The document discusses key aspects of advertising agencies and their relationship with clients. It defines an advertising agency as a firm that creates promotional ideas, designs advertisements, books ad space/time, plans campaigns, conducts research, and provides other marketing services. Agencies help clients enter new markets through their expertise. The document outlines the roles of agencies, types of agencies, sources of agency income, factors for effective client-agency relationships, and reasons for client turnover. It provides guidance on selecting an agency, improving relationships, and coordinating with agencies.

1. Choosing the Right Agency
Module 5
- Dr. Anupama S. Kotur

2. Understanding Advertising
Agency and its Role
 Advertising Agency creates advertisements for their clients, plans
how, when and where it should be delivered and hands it over to the
client. Advertising agencies are mostly not dependent on any
organizations.
 These agencies take all the efforts for selling the product of the
clients. They have a group of people expert in their particular fields,
thus helping the companies or organizations to reach their target
customer in an easy and simple way.
 The first Advertising Agency was William Taylor in 1786 followed
by James “Jem” White in 1800 in London and Reynell & Son in 1812.

3. Understanding Advertising
Agency and its Role
Definition
Advertising Agency is a Firm that
(1) creates new promotional ideas,
(2) designs print, radio, television, and internet advertisements,
(3) books advertisement space and time,
(4) plans and conducts advertising campaigns,
(5) commissions research and surveys, and
(6) provides other such services that help a client in entering and
succeeding in a chosen market.
In general, advertising agencies are not deemed agents of the
advertisers, because they act as principals for the services they buy on
behalf of their clients.

4. Understanding Advertising
Agency and its Role
Role of Advertising Agencies
a) Creating an advertise on the basis of information gathered about
product
b) Doing research on the company and the product and reactions of
the customers.
c) Planning for type of media to be used, when and where to be used,
and for how much time to be used.
d) Taking the feedbacks from the clients as well as the customers and
then deciding the further line of action.

5. Understanding Advertising
Agency and its Role
The reasons behind hiring the advertising agencies by the companies
are:
i. The agencies are expert in this field. They have a team of different
people for different functions like copywriters, art directors,
planners, etc.
ii. The agencies make optimum use of these people, their experience
and their knowledge.
iii. They work with an objective and are very professionals.
iv. Hiring them leads in saving the costs up to some extent.

6. Client Advertising Agency
Relationship
The Benefits of Using an Advertising Agency
a) Added Expertise
b) Media Knowledge and Unbiased Advice
c) Easier Administration
d) Media Buying
e) Quality Control
f) Information
g) Fending off the media when things go wrong
h) Cost Saving
i) Time Saving

7. Types of Advertising Agency
1. Full Service Ad Agency 9. Direct Marketing Ad Agency
2. Limited Service Ad Agency 10. Healthcare / Medical Education
Ad Agency
3. Creative Boutique Ad Agency 11. In-House Ad Agency
4. Media Buying Ad Agency 12. Integrated Ad Agency
5. Specialist Ad Agency 13. Interactive Ad Agency
6. Brand Experience Ad Agency 14. Outdoor / OOH Ad Agency
7. Brand Content 15. Search Engine Ad Agency
8. Digital / Online Ad Agency 16. Social Media Ad Agency

8. Sources of income for the advertising
Agency
1. Commissions from Media - The traditional method of compensating
agencies is through a commission system, where the agency receives a
specified commission (usually 15 percent) from the media on any
advertising time or space it purchase for its clients.
The commission system had many advantage, including:
 Traditional and well understood.
 Simple and easy to operate.
 Despite its conceptual imperfections it works well in most cases

9. Sources of income for the advertising
Agency
2. Fee Arrangement
Under the fee structure, the client and the ad agency negotiate a flat sum
to be paid to the agency for all work done. The agency estimates the cost
(including out of pocket expenses) of servicing the client who either
accepts or negotiates for a lesser amount. Negotiations continue until an
agreement is reached.
There are two basic types of fee arrangement systems. In the straight or
fixed-fee method, the agency charges a basic monthly for all of its services
and credits to the client and any media commissions earned. Agency and
client agree on the specific work to be done and the amount the agency
will pay for it.

