advertising agencies

1. INTRODUCTION TO ADVERTISING: PRINCIPLES,
CONCEPTS AND MANAGEMENT (PRA 1020)
The Advertising Agency: Functions , Types, Structures, Departments ,
Remuneration, Pitching, Client-Agency Relationship, Revenue and
Commission

2. Structures
• An ad agency organizes its functions, operations, and personnel according to the types of
accounts it serves, its size, and its geographic scope. In small agencies (annual billings of less
than $20 million),
• each employee may wear many hats. The owner usually supervises daily business operations, ~
• client services, and new-business development. Account executives generally handle day-to-
day client contact.
• AEs may also do some creative work, such as writing copy.
• Artwork may be produced by an art director or purchased from an independent studio or
freelance designer. Most small agencies have production and traffic departments or an
employee who fulfills these functions.
• They may have a media buyer, but in very small agencies account executives also purchase
media time and. space.
• Medium and large agencies are usually structured in a departmental or group system. In the
departmental system, the agency organizes its various functions- account services, creative
services, marketing services, and administration-into separate departments

3. Structures
• In the group system, the agency is divided into a number of "little"
agencies or groups
• Each group may serve one large account or, in some cases, three
or four smaller ones. An account supervisor heads each group's
staff of account executives, copywriters, art directors, a media
director, and any other necessary specialists.
• A very large agency may have dozens of groups with separate
production and traffic units. To deal with the economic pressures
of the new millenium, many agencies have looked for ways to
reorganize.

4. Departments
• Research and Account Planning
• Advertising is based on information.
• Clients and agencies must give their creatives (artists and copywriters) a wealth of product, market, and competitive
information because,.
• Before creating any advertising, agencies research the uses and advantages of the product, analyze current and potential
customers, and try to determine what will influence them to buy.
• After the ads are placed, agencies use more research to investigate how the campaign fared.
• Account planning is a hybrid discipline that uses research to bridge the gap between account management and creatives.
The account planner defends the consumer's point of view and the creative strategy in the debate between the agency's
creative team and the client.
• Account planners study consumer needs and desires through phone surveys and focus groups, but primarily through
personal interviews. They help the creative team translate their findings into imaginative, successful campaigns. Not
attached to either account management or creative, the account planner balances both elements to make sure the
research is reflected in the ads.
• Account planners understand attitudes, feelings, language, and habits. Then represent the clients’ views in agency
meetings . By putting the consumer, instead of the advertiser, at the center of the process, account planning changes the
task from simply creating an advertisement to nurturing a relationship between consumer and brand. That requires
tremendous un

5. Creative Department
• Produce Creative Concepts
• Copy and Copywriters
• Most ads rely heavily on copy, the words that make up the headline and
message.
• Copy is a term used describe the main text ued in the advertisement.
The text could be in a dialogue, a catchy punch line,
• Adverts must aim at retaining an interest of the target audience whilst
promting the customer to purchase the product

6. Creative Department
• Ads also use nonverbal communication.
• Art directors, graphic designers, and production artists determine
how the ad's verbal and visual‘ symbols will fit together.
• The agency's copywriters and artists work as a creative team
under a creative director. Each team is usually assigned a
particular client's business. Finally, to meet the client's deadline
for the new model year, the kit had to get into production fast.

7. Advertising Production: Print and
Broadcasting
• Once an ad (or a kit) is designed, written, and approved by the
client, it is turned over to~the agency's print production manager
or broadcast producers or print ads, the production department
buys type, photos, illustrations, and other components and works
with printers, engravers, and other suppliers.
• For a broadcast commercial, production people work from an
approved script or storyboard.
• They use actors, camera operators, and production specialists
(studios, directors, editors) to produce a commercial on audiotape
(for radio) or on film or videotape (for TV).

8. Media Buying and Planning
• Media Planning and Buying Ad-agencies perform a variety of media services for their clients:
research, negotiating, scheduling, buying, and verifying.
• Media planning is critical, because the only way advertisers can communicate is through some
medium.
• Why is media function so important.
• With an unprecedented fragmentation of audiences from the explosion of new media options,
media planning and buying is no longer a simple task. Today, many more media vehicles are
available for advertisers to consider, as the traditional major media offer smaller audiences
than before-at higher prices. Add to this the trend toward IMC and relationship marketing,
and the whole media task takes on added significance. This fueled the growth of media
specialty companies J:nd simultaneously recast agency media directors as the new rising stars
in the advertising business. Tight budgets demand ingenious thinking, tough negotiating, and
careful attention to details. In this age of specialization, what advertisers really need are
exceptional generalists who understand how advertising works in coordination with other
marketing communication tools and can come up with creative media solutions to tough
marketing problems. Today, many products, owe their succ€ss more to creative media buying
than to clever ads.

