Advertising and Integrated Brand Promotion 6th Edition OGuinn Solution Manual

Chapter 2/The Structure of the Advertising and Promotion Industry: Advertisers, Agencies, Media, and Support
Organizations
CHAPTER 2
The Structure of the Advertising and
Promotion Industry: Advertisers, Agencies,
Media, and Support Organizations
KEY TERMS
social media
blog
crowdsourcing
advertiser
client
trade reseller
advertising agency
full-service agency
creative boutique
digital/interactive agency
in-house agency
media specialists
promotion agency
direct response agency

direct marketing agency
database agency
fulfillment center
infomercial
consumer sales promotion
trade-market sales
promotion
event-planning agency
designer
logo
public relations firm
account services
account planner
creative services
production services
media planning and buying
services
commission system
markup charge
fee system
pay-for-results
external facilitator
consultants
production facilitator
SUMMARY
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Discuss important trends transforming the advertising and promotion industry.

Recent years have proven to be a period of dramatic change for the advertising and promotion
industry. The trend affecting advertisers, agencies and the media the most is that consumers are
now in greater control of the information they receive about brands. Collectively, individuals are
gravitation toward sharing and creating information through websites, blogs, social media, wikis
and video sites like YouTube. The simplest example is when consumers log onto the Internet and
visit sites they choose to visit for either information or shopping. Social media has emerged as the
most significant form of consumer control over information creation and communication most
recently. Facebook has over 450 million users worldwide, sharing 3.5 billion pieces of content
with each other every week. Twitter has more than 50 million users who post 8 billion tweets a
year. As consumers search for more control over their information flow, advertisers, agencies and
media organizations are struggling to adapt to consumer desires. Next, the proliferation of media
from cable television to satellite radio to the Internet has created new advertising options. Giant
media conglomerates are expected to control a majority of these television, radio, and Internet
properties. Media proliferation has, in turn, led to increasing media clutter and fragmentation,
reducing the effectiveness of advertisements. As a result, advertisers are using more IBP tools like
sales promotions, event sponsorships, and public relations to supplement and enhance the primary
advertising effort. Crowdsourcing is the next big trend affecting the industry. The idea behind
crowdsourcing is to get consumers more involved with and committed to a brand in a way that
passive, intrusive advertising simply cannot. Consumers help build the brand with
recommendations for features, advertising, or events. They can also communicate about the
brand to audiences in ways that seems natural and credible something corporate launched
advertising struggles with. Finally, mobile marketing/mobile media may turn out to be the biggest
trend that affects the industry. Technology has resulted in significant opportunity for advertisers
to reach consumers with messages directed to consumers mobile devices primarily
smartphones, tables like the Apple iPad, e-readers like the Amazon Kindle but person navigation
devices (PNDs) can also accommodate messages in the wireless world.
Describe the advertising and promotion industrys size, structure, and participants.
Manydifferenttypesoforganizationsmakeuptheindustry.Totrulyappreciatewhatadvertising
isallabout,onemustunderstandwhodoeswhatandinwhatorderinthecreationanddeliveryof
anadvertisingorIBPcampaign.Theprocessbeginswithanorganizationthathasamessageit
wishestocommunicatetoatargetaudience.Thisistheadvertiser.Next,advertisingand
promotionagenciesaretypicallyhiredtolaunchandmanageacampaign,butotherexternal
facilitatorsareoftenbroughtintoperformspecializedfunctions,suchasassistinginthe
productionofpromotionalmaterialsormanagingdatabasesforefficientdirectmarketing
campaigns.Newtotheindustryinrecentyearsaredigital/interactiveagencieswhichspecialize
inmobilemarketingandsocialmediacampaigns.Externalfacilitatorsalsoincludeconsultants
withwhomadvertisersandtheiragenciesmayconferregardingadvertisingandIBPstrategy
decisions.Alladvertisingandpromotionalcampaignsmustusesometypeofmediatoreach
targetmarkets.Advertisersandtheiragenciesmustthereforealsoworkwithcompaniesthathave
mediatimeorspace.
Discuss the role played by advertising and promotion agencies, the services provided by
these agencies, and how they are compensated.
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Advertising and promotion agencies come in many varieties and offer diverse services to clients
with respect to planning, preparing, and executing advertising and IBP campaigns. These
services include market research and marketing planning, the actual creation and production of
ad materials, the buying of media time or space for placement of the ads, and traffic
management to keep production on schedule. Some advertising agencies appeal to clients by
offering a full array of services under one roof; others such as creative boutiques develop a
particular expertise and win clients with their specialized skills. Promotion agencies specialize
in one or more of the other forms of promotion beyond advertising. New media agencies are
proliferating to serve the Internet and other new media needs of advertisers. The four most
prevalent ways to compensate an agency for services rendered are commissions, markups, fee
systems, and the new pay-for-results programs.
Identify key external facilitators who assist in planning and executing advertising and