10. Sources of income for the advertising
Agency
3. Cost plus agreement
The cost-plus system is generally used when the media billings are
relatively low and a great deal of agency service is required by the client.
This happens most often with industrial products, new product
introductions etc. that require disproportionate amount of agency help in
preparing brochures, catalogues and other non- commissionable
marketing activities.
Under a cost-plus system, the client agrees to pay the agency a fee based
on the costs of its work plus some agreed-on profit margin (Often a
percentage of total costs).This system requires that the agency keep
detailed records of the costs it incurs in working on the clients account .
Direct costs (personnel time and out-of-pocket expenses) plus an
allocation for overhead and a mark-up for profits determine the amount
the agency bills.

11. Sources of income for the advertising
Agency
4. Incentive-Based Compensation & Overrides
Many clients these days are demanding more accountability from their
agencies and tying agency compensation to performance through some
type of incentive-based system. While there are many variations, the basic
idea is that the agency’s ultimate compensation level will depend on how
well it meets predetermined performance goals.
These goals often include objective measures such as sales or market share
as well as more subjective measures such as evaluations of the quality of
the agency’s creative work. Companies using incentive-based systems
determine agency compensation through media commissions, fees,
bonuses, or some combination of these methods

12. Sources of income for the advertising
Agency
5. Percentage charges
Another way to compensate an agency is by adding a mark-up of
percentage charges to various services the agency purchases from outside
providers. These may include market research, artwork, printing,
photography, and other services or material. Mark-ups usually range
from 17.65 to 20 percent and are added to the clients overall bill. Since
suppliers of these services do not allow the agency a commission,
percentage charges cover administrative costs while allowing a
reasonable profit for the agency’s efforts.

13. Client Advertising Agency
Relationship

14. Client-agency relationship means relationship between advertiser and
ad-agency. Cordial relationship with trust and confidence is must to
get maximum from ad agency and agency can also work with free
hand. Certain basic principles have been evolved by the experts of
advertising management to have sound relations between the agency
and the media that help client and media to have long ending business
relations to reap the benefits of continuous relations. These are pointed
as;
Agency and the Clients
a) Commitment:
Every advertiser expects that the agency he engages refrains from
accepting advertising work for his competitors. It is equally true that
the advertiser shall not engage any other agency without the prior
consent of the agency.
Client Advertising Agency Relationship

15. Client Advertising Agency Relationship
b) Prior Approval:
The advertising agency is to get the prior approval for all the advertising work
on the basis of client feedback and for all the expenses connected with the
advertising. It is of crucial importance because; it is a matter of money
spending and commitment.
c) Payment:
In accordance with the agency contract with the media, the client is to pay the
agency at the media’s published rates and the agency, has the right to retain its
commission allowed by the media. Any concession extended by the media is to
be passed on to the client.
d) Mutual Trust and Confidence:
There should be an attitude of mutual confidence and trust. The agency should
be allowed to participate in panning and there should be no interference in its
executive. The company should have the freedom to contribute creative ideas
to the agency and the later should accept them with due changes and
considerations.

16. Factors Contributing to Effective Client and
Ad Agency Relationship
1. Not to Advertise for Immediate Competitive Unit - For better
relationship in the long run, agency should not accept business from
immediate competing rivals of clients. In turn, the clients too are
expected not to engage a second agency for handling part of
advertising activities without the consent of first agency.
2. Prompt Payment - The client should pay the agency bills promptly, so
that agency can make timely payment to media- owners and suppliers
of advertisement material, professionals etc. The client should not
except agency to finance their advertising programme. So client
should pay bills of agency as well in time.
3. Passing Down Cash Discounts to Clients - If media gives any cash-
discount for making payment within stipulated time then such
discount should be passed down to client , provide the client pays the
agency bills by due date.

17. Factors Contributing to Effective Client and
Ad Agency Relationship
4. Not to Blame Agency for Media–Lapses: The client should not blame
agency for media-lapses related to ad-positioning. Here ad-scheduling
refers to the time and date of issuing advertisement and Ad-
positioning refers to the place in print media where ad is given.
5. Good Services: The advertising agency must provide good advertising
and marketing services to its client. If ad-agency provides efficient
services, at economic rates, at appropriate time, then it will help to
improve agency-client relationship in the long run.
6. Written Agreement: All the terms and conditions between agency and
client should be in writing so as to avoid any dispute in future. These
terms can be with regard to fees, percentage of service charges,
passing down of cash-discount received from media, due-date for
paying the bills, time to be taken for developing and preparing
advertisement etc.