9. Traffic Management
• Traffic Management
• One of the greatest sins in an ad agency is a missed deadline.
• The agency traffic department coordinates all phases of
production and makes sure everything is completed before client
and/or media deadlines.
• Traffic is often the first stop for entry-level college graduates and
an excellent place to learn about agency operations.

10. Human Resource Department
• Advertising effectiveness depends on originality in concept, design, and writing. However, while boutiques
may be economical, they usually don't provide the research, marketing, sales expertise, or deep customer
service that full-service agencies offer. Thus, boutiques tend to be limited to the role of creative
suppliers.
• Media-buying services
• Some years ago, a few experienced agency media people started setting up organizations to purchase and
package radio and TV time. The largest media-buying service (or media agency) is Initiative Media. Based
in Los Angeles, it is owned by the Interpublic Group, has offices around the world, and places more than
$10 billion worth of advertising annually for a wide variety of clients from the Walt Disney Co. to AOL to
CheapTickets.com.
• Media time and space is perishable. A 60-second radio spot at 8 P.M. can't be sold later. So radio and TV
stations presell as much time as possible and discount their rates for large buys. The media-buying service
negotiates a special discount with the media and then sells the time or space to agencies or advertisers.
• Media-buying firms provide customers (both clients and agencies) with a detailed analysis of the media
buy. Once the media package is sold, the buying service orders spots, verifies performance, sees that
stations "make good" for anymissed spots, and even pays the media bills. Compensation methods vary.
Some services charge a set fee; others ,get a percentage of what they save the client.

11. Account Management
Account executives (AEs) are the liaison between the agency and the client.
Large agencies typically have many account executives, who report to management (or account) supervisors.
They in turn report to the agency's director of account (or client) services. Account executives are often
caught in the middle of the fray, as they are responsible for formulating and executing advertising plans
(discussed in Chapter 7), mustering the agency's services, and representing the client's point of view to the
agency.
An AE needs to be more of a strategist than an advocate. She must be well versed in an extraordinary range
of media and demonstrate how her agency's creative work satisfies both her client's marketing needs and the
market's product needs.
must be enterprising and courageous, demanding yet tactful, artistic and articulate, meticulous, forgiving,
perceptive, persuasive, ethical, and discreet all at once. Must always deliver the work on time and within
budget.
To grow, agencies require a steady flow of new projects. Sometimes agencies get new assignments when their
existing clients develop new products or enter new markets. Sometimes clients seek out agencies whose work
they are familiar with.

12. Media monitoring and Evaluation
• Interactive agencies
• With the stunning growth of the Internet and the heightened interest in
integrated marketing communications has come a new breed of specialist-the
interactive agency.
• interactive agencies have sprung up within the last few years with specialized
experience in designing Web pages and creating fun, involving, information rich,
online advertising.
• Other specialists, such as direct-response and sales promotion agencies, are
also growing in response to client demands for greater expertise and
accountability.
• Think New Ideas (owned by AnswerThink) and Modem Media-Poppe Tyson
(owned by True North Communications) are just two of the many firms that
have

13. Budget and Audit Process
• Agency Administration
• In small agencies, administrative functions may be handled by the
firm's principals.
• Large agencies often have departments for accounting, human
resources, data processing, purchasing, financial analysis, legal
issues, and insurance.

14. Digital Advertising
• An ad agency organizes its functions, operations, and personnel according to the types of
accounts it serves, its size, and its geographic scope.
• In small agencies (annual billings of less than $20 million), each employee may wear many
hats. The owner usually supervises daily business operations, client services, and new-business
development.
• Account executives generally handle day-to-day client contact. AEs may also do some creative
work, such as writing copy. Artwork may be produced by an art director or purchased from an
independent studio or freelance designer.
• Most small agencies have production and traffic departments or an employee who fulfills
these functions. They may have a media buyer, but in very small agencies account executives
also purchase media time and. space. Exhibit 3-7 shows how Muse Cordero Chen is organized.
• - Medium and large agencies are usually structured in a departmental or group
• system. In the departmental system, the agency organizes its various functions account
services, creative services, marketing services, and administration-into separate departments