integrated brand promotion campaigns.
Marketing and advertising research firms assist advertisers and their agencies in understanding
the market environment. Consultants of all sorts from marketing strategy through event
planning and retail display are another form of external facilitator. Perhaps the most widely
used facilitators are in the area of production of promotional materials. In advertising, a wide
range of outside facilitators is used in the production of both broadcast and print advertising. In
promotions, designers and planners are called on to assist in creation and execution of
promotional mix tools. Software firms fill a new role in the structure of the industry. These
firms provide expertise in tracking and analyzing consumer usage of new media technology.
Discuss the role played by media organizations in executing effective advertising and
integrated brand promotion campaigns programs.
MediaorganizationsaretheessentiallinkindeliveringadvertisingandIBPcommunicationsto
targetaudiences.Therearetraditionalmediaorganizationssuchastelevision,radio,newspaper,
andmagazines.InteractivemediaoptionsincludenotjusttheInternetandwirelessaccessto
consumersthroughsmartphonesandiPads,butalso,CDROMs,electronickiosks,andereaders.
MediaconglomeratessuchasAT&T,TimeWarner,andNewsCorp.controlseveraldifferent
aspectsofthecommunicationssystem,fromcablebroadcasttoInternetcommunicationsand
emerginghighspeedbroadbandcommunicationstechnologies.
CHAPTER OUTLINE
PPT 2-1 here
A note before starting the Lecture Outline: This chapter contains some key information about the
new era for advertising (and its role in integrated brand promotion, or IBP). While the industry
has been characterized by rapid change for the last two decadesprimarily driven by
technological change as introduced in Chapter 1the current era of change is highly significant.
The reason? More than ever before, advertising agencies are being challenged by both advertisers
and consumer. Advertisers are demanding more effective communications and measurable results.
Consumers now have more alternatives for acquiring informationPDAs, smartphones, the
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Internet (particularly blogs and social media networks), and TiVo devicesand more control over
those alternatives. Throughout this chapter and carrying over into Chapter 3, the issue of control
will be highlighted. Advertisers response and the even greater importance of the brand are
considered.
INTRODUCTORY SCENARIO: The Great Digital Divide
Advertising agencies have historically struggled to satisfy clients. During the late 1990s, the
new innovative dotcom agencies challenged the traditional power base. Then came the
dotbomb and it appeared big multinational agencies would reassert themselves. They did for a
short time with big mergers. First, because of more media options and more control of those
options, consumers started to be harder and harder to reach. With devices like the PC, iPod,
smartphones and TiVo, consumers can pick when and how they want information, no longer
merely subject to the commercial breaks of traditional media, resulting in a plunge in
traditional media placements and revenue. So the big power struggle now is how to reach
these more elusive consumers who are turning to Facebook, Twitter, and individual blogs to
control their communications environments. In response, firms like Coca-Cola are trying to
find ways to insert the brand into consumers routine life experiences. (Ask students what
Coke is doing in this regardthey should cite the American Idol Coke cup strategy.)
In addition to the big firms trying to adapt, big media agencies are adapting as well. Big old
media companies like NBC universal are wooing advertisers with more digital media options.
Even MTV is considered an old media company and is now offering new media distribution
through broadband. Finally, the ascent of new media is dramatically characterized by Internet
advertising exceeding $30 billion annually (not counting peer-to-peer communication
vehicles.) BUT, highlight for students that all Internet advertising is still less than 10 percent
of dollars spent on media
At the outset, it is important to have students understand that the advertising industry is highly
complex due to its great breadth and the fact that communications per se is a complex
process. You might get some lively discussion of the future of old media versus controlled
mediait is worth letting the discussion rage! The role of this chapter is to lay out the
challenges coming from consumers and how that has created change in the industry. The
chapter then fulfills the very important task of laying out the current structure and players in
the industry and showing how trends are affecting change.
I. Trends Affecting the Advertising and Promotion Industry
The basic changes in the industry stem from:
PPT 2-2
A. Consumer Control: From Social Media, to Blogs to TiVo. Consumers are discovering
and desiring more ways to control the flow of information they receive. Social media,
blogs and TiVo devices are three prime examples. Advertisers are trying to respond with
more and better creative execution and technological advances of their own (e.g., those
little runners at the bottom of the TV screen that cant be TiVo-ed out).
B. Media Proliferation, Consolidation and Multiplatform Media Organizations. It
seems contradictory, but media proliferation and consolidation are taking place
simultaneously. Big media companies are merging, but with new technologies (podcasting
and Web options) new media organizations are proliferation as well. Some legal changes
like the FCC relaxing old ownership rules have spurred consolidation. And big Internet
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companies, like InterActiveCorp are buying up smaller operators.

C. Media Clutter and Fragmentation Means More IBP. With so many options available in
the media, it is hard for marketers to break through the clutter. In addition, with
proliferation comes fragmentation. With this clutter, big advertisers are looking to target
more effectively and efficiently. J&J moved hundreds of millions of dollars away from
mass media to more targeted digital media including the Internet and blogs
D. Crowdsourcing. Firms allowing experts, enthusiasts, and particularly consumers to build
the brand with recommendations for brand features or message content posted on sites
like YouTube.
Refer to Ford and Starbucks as prime examples.
E. Mobile Marketing/Mobile Media. Huge potential exits here for marketers to direct
messages to consumers via consumers smart devices. The challenge will be to make the
messages relevant and acceptable to consumers.
PPT 2-3 here
II. The Scope and Structure of the Advertising Industry
PPT 2-4 here
A quick examination of Exhibit 2.4 will help students appreciate the scope of the
industry. Spending is approaching $300 billion annually in the United States with
worldwide advertising exceeding $600 billion.
It is important to put the gross spending levels in perspective, such as the fact that
Verizon spends only about 3 percent of sales on advertising, which results in about
$3.7 billion a year in ad spending. Exhibit 2.5 shows the increase in advertising
across the 20th and into the 21st centurynote the expected global downturn in
spending that has been anticipated is not really happening.
Spending on IBP tools is huge and growingnote from text Exhibit 2.6 the huge
investment is digital marketing which already has surpassed product sampling and
coupons by a wide margin
PPT 2-5 here
The remainder of the chapter clearly and efficiently describes for students the structure of the
advertising and promotion industry. Text Exhibit 2.7 can be the guiding framework for the
discussion. Understanding structure is important because the talent and expertise needed to
create effective advertising and IBP solutions to the new challenges are spread across several
levels of the communication process and are represented in several different industries.
Advertisers may employ the services of advertising and promotion agencies and may or may
not contract for specialized services with various external facilitators.
A. Advertisers
PPT 2-6 here
1. Manufacturers and Service Firms. Large national manufacturers of consumer and

business products and services are the most prominent users of advertising, spending
hundreds of millions or even billions of dollars annually.
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Procter & Gamble, MCI, Chrysler, Colgate-Palmolive, Xerox, and General Electric
are examples. These firms can operate in global, national, regional, or local
markets. They can target either household consumers or businesses as their
primary audience.
Be sure to alert students that there are small companies that may spend only a few
thousand dollars are in this category as well (e.g., the local toy store or deli).
2. Trade Resellers. The term trade reseller is simply a term for all organizations in the
channel of distribution.
As text Exhibit 2.7 shows, trade resellers can be retailers, wholesalers, or

distributors. Retailers can sell in global markets (The Gap), national markets
(Sears), or regional markets (Dillards) but focus primarily on household
consumers.
Wholesalers and distributors, like American Lock & Supply (which supplies
contractors with door locks and hardware), are a completely different breed. They
focus on business buyers and have little need for mass media. Instead, they focus
their advertising on direct mail or highly targeted trade publications.
3. Federal, State, and Local Governments. Although it may seem odd to students to
list the government as an advertiser, the U.S. government often among the largest
spenders on advertising in the U.S., with expenditures exceeding $1.0 billion in
annually.
The most visible government campaigns are U.S. government advertising for the
armed forces recruiting and social issues. The government also spends a great deal
on direct marketing by mailing government publications to businesses and
consumers.
4. Social and Not-for-Profit Organizations. Advertising by social and not-for-profit

organizations at the national, state, and local level is commonRed Cross, American
Cancer Society, the local Humane Society are examples. This advertising is used to
stimulate demand for services and to disseminate information.
PPT 2-7 here
5. Key Discussion: The Role of the Advertiser in IBP
PPT 2-8 here
Before considering the type of agencies advertisers can rely on and the services they
provide, it is critical for students to understand that the advertiser must come to the
agency partnership fully prepared to provide the foundation of information with which
an agency needs to work. Too many advertisers (often but not always small firms) turn
to the agency for both their strategy and communications needs. This is a big mistake
only the advertiser can provide and should provide the strategic direction for the
firm.
So advertisers should come to the planning meeting with agencies prepared to:
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Describe the value that the firms brand provides to users.
Describe the brands position in the market relative to competitive brands.
Describe the firms objectives for the brand in the near term and long term (e.g.,
brand extensions, international market launches, etc.).
Identify the target market(s) that are most likely to respond favorable to the brand.
Identify and manage the supply chain/distribution system that will most effectively
reach the target markets.
Be committed to using advertising and other promotional tools as part of the

organizations overall marketing strategy to grow the brand.
B. Advertising and Promotion Agencies
PPT 2-9 here
Advertisers have a full complement of agencies that specialize in various aspects of

advertising and promotion.
1. Advertising Agencies.
Advertising agencies provide expertise to help advertisers prepare advertising
programs. An advertising agency is an independent organization of professionals who
provide creative and business services to clients related to planning, preparing, and
placing advertisements. Exhibit 2.8 shows the 2006 worldwide gross income of the ten
largest advertising agencies. The top U.S.-based agencies had combined worldwide
income of $28.2 billion in 2006.
The types of professionals in agencies who can help advertisers in the planning,
preparation, and placement of advertising and other promotional activities include the
following:
PPT 2-10 here
Account planners
Account executives
Art directors
Creative directors
Copywriters
Graphic designers
Radio and television producers
Researchers
Artists
Technical staffprinting, film editing, and so forth
Marketing specialists
Media buyers
Web developers
Interactive media planners
Public relations specialists
Sales promotion and event planners
Direct-marketing specialists
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PPT 2-11 here

a. Full-Service Agencies.
PPT 2-12 here
A full-service agency includes an array of advertising professionals to meet all the

promotional needs of clients. Often, such an agency will also offer a global reach to
the client. Young & Rubicam and McCannErickson Worldwide are examples of
full-service agencies with global capabilities.
b. Creative Boutiques. A creative boutique emphasizes copywriting and artistic
services to its clients. Other aspects of advertising planning and placement are
handled internally by the advertiser or contracted out to other external facilitators.
c. Digital/Interactive Agencies. Interactive agencies help advertisers prepare
communications for new media like the Internet, interactive kiosks, CD-ROMs,
and interactive television. Sometimes referred to as cyberagencies, these new ad
agencies have specialized talent and expertise that many traditional full-service
agencies do not have. One of the best is Red Sky Interactive. They have prepared
the corporate websites for Nike, Levi Strauss, Absolut Vodka, and Altoids.
d. In-House Agencies. An in-house agency is often referred to as the advertising
department of a firm. This option has the advantage of greater coordination and
control in all phases of the advertising process. Another advantage is that the firm
can keep as profits the commissions an external agency would earn.
e. Media specialists. Independent organizations that specializes in buying media
time and space and offer media planning advice. The proliferation of media options
has made this type of organization more important.
2. Promotion Agencies focus on promotion efforts that full-service advertising agencies
do not specialize in. Promotion agencies handle everything from sampling to event
promotions.
a. Direct Marketing and Database Agencies (also called direct response
agencies). These agencies provide a variety of direct marketing services. They
design direct marketing campaigns, assist constructing customer databases, and in
many cases maintain fulfillment centers. In addition, many direct marketing
agencies can prepare infomercials.
b. Sales Promotion Agencies. These specialists design ads and operate contests,
sweepstakes, special displays, or coupon campaigns for advertisers. Some firms
specialize in consumer sales promotions or trade sales promotions.
c. Event-Planning Agencies. Event-planning agencies and organizers are experts in
finding locations, securing dates, and putting together a team of people to manage
an event. The event-planning agency will also often take on the task of advertising
the event. Event sponsorship can also be targeted to household or the trade
market.
d. Design Firms. Designers and graphics specialists help to create logos and other
visual representations for the brand. They also design the supportive
communications such as banners, newsletters, phone-cards, and in-store displays.
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e. Public Relations Firms. Public relations firms manage an organizations

relationships with the media, the local community, competitors, industry
associations, and government organizations.
3. Full Agency Services
PPT 2-13 here
Although not every full-service agency offers every service, the services that can be
found in full-service agencies are discussed in the following sections. Text Exhibit 2.12
details the common structure of a full-service agency
a. Account Services. Account services entail identifying the benefits a product or
service provides, its potential target audiences, and the best competitive
positioning, and then developing a complete advertising plan. In some cases, an
agency will also provide basic marketing and consumer behavior research. Another
primary task in account services is to keep the various agency teamscreative,
production, mediaon schedule and within budget.
b. Marketing Research Services. The research services usually entail the agency
locating studies that have a bearing on the clients advertising and explaining these
studies to the client. Account planner positions have been added in many agencies
to coordinate the research and planning effort on accounts.
c. Creative and Production Services. In simple terms, creative services prepare the
clients message and advertising materials. Production services include producers
(and sometimes directors) who take the creative ideas and turn them into radio,
television, and print advertisements
d. Media-Planning and Buying Services. This service is where placement of the
advertising effort is handled. The central challenge is to determine how a clients
message can most effectively and efficiently reach the target audience. This service
helps clients sort through the blizzard of new media options like CD-ROM,
videocassettes, interactive media, and the Internet.
e. Administrative Services. Agencies have personnel departments, accounting
departments, and sales staffs. Most important to clients is the traffic department,
which has the responsibility of monitoring projects to be sure that deadlines are
met. Traffic managers make sure the creative group and media services are
coordinated so that deadlines for getting ads into media are met.
4. Agency Compensation, Promotion, and Redesign
PPT 2-14 here
a. Commission. The commission system is the traditional method of agency

compensation and is based on the amount of money the advertiser spends on
media.
Under this method, 15 percent of the total amount billed is retained by the
advertising agency as compensation for all costs in creating advertising for the
client.
The only variation is that the rate typically changes to 16 2/3 percent for
outdoor media.
Text Exhibit 2.14 provides students with a simple example.
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Be sure to raise the issue that many agencies have challenged this traditional
structure and negotiated different percentages for commission.
b. Markup Charges. Markup charges add a percentage to a variety of services the

agency purchases from outside suppliers. In many cases, an agency will turn to
outside contractors for art, illustration, photography, printing, research, and
production. The agency then, in agreement with the client, adds a markup charge
to these services.
Traditional markup has been 17.65 percent to 20 percent.
c. Fee System. A fee system is much like that used by consultants or attorneys,
whereby the advertiser and the agency agree on an hourly rate or project fee for
different services provided.
d. Pay for Results. In this type of program, the agencys fee is based on the
achievement of agreed upon results. Many large companies like Procter & Gamble
are moving toward this model; they are using a percentage-of-sales model.
A difficulty here is coordinating the pay for results when multiple agencies
are involved in the same campaignwho is responsible for the results?
C. External Facilitators
PPT 2-15 here
External facilitators are organizations or individuals that provide specialized services to

advertisers and agencies.
1. Marketing and Advertising Research Firms. Research firms like Burke
International perform original research for advertisers. Other research firms like SRI
International routinely collect data (from grocery store scanners, for example) and make
these data available for a fee. There are also firms that specialize in message testing to
determine if consumers find advertising messages appealing and understandable
2. Consultants. Advertisers seek out marketing consultants for assistance in the planning
stage.
Creative and communications consultants provide insight on issues related to message
strategy and message themes.
Media experts help an advertiser determine the proper media mix and efficient
media placement.
The newest type of consultant is a database consultant, who works with both
advertisers and advertising agencies in developing and managing databases for
direct marketing campaigns or narrow-casting broadcast advertising.
3. Production Facilitators. Production is an area where advertisers and their agencies

rely most on external facilitators.
For broadcast production, directors, production managers, songwriters, camera

operators, audio and lighting technicians, and performers are all essential.
Production houses can provide the physical facilities, including sets, stages,
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equipment, and crews, needed for broadcast production. Similarly, in preparing

print advertising, graphic artists, photographers, models, directors, and producers
may be hired from outside the advertising agency or firm to provide the specialized
skills and facilities needed in preparing advertisements.
In postproduction, further expertise is needed before the ad is placed in a medium.

Postproduction processes in broadcast advertising include film developing and
transferring, editing, special effects, sound mixing, and color matching.
In print advertising, film developing and photo enhancement are typically carried
out by external organizations.
4. Software firms. In an era when technology continues to evolve, a new category of

facilitators has emerged. Software firms help companies with a range of activities
ranging from tracking Web-surfing behavior to managing relationships with trade
partners.
PPT 2-16 here
D. Media Organizations
PPT 2-17 here
Media represent the next level in the industry structure shown in text Exhibit 2.17. The
media available for placing advertising, such as broadcast and print media are well known
to students simply because theyre exposed to them daily. Exhibit 2.17, however,
organizes this information into five specific categories.
Broadcast: Major television networks like NBC, ABC or Fox, as well as national
magazines like U.S. News & World Report or People, provide advertisers with time
and space at considerable expense. Also included are satellite TV and radio
Print
Interactive Media
Support Media Other media options are more useful for reaching narrowly defined
target audiences.
Media Conglomerates. Note the inclusion in this list of media conglomerates. This
category is included because organizations like Time Warner and Disney own and
operate companies in broadcast, print, and interactive media.
E. Target Audiences
PPT 2-18 here
This represents the last element of the structure of the industry. Target audiences were
covered in Chapter 1. As a recap for students, the main target audiences are: household
consumers, business organizations, members of a trade channel, professionals, and
government.
SOLUTIONS TO END OF CHAPTER QUESTIONS
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1. Briefly describe the major trends affecting the advertising and promotion industry. Which of
these do you think is the most important and impactful? Why?
The major trends are:
Consumer control
Media proliferation, consolidation, and multiplatform media organizations
Media clutter and fragmentation
Crowdsourcing
Mobile marketing and mobile media
Students could literally argue for any one of these trends as being the most important. While
consumer control is the most problematic for marketers, .media clutter is a huge problem too.
Crowdsourcing is a big opportunity, but comes with problems of its own. Finally, mobile
marketing allows new ways of reaching consumers and will be particularly potent at the point
of purchase if consumers do not rebel.
2. Do you think the increasing independence and control consumers gain through new
technologies like TiVo, iPads, and smartphones will make advertising and product branding
more or less important? Explain.
One might assume that as consumers gain more control over the messages they receive from
advertisers, advertisings role as a means of information and persuasion becomes less relevant.
The irony is that the control consumers are starting to exert will make product branding even
more important as consumers choose how and where they want to be exposed to persuasive
messages. It will be a challenge for advertising agencies to insert themselves and their clients
brands into this new consumer-controlled environment, but they will find innovative ways to
make the connection.
3. In the structure of the advertising and promotion industry, what role do promotion agencies
play?
Promotion agencies assist in the development of IBP materials and campaigns other than
advertising. Often, full-service advertising agencies concentrate on advertising and offer only
a few IBP services. As such, promotion agencies are called in to fill the gap.
4. The U.S. government spends millions of dollars each year trying to recruit young men and
women into the armed services. What forms of advertising and IBP communications would
be best suited to this recruiting effort?
The U.S. government is clearly engaged in a persuasive effort. Mass-mediated advertising
combined with direct marketing, event sponsorship, and Web-based promotions would likely
have a positive impact on the target audience.
5. Huge advertisers like Procter & Gamble and Verizon spend billions of dollars on advertising
every year. Put these billions of dollars into perspective. Is it really that much money?
What information from Chapter 1 is relevant to the perspective on how much advertisers
spend?
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First, even though billions of dollars represents huge spending on an absolute basis, the
percentage of sales may be only 2-6 percent. Second, Chapter 1 highlights that advertising
fulfills many important roles from persuasion, to brand image development, to market
segmentation, differentiation, and positioning. Finally, Chapter 1 also highlights that
advertising can contribute to economies of scale and inelasticity of demand which can have a
positive effect on profits.
6. What is the advertisers role in IBP?
The advertiser must be able to do the following prior to enlisting the services of an agency: (1)
fully understand and describe the value that the firms brand provides to users; (2) fully
understand and describe the brands position in the market relative to competitive brands; (3)
describe the firms objectives for the brand in the near term and long term (e.g., brand
extensions, international market launches, etc.); (4) identify the target markets that are most
likely to respond to the brand; (5) identify and manage the supply chain/distribution system
that will most effectively reach the target markets; (6) be committed to using advertising and
other promotional tools as part of the organizations overall marketing strategy to grow the
brand. Advertisers that can do these will be prepared for a productive partnership with an
agency.
7. As advertisers become more enamored of the idea of IBP, why would it make sense for an
advertising agency to develop a reputation as a full-service provider?
The traditional advertising agencys expertise involves development of ad campaigns that are
then placed in mass-media outlets like television, radio, newspapers, and magazines. The rising
popularity of Integrated Brand Promotion (IBP) has seen marketers turn to other promotional
vehicles like event sponsorship, sales promotions, direct marketing, and advertising on the
Internet in an effort to break through the clutter to reach the targeted customer. Importantly,
with the various tools that are being used, speaking to the customer with a common voice
has become both more complicated and essential. Here we have the logic for the full-service
agency. Speaking with a common voice should be easier if all the relevant expertise can be
found under one roof.
8. Explain the viewpoint that a commission-based compensation system may actually give an
ad agency an incentive to do the wrong things for its clients
In a commission-based compensation system, the agency is paid a percentage of the media
space or time that it places for a client. This system can have two unwanted effects. First, if
compensation is dictated by ad placements in traditional mass media, this may discourage the
agency from recommending nontraditional (e.g., event sponsorship or product placements)
outlets. Second, working under the commission system, the agency would be taking money
out of its own pocket if it ever recommended that the client cut its advertising expenditures. In
fact, there will be times when cutting ones advertising budget is the right thing to do.
Agencies working on commission have a hard time seeing any virtue in a budget-cutting
recommendation.
9. What makes the production of promotional materials the area where advertisers and their
agencies are most likely to call on external facilitators for expertise and assistance?
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Advertising agencies are paid to develop creative concepts. Often, bringing these concepts to
life in finished advertisements or IBP materials demands highly specialized skills. Lighting
technicians, camera operators, songwriters, models, and sound mixers are some of the
specialists needed in the production of advertising. With IBP materials, coupon production
and distribution, event planning and management, or product placement require specialized
expertise. No ad agency or client could afford to maintain all this specialized expertise on
staff; so external facilitators will be hired to assist with ad production.
10. Give an example of how the skills of a public relations firm might be employed to reinforce
the message that a sponsor is trying to communicate through other forms of promotion.
New product introduction is likely to be accompanied by some level of advertising support;
new product introductions are also an excellent time to engage a public relations firm. A new
product should have some features or attributes that are newsworthy. Here is where the tools
of public relationspress releases, feature story development, or spokesperson placements
may play a critical role in supporting the advertising campaign. If the news media deem the
new product launch newsworthy, there can be a tremendous synergy between the messages
carried in advertising and the six oclock news for breaking through to the target audience.
SOLUTIONS TO EXPERIENTIAL EXERCISES

1. In response to the Haitian earthquake that brought devastation to over one million people
near Port-au-Prince, large corporations stepped up to provide medicines, shelter, food, and
other forms of disaster relief. The primary coordinator of the effort was the Business Civic
Leadership Center, a not-for-profit agency that partnered with Office Depot to create a National
Disaster Help Desk. The sponsorship helped generate nearly $150 million in aid from Teva
Pharmaceuticals, GE, and other well-known businesses. Choose a not-for-profit agency that
champions a social cause, and research the ways in which it uses advertising and promotion to
accomplish humanitarian goals. How do ads by the nonprofit organization differ from those of
profit-oriented businesses? How are they similar?
Answers will vary based on students selections, but not-for-profit organizations use advertising to
generate donations, raise awareness of causes, and shape public behavior. Many non-profits use
ads to boost individual donations transacted at cause-related websites. In the case of the Business
Civic Leadership Center, partnerships with large corporate donors enabled the non-profit agency
to achieve its social responsibility goals while allowing leading corporations to associate their
brands with international charity efforts.
2. After two decades of advertising in Super Bowl matchups, PepsiCo opted out of the Big
Game in 2010 and redirected funds into a social networking campaign called Refresh
Everything. The campaign, which harnessed the power of Facebook and blogs to offer
financial grants for customer-led community projects, generated hundreds of thousands of
Facebook friends and awarded millions to proposal winners. Devise an advertising campaign
that uses interactive social media to attract audiences to a popular brand. Create a relevant
crowdsourcing activity for the campaign. What award will your campaign offer to consumer
participants? What types of agencies and support organizations will be involved in coordinating
the campaign? In what ways might social media help your message break through media clutter?
Organizations
Answers will vary based on students ideas. However, social campaigns often assign tasks to
groups of consumers, enthusiasts, or expertsa technique known as crowdsourcing. The idea is
to get consumers interacting with brands in highly engaging situations. These campaigns often ask
consumers to build the brand by making recommendations, and by getting friends to join in. Big
rewards attract consumers and retain them for months. Social media campaigns may require input
from interactive agencies and creative boutiques. Research has shown that the word-of-mouth
buzz generated in social contexts results in long lasting impressions. Some advertisers view social
media as a cure to media clutter, primarily because of its potential for building virtual
communities.
3. This chapter highlights some of the challenges facing advertisers and agencies as consumers
have gained greater control of information sources blocking telemarketing calls, for instance,
and carefully guarding the privacy of cell phone numbers and other contact information.
Working in the same groups, brainstorm ways that advertisers still could reach out to consumers
and invite them to learn more about your brand or product. As your team develops ideas, also
explain how you would address these questions:
a. What ethical issues might arise in your approach to consumers? How would you navigate
privacy concerns?
b. Are there any legal risks or potential challenges?
c. Are there any legal risks or potential challenges to your approach?
This team exercise will not only provide students with a chance to brainstorm ideas for a realistic
campaign, but in so doing, they will become keenly aware of the difficult landscape advertisers
face in trying to navigate increased consumer sensitivity to privacy issues. Team answers should
address the possibility of future do-not-mail legislation, anti-spam regulations, and efforts to keep
marketers from contacting consumers through cell phone text messages.
4. Identify the four primary compensation methods discussed in this chapter and discuss which
system would best be able to hold both clients and agencies to ethical and responsible business
practices? What risks exist in each method? Apart from the threat of regulatory inquiries or
criminal investigations, discuss why it is important for agency billing systems to be fully
transparent and accountable?
Students should demonstrate an understanding of the four primary methods of agency
compensation commissions, markup charges, fee systems, pay-for-results as well as a
sensitivity to the ethical issues surrounding billing, compensation and client relationships.

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Chapter 2/The Structure of the Advertising and Promotion Industry: Advertisers, Agencies, Media, and Support

direct response agency

Discuss important trends transforming the advertising and promotion industry.

companies, like InterActiveCorp are buying up smaller operators.

Refer to Ford and Starbucks as prime examples.

PPT 2-4 here

PPT 2-6 here

1. Manufacturers and Service Firms. Large national manufacturers of consumer and

As text Exhibit 2.7 shows, trade resellers can be retailers, wholesalers, or

4. Social and Not-for-Profit Organizations. Advertising by social and not-for-profit

PPT 2-8 here

Describe the value that the firms brand provides to users.

Describe the brands position in the market relative to competitive brands.

Be committed to using advertising and other promotional tools as part of the

B. Advertising and Promotion Agencies

PPT 2-9 here

Advertisers have a full complement of agencies that specialize in various aspects of

PPT 2-11 here

PPT 2-12 here

A full-service agency includes an array of advertising professionals to meet all the

e. Public Relations Firms. Public relations firms manage an organizations

PPT 2-13 here

PPT 2-14 here

a. Commission. The commission system is the traditional method of agency

Text Exhibit 2.14 provides students with a simple example.

b. Markup Charges. Markup charges add a percentage to a variety of services the

Traditional markup has been 17.65 percent to 20 percent.

PPT 2-15 here

External facilitators are organizations or individuals that provide specialized services to

3. Production Facilitators. Production is an area where advertisers and their agencies

For broadcast production, directors, production managers, songwriters, camera

equipment, and crews, needed for broadcast production. Similarly, in preparing

In postproduction, further expertise is needed before the ad is placed in a medium.

4. Software firms. In an era when technology continues to evolve, a new category of

PPT 2-17 here

PPT 2-18 here

SOLUTIONS TO END OF CHAPTER QUESTIONS

Media proliferation, consolidation, and multiplatform media organizations

Media clutter and fragmentation

Mobile marketing and mobile media

SOLUTIONS TO EXPERIENTIAL EXERCISES

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