18. Factors Contributing to Effective Client and
Ad Agency Relationship
7. Frequent Contacts between Agency and Client: For maintaining
smooth agency client relation, both the parties should interact with
each other frequently. This will enable both the parties to understand
the problem of each other and to develop understanding between
advertiser and agency on various advertising decisions. Advertiser
should review the agency’s working regarding its advertising
regularly and systematically, rather than criticizing it at the end.
Regular review and evaluation by client will lead to right course of
action at right time. It will improve the coordination between top-
executives of client and agency, and promote trust and confident in
each other.

19. Factors Contributing to Effective Client and
Ad Agency Relationship

20. Reasons of Client Turnover
Client turnover means clients changing their ad-agencies. A client does
not approach an agency only because it produces creative stuff or it has
media strength. The Client's turnover situation arises even when a
thorough selection process has been used, and the various guidelines for
liaison and coordination with the agency have been followed in the right
spirit.
Following are the reasons for client leaving the exiting ad-agencies:
i. Poor Quality of Services: If the client becomes dissatisfied with the
quality of advertising or marketing services provided by the agency,
then it may leave the existing agency and look for another agency
which provides better services.
ii. Frequent Personnel Changes in Staff: Clients sometimes switches
over to new agencies when the creative team of exiting agency or key
employees of exiting agency moves out to another agency.

21. Reasons of Client Turnover
iii. Lack of Coordination: sometimes, the company key officials an
the agency personnel find it very difficult to have the working report
warranting a kind of compromise or give and take. If both the parties
are adamant on their issues, the relations break down for the worst
and the best of their interests.
iv. Dearth of Confidence: When the client loses the confidence of his
agency in the delicate area, of say, competence, fairness in dealings,
treatment and the like, causing tearing away of the relations.
v. Change for the sake of change: When change becomes the essence of
life. Man goes on changing simply for the sake of change. According
to such clients, change result better results. It may not always be the
case.

22. Reasons of Client Turnover
vi. Non-availability of services: If the present agency cannot render the
services required by the client, there is no escape from joining another
that extends these much desired services.
vii. Personal Conflict: Sometimes client and agency perceive the ad-
campaign in a drastically different manner. Persons working as top
executives of client and agency may have conflict regarding any
decision of advertising campaign like copy writing, copy designing,
selection of models, selection of media, media scheduling etc. It may
result in client leaving agency.

23. Reasons of Client Turnover
viii. Sometimes agency may also leave any client’s account voluntarily
because of:
 Accepting the work of immediate competitive unit.
 Agency feels that client’s account is not profitable.
 Client unnecessarily interferes in the working of agency.
 Client does not make payment of bills, or makes unreasonable
delays in payment.

24. Improving Client – Agency Relationship
a) Understanding - both parties make the effort to understand how the
other works.
b) Trust - both parties trust each other and work to maintain that trust –
including Communicating well, meeting deadlines and agreeing fair
pricing.
c) Flexibility - there is space in the relationship for both parties to
suggest new ideas, Adjust things and improve things.
d) Respect - both parties respect the views, competence and situation of
the other, and communicate in a respectful way.
e) Shared responsibility - in the best client/agency relationships, both
parties will feel an equal sense of responsibility and commitment to
the work they are producing.

25. Selecting an Ad Agency
1) Services offered by Ad-agency - There are different agencies provides
different services, some provides all the services, some provide
selected services, some provides only media services. It depends on
the requirement of advertiser whether he need a full service agency,
creative boutique, media buying service agency, or a sweet shop.
2) Experience of Agency - An experienced agency performs better then
a new agency because it is familiar with different components of
marketing environment like- competitors' policies, taste of consumer,
income of consumer, consumer responses, fashions and trends,
reputation of different media etc.
3) Size of Agency - There are both large size agencies and small size
agencies, both have their own advantages and disadvantages. Large
agencies serves big clients, provides wide variety of services, and
charges higher but, cannot give personal attention because of having
large number of clients, also cannot give much attention to small
clients because of having large number of big clients.