15. Advertising and Society
• In the group system, the agency is divided into a number of "little" agencies or groups (see RL3-2 in
• the Reference Library on the Contemporary Advertising website). Each group may serve one large account
or, in some cases, three or four smaller ones.
• An account supervisor heads each group's staff of account executives, copywriters, art directors, a media
director, and any other necessary specialists. A very
• large agency may have dozens of groups with separate production and traffic units.
• To deal with the economic pressures of the new millenium, many agencies have looked for ways to
• reorganize. TBWA Chiat/Day in Venice, California, experimented with a high-tech "virtual office" to free
• employees from a regular desk and allow them toroam around with their notebook computers and sit
wherever the needs of the moment dictate.33 That idea was short lived. In Chicago, Leo Burnett, which
was
• traditionally highly centralized, restructured itself into numerous client-oriented mini-agencies, each
meant to function as an agency within an agency.34 And in
• Fral)ce, Young & Rubicam encourages employees to spend more time out of the office with clients and to
work from home while linked to the agency via laptop.35

16. Remuneration
commissions, many agencies now charge a fee for
services that used to be free. 37 Markups In the process
of creating an ad, the agency normally buys a variety of
services or materials from outside suppliers-for example,
photos and illustrations. The agency pays the supplier's
charge and then adds a markup to the client's bill,
typically 17.65 percent of the invoice (which becomes 15
percent of the new total). For example, a markup of
17.65 percent on an $8,500 photography bill yields a
$1,500 profit. When billing the client, the agency adds
the $1,500 to the $8,500 Chapter 3 The Scope of
Advertising: From Local to Global 113 for a new total of
$10,000. When the client pays the bill, the agency keeps
the - . $1,500 05 percent of the total)-which, not
coincidentally, is the standard commission agencies
normally receive. $8,500 x 17.65% = $1,500 $8,500 +
$1,500 = $10,000 $10,000 x 15% = $1,500 Some media-
local newspapers, for example-allow a commIssIon on
the higher rates they charge national advertisers but not
on the lower rates they charge local advertisers. So, to
get their commission, local agencies have to use the
markup formula above. Today many agencies find that
the markup doesn't cover their costs of handling the
work, so they're increasing their markups to 20 or 25
percent. While this helps, agency profits are still under

17. Strategic Planning and Brand Management
• .
• What -People in an Agency Do The American Association of Advertising Agencies (AAAA)is the national trade association of
the advertising agency business and the industry's pokesperson with government, media, and the public. Its 545 agency
members, representing a wide spectrum of small, medium, and large agencies, place 75 percent of all national advertising
handled by agencies in the United States.z9
• The AAAAService Standards explain that an agency's purpose is to interpret tothe public, or to desired segments of the
public, information about a legally marketed product or service. How does an agency do this? First, it studies the client's
• product to determine its strengths and weaknesses. Next, it analyzes the product's present and potential market. Then,
using its knowledge of the channels of distribution and available media, the agency formulates a plan to carry the
advertiser's
• message to consumers, wholesalers, dealers, or c~mtractors. Finally the agency writes, designs, and produces ads;
contracts for media space and time; verifiesmedia insertions; and bills for services and media used.
• "The agency also works with the client's marketing staff to enhance the advertising's effect through package design, sales
research and training, and production of sales literature and displays. To understand these functions, consider the people
• who were involved-directly or indirectly-in the creation, production, and supervision of the Honda dealer kits created by
Muse Cordero Chen.

18. Pitching
• Types of Agencies Advertising agencies are normally classified by their geographic scope, the range of services they offer,
and the type of business they handle.
• Local Agencies
• Every community of any size has reputable small ad agencies that offer expert assistance to local advertisers. A competent
local agency can help
• Analyze the local advertiser's business and the product or service being sold.
• Evaluate the markets for the business, including channels of distribution.
• Evaluate the advertiser's competitive position and offer strategic options.
• Evaluate media alternatives and offer rational recommendations.
• Devise an integrated communications plan and implement it with consistency and creativity .
• Save the 'advertiser valuable time by taking over media interviewing, analysis, checking, billing, and bookkeeping.
• Assist in other aspects of advertising and promotion by implementing sales contests, publicity, grand openings, and other
activities.
• Unfortunately, local advertisers use ad agencies less extensively than national advertisers. Many advertisers simply don't
spend enough money on advertising to warrant hiring an agency. And some large agencies don't accept local advertisers
because their budgets are too low to support the agency's overhead.