus for above target
performance.

29. Result Based Payment Problems
 Developing attainable targets
 Measuring progress
 Will discuss in chapter 8

30. The creative fee
 Two part charging system
1) Monthly fee
- based on proportion of work of individual assigned to
account
2) Determined value for the creative idea

31. Running the relationship
 Agency will need to learn everything
- Visits to offices/factories
- Conversations
- Review available market research
- Getting to know each other’s teams

32. Structuring contact
 Primary contact is the account manager
- Responsible for smooth running of account
- Effective use of agency resources on behalf of client
*large agencies can be 2 or 3 levels

33. Structuring contact
 Client side is the marketing director
- Responsible for the advertising
- Marketing mix
*large companies may have specialist advertising or
communications directors

34. Formalizing contacts
 Day-to-day contact
- Meetings could be weekly, biweekly, monthly
- Discuss new work or progress etc…
 Major meetings
- New briefs for major campaigns
- Presentation of new campaign proposals,
- Research debriefs…..

35. The advertising Budget
 How do you decide how much to spend ? What do you
spend it on?
 Establishing budgets is difficult
 Practice lags behind theory

36. Advertising Budgeting in Theory
 The best(optimal) level of any investment is the
level that maximizes profits(MR=MC)
 Advertisers should continue to increase their
advertising investment as long as it is profitable to
do so
MC
= (Change in total cost)
(Change in quantity)
= TC/Q
MR
= (Change in total Revenue)
(Change in quantity)
= TR/Q

37. Budgeting Considerations
in Practice
 What is the Ad objective?
 How much are competitors spending?
 How much money is available?

38. Budgeting Methods
 Percent-of-Sales Budgeting
 Objective-and-Task Method
 Competitive Parity Method
(match competitors method)
 Affordability Method

39. Percentage-of-Sales Budgeting
 A company sets a brand’s advertising budget by
simply establishing the budget as a fixed
percentage of past or anticipated sales volume
 Criticized as being illogical
Sales=f(Advertising) (o)
Advertising=f(Sales) (x)

40. Objective-and-Task Method
 The most sensible and defendable advertising
budgeting method
 Specify what role they expect advertising to play for a
brand and then set the budget accordingly

41. The Competitive Parity Method
 Sets the ad budget by basically following what
competitors are doing

42. Summary
 Working with an agency should be a professional
business relationship and structured accordingly.
 This requires a formal contract, with especial
attention paid to the thorny question of how the
agency will be remunerated for its efforts. The
contract should also cover a range of other details.

43. Summary
 The agency will aim to tailor its account team to fit
with the client’s structure, with the main contacts
going through the account management team and the
client marketing departments of the agency.

44. Summary
 The relationship will – inevitably – revolve around a
series of meetings, which need to be call reported to
provide a record of the decisions taken.
 The budget will be central to the relationship. Setting a
budget is difficult, but the difficulties are often avoided
by using simple rules of thumb.