26. Selecting an Ad Agency
4) Competitors' Agency - Agency which is working for competitors
must be avoided otherwise agency will not prepare ads which help
the advertiser to take an edge over competition.
5) Image of Agency - While selecting ad-agency the advertiser should
enquire the image, integrity, ethical standards, and relations of
agency with its clients.
6) Creativity and other skills - Ad-agency must be creative enough to
generate new ideas to gain the attention of target audience.
7) Rates Charged by Agency - The rates of agency must suit the pocket
of client. Advertiser should select agency whose rates are reasonable
and within the ad-budget.
8) Financial Strength of Agency - A financially strong ad-agency have
better turnover and better contacts with media owner, and afford
better infrastructure, well-equipped-ad labs, and quality staff.
9) Past Records of Agency - It is necessary to know who were the past
clients of agency, how long were they with agency, why they left the
agency, brand image of products of clients, etc.

27. Coordination with Ad Agency
• Advertising efforts represent only one spoke in the wheel of the
marketing mix. It is one of the four Ps of marketing mix namely,
product, price, place and promotion. That is why, advertising
coordination implies establishing unity of thought, purpose and action
between the advertising efforts and those of others having bearing on
his efforts.
• It is building of internal and external relations to his department and
vertical and horizontal within the organisational set-up.
• The advertising manager is to maintain two-way relations of give and
take with other functional areas of the organisation. That is, how his
efforts are supplemented and supported by those of others and how he
is supplementing and supporting the efforts of others.

28. Areas of Coordination with Ad Agency
Areas of
Coordination
Personal
Selling
Sales-
Promotions
Public
Relations
ResearchProduction
Finance
Distribution

29. The Means of Coordination
1) Effective organisation structure: Internal and External coordination
largely depends on organizational structure. Coordination means
two-way relationship between the clients and agency both horizontal
and vertical. Vertical relations stand for the relations between higher
and lower officers and horizontal relations between the parallel
department and sections. Regardless of the variant shapes it takes,
the internal organisation is a means to achieve coordination as it
establishes lines of authority and responsibility.
2) Sound decisions: Any decision taken both by the clients or the ad
agency must by mutually consulted and agreed upon.
3) Policies and procedures: Role of policies and procedures cannot be
underestimated in boosting coordination, both within and around the
organisation. The policies are determined to achieve the goals set
and, hence, every step is subject to control. It is the set of clear and
definite policies that goes a long way in enhancing the organizational
coordination.

30. The Means of Coordination
4) Perfect knowledge and understanding: Perfect knowledge of the
things within and around the organisation is a must. Thus, ad
manager should know what are the duties and responsibilities of
those working in sales, sales- promotion, finance, personnel,
production, and public relations departments so that he can establish
both official and personal relations, with them to get his work done.
Mere perfect knowledge is not sufficient. He should understand its
practical utility and applicability.
5) Personal relations: The organisational structure clearly defines official
relations between the employees at different levels of organisation
both vertical and horizontal. These official relations are a must for
enforcing discipline and decorum within the four walls of an
organisation. However, personal or working relations are more
important and are known for working wonders by encouraging full
cooperation and coordination between departments and persons.
Hidden cooperative spirit is brought to surface by mutual
accommodation.

31. The Means of Coordination
6) Effective communication system: Any department of the organisation
cannot work in vacuum. It cannot afford to follow closed-door policy.
The people of other departments should know what is going on in
advertising department so that ideas, suggestions flow in for the
benefit of the advertising manager. Equally it is applicable to other
departments that his ideas and suggestions are welcomed and
accepted, if worthwhile. Healthy two-way interchange of ideas,
points, opinions and facts is a means of coordination.
7) Viable control system: To link planning and control the starting and
terminal functions, coordination plays a cementing role. Planning
and controlling functions make coordination a delicate function. The
major wing of control system is the budgetary control system that
binds all the departments together. Thus, a company budget is a
means of planning and control to seek coordination from all the
people from all the departments as it spells out departmental aims
and assignments.