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Chapter 5

What is an Advertising Agency? The Agency

An agency is an independent business composed of creative people and business people who
develop, prepare, and place advertising in advertising media for sellers seeking to find
customers for their goods or services.There are more than 10,000+ agencies in the United
States.There are about 2,000 agencies listed in the New York Yellow Pages alone.The
majority of agencies are small one-to-ten- person shops.Agencies advertise themselves in all
appropriate media including the web sites.

How Agencies Developed

Before we discuss present-day agencies further, let us take a look at how advertising agencies
got started and how they developed into worldwide organizations that play such a role in the
marketing and advertising process.The Early Age (Colonial Times To 1917)The No-Rebate
Age (1918 To 1956)The Age of Negotiation (1956 To 1990)The Reengineering Age (1990
To 2000)Media and the Digital Age (Since 2000)

The Early Age (Colonial Times to 1917)

It is not generally known that the first Americans to act as advertising agents were colonial
postmasters.Space Salesman - Volney B. Palmer was the first ad salesman to work for a
commission.Space Wholesalers – During the 1850s in Philadelphia, George P. Rowell bought
large blocks of space for cash from publishers at very low rates, less agents’ commissions. He
might be considered in advertising as the Father of Selling by List.First Rate Directory – In
1869, Rowell shocked the advertising world by publishing a directory of newspapers’ rates
and his own estimates of their circulation.

It is not generally known that the first Americans to act as advertising agents were colonial
postmasters.The Agency Becomes A Creative Center – Scholars indicate that help for
establishing the advertising agency as the creative center for advertising ideas in the 1870s is
credited to Calkins and Holden.Agency-Client Relationship Established – In 1875, Francis
Ayer established N.W. Ayer & Son (which was merged into The Kaplan Thaler Group in
2002). Ayer billed advertisers for what he actually paid the publishers (that is, the rate paid
the publisher less the commission).

It is not generally known that the first Americans to act as advertising agents were colonial
postmasters.Curtis ‘No-Rebating’ Rule – In 1891, the Curtis Publishing Company announced
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that it would pay commissions to agencies only if they agreed to collect the full price from
advertisers.Standard Commissions For Recognized Agencies Established – In 1917,
newspaper publishers, through their associations, set 15 percent as the standard agency
commission, a percentage that remains in effect for all media (except for local advertising, in
which the media deal directly with the stores and pay no commission) to this day.

It is not generally known that the first Americans to act as advertising agents were colonial
postmasters.The American Association of Advertising Agencies – Characteristics of the
American Association of Advertising Agencies include: It is about 93 years old. At first,
national trade association representing lonely United States advertising agencies. It is now
known as 4As. In 2009, admitted associate member from outside United
Stated.CanadaUnited StatesMexico

 How Agencies Develop - The No-Rebate Age (1918 to 1956)

The events of this era that left their mark on today’s agency world are summarized
here.Radio – One of the main new events in 1925 was the notorious Scopes trial, and the
main advent was radio. This trial helped establish radio as a prime new vehicle. The radio
boom lasted until television came along.Television – Television became popular after 1952,
when nationwide network broadcasts began. Between 1950 and 1956, television was the
fastest growing medium. It became the major medium for many agencies.

 How Agencies Develop - The No-Rebate Age (1918 to 1956)

The events of this era that left their mark on today’s agency world are summarized
here.Electronic Data Processing – The computer entered advertising through the accounting
department. By 1956, the computer was changing the media department, the marketing
department, and the research department—all having grown in competence with the
increasing number of syndicated research services.Websites, radio, television and newspaper
advertising are effective for conveying information about an agency’s offering and pricing.

 The Age of Negotiation (1956 to 1990)

In 1956, a change occurred in the advertiser-agency relationship.The U.S. Department of
justice held that the no-rebating provision between media associations and agencies limited
the ability to negotiate between buyer and seller and therefore, was in restraint of trade and in
violation of antitrust laws.15% commissions remained but total compensation became an
issue.I need to be paid more.
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16 The Reengineering Age (1990 to 2000)

During the 1980s, many corporations merged created giant communications.Integrated
services became a buzzword phrase relating to efforts to coordinate a client’s entire
marketing mix which is a response to changing clients’ needs including:Advertising.Public
relations.Package design.Web design.Sponsorship.And more…

17 Media and the Digital Age (Since 2000)

Agency Holding Companies - Created mega-media buying and planning agencies (also called
Media Service Agencies.Media Services Agencies - Became profit centers to attract global
clients.Global Clients - Created the possibility for agencies to become more efficient and cost
effective.Interactive Agencies - Have risen in importance as clients have attempted to deal
with the mobile, web, iPhone, blog, BlackBerry, and consumer-generated advertising world.

18 The Full-Service Agency

A Full-Service Agency - Is one that handles planning, creation, production, and placement of
advertising (and other aspects of IMC) for its clients.In simple terms, a full-service agency
offers to manage integrated marketing communications.After research is completed in a full-
service agency, the account planning department is likely to lead the way in setting objectives
and developing strategy.

19 The Agency Process for New Clients

When a new account or a new product is assigned to a full- service agency, work on it will
generally proceed as described in the following sections:Diagnosing the Marketing and Brand
StrategySetting Objectives and Developing StrategyCreating the CommunicationNotify
Trade of Forthcoming CampaignBilling and Payments

20 The Agency Process for New Clients

When a new account or a new product is assigned to a full- service agency, work on it will
generally proceed as described in the following sections:Diagnosing the Marketing and Brand
StrategyThe process begins with the collection of all that you know about the product
category, the brand, and its competitors.Research or brand planning takes the lead as the
agency looks at consumer attitudes to develop penetrating Insights into the prospects and to
define the brand’s core.Who are the prime prospects? Where are they? What are their
demographic and psychographic characteristics and how does the product fit into their
lifestyle?
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21 The Agency Process for New Clients

When a new account or a new product is assigned to a full-service agency, work on it will
generally proceed as described in the following sections:Setting Objectives and Developing
StrategyHere we may say that a strategy may formulate the positions the product is in relation
to the prime prospect customer and emphasize the attribute that will appeal to the prime
prospect.

22 The Agency Process for New Clients

When a new account or a new product is assigned to a full-service agency, work on it will
generally proceed as described in the following sections:Creating the CommunicationLarge
clients may separate out the media function, assigning it to media service agency.Once the
overall strategy is determined, you decide on the creative strategy, write copy, and prepare
rough layouts and storyboards.A Media Plan process should define media strategy, check
objectives to ensure they mesh with marketing objectives, select media, and prepare media
schedules.The Total Plan is where you present roughs of the copy, layouts and production
cost along with media schedules and cost.The Evaluation Plan should include double
checking of media schedule, presentation of copy and layout roughs, assignment of total costs
and refined objectives.

23 Creating the Communication

The Media PlanThe Total PlanThe Evaluation Plan

24 The Agency Process for New Clients

When a new account or a new product is assigned to a full-service agency, work on it will
generally proceed as described in the following sections:Notify Trade of Forthcoming
CampaignFor many product categories, you inform dealers and retailers of the campaign
details early enough so that they can prepare to take advantage of the advertising
campaign.Billing and PaymentsWhen advertisements are run, you bill the client and pay the
bills invoiced by the media and product vendors.

25 The Traditional Agency Organization

In this section, we first examine the traditional approach to the full-service agency structure,
and then we look at the reengineering of this process.All agencies do not structure themselves
in exactly the same manner. For discussion purposes, we have chosen a typical traditional
organizational structure under the command of major executives: the vice presidents of (1)
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Creative Services, (2) Account Services, (3) Marketing Services, and (4) Management and
Finance (see Exhibit 5.2).

26 Exhibit 5.2. Organizational Structure

EXHIBIT 5.2. Organization of a Typical Full-Service Agency

27 The Traditional Agency Organization - Creative Service

In this section, we first examine the traditional approach to the full-service agency structure,
and then we look at the reengineering of this process.(1) Creative Services – Agencies are
generally hired on the basis of their creative abilities—the promise that they can create
campaigns that will build business for the client.In a traditional agency, if Mary Lou is
ultimately responsible for the finished products-ads and commercials—she is likely the
Creative Director.This is the ad we want to run on this product.

28 The Traditional Agency Organization - Account Service

In this section, we first examine the traditional approach to the full-service agency structure,
and then we look at the reengineering of this process.(2) Account Services – The vice
president in charge of account services is responsible for the relationship between the agency
and the client and is, indeed, a person of two worlds: the client’s business and advertising
(see Exhibit 5.3).The vice president must be knowledgeable about the client’s business, profit
goals, marketing problems, and advertising objective.

29 Exhibit 5.3. Typical Team Responsibilities

EXHIBIT 5.3. Typical Agency Team Responsibilities

30 The Traditional Agency Organization – Marketing Service

In this section, we first examine the traditional approach to the full-service agency structure
and then we look at the reengineering of this process.(3) Marketing Services – The vice
president in charge of marketing services is responsible for media planning and media buying
(if the creative agency handles media), for research, and for sales promotion.

31 The Traditional Agency Organization – Management and Finance

In this section, we first examine the traditional approach to the full-service agency structure,
and then we look at the reengineering of this process.(3) Management and Finance – Like all
businesses, an advertising agency needs an administrative head to take charge of financial
and accounting control, office management, and personnel (including trainees).
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32 The Continuing Evolution of the Agency

Decades ago, clients sought agency powerhouse talents.Then agencies that were less driven
by famous individuals and more often driven by a collection of bright talent became
popular.Agencies of the 1980s might best be described as responding to clients merging to be
more financially competitive.Advertising agencies reengineered in the s to better serve the
integrated and Web needs of their clients.Most traditional agencies today are treated by most
clients as vendor-order takers.

33 The Continuing Evolution of the Agency – Specialty Agencies

Most advertising agencies are primarily general consumer agencies, however, some agencies
specialize in certain kinds of business.Doremus is an agency that specializes in corporate and
financial marketing.Kang & Lee, Uniworld and Diesti are specialty agencies that focus on
multiculturalism.Another big growth area includes digital agencies (Digitas, Organaic Ogilvy
Interactive, Avenue A/Razorfish) which might think of themselves as mainstream
agencies.AccountingMoser’s

34 The Continuing Evolution of the Agency – Brand Innovation Companies and Agency
Size
Most agencies are involved with their client’s product development, but in 2006 Zag, a
brand-invention company and a division of Bartle Bogle Hegarty advertising agency in
London, developed and launched their own brands, bringing them to market with joint
venture partners They develop, find partners, then market.Brad Majors, CEO of Brand Reps,
LLC, indicates that medium-sized agencies will continue to produce provocative work as
they grow.Regarding small agencies, Brad Major indicates their key to success is strong
financial management.Moser’s

35 Competing AccountsBecause the client-agency relationship is a professional one, it may

involve sensitive and confidential information in all of the areas dealing with profit and loss,
new marketing strategies, new product strategies and sales data.As a result, most clients will
not approve of an agency’s handling companies or products in direct competition.Coca-cola
isn’t going to allow its agencies to handle Pepsi products. In some cases, agencies will handle
accounts for the same type of product or service if they do not compete directly— for
example, brands that do not compete in the same market.
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36 Client-Agency Relationship Length

Clients generally retain agencies as long as the relationship seems to be working. However,
most contracts allow for a 90-day cancellation by either party if the relationship goes
sour.Agencies can resign an account if they find their philosophies conflict with the client’s
goals and the account isn’t profitable.Both client and agency can terminate a
relationship.4As’ data indicates the average tenure of client-agency relationships has declined
for 7.2 years to 5 years since 1984.GE and Pepsi have been with BBDO worldwide for almost
50 years.

37 Agency of RecordThe agency-of-record relationship offers marketer an advertising team

to work solely on their brand, creating a stable team of experts in that particular industry.The
following pertains to an agency of record:This lend agency will make the corporate contracts
under which other agencies issue their orders.This lend agency will coordinate the total media
buy for products.This lend agency maintains a record of all advertising placed.This lend
agency coordinates programming of products in a network buy.

38 Agency Multiple Offices and Global Agencies and Global Markets

Many major agencies have offices in cities through out the United States.For the most part,
each office functions as an autonomous agency that serves different clients and is able to
draw on a the talents and services of the other offices as needed.A parent agency with
multiple offices does not try to secure accounts globally.Globalization has become a
necessary part of business and advertising.Globalization in advertising essentially is about the
need to learn and understand consumers, markets, and cultures from a global
perspective.JWT opened its first office outside the United States in 1891 in London. JWT is
one of the world’s best-known marketing communications brands.United Kingdom

39 JWT’s Global Agency Network 

40 Global Agencies and Global Markets

Global Ad Centers – The cities handling the most local advertising billings are New York and
Tokyo—fighting neck and neck for world leadership.For United States agencies, setting up a
foreign office can be very complex. Each country is a different market, with its own
language, buying habits, ways of living, mores, business methods, marketing traditions, and
laws.Global Marketing – To market and use advertising globally and effectively, companies
need to consider creating advertising locally from a worldwide plan and strategy.
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41 Global Agencies and Global Markets

Global Production Efficiencies – In theory, cost efficiencies in production of global
advertising motivate advertisers to seek a single world execution for advertising
concepts.While a single advertising execution helps build the same global brand equity, the
reality is every international brand starts as a successful local brand and is reproduced
often.Despite being a global advertiser for many decades, Coca-Cola didn’t launch it first
global adverting campaign until 1992 with all the advertisements being similar in each
country. Exhibit 5.6. shows an advertisement that was developed by Coca-Cola Company
Japan.A brand and its advertising must be presented in relevant and meaningful ways in the
context of local environment, or consumers won’t buy or care.

42 Coca-Cola Creates a Global Dialogue

EXHIBIT Coca-Cola (Japan) Co. Lid. tries to create a dialogue with young consumers in an
attempt to develop a lasting relationship between the brand and the reader.

43 Agency NetworksIndependent agency networks should not be confused with the

multinational agency networks owned by huge holding companies.Usually the relationship is
centered around a single client’s needs where the agency has the capabilities to serve without
their agency network partner or partners.As a rule there is only one network member in each
market or region.International agency networks are established primarily to provide
information and financial skills to enhance member agencies’ operations.

44 Agency NetworksThe Mega-Agency Holding Companies – Marion Harper set out his
holding company vision for the Interpublic Group of companies in , and the mega-agency
was born.The major advantage that mega-agencies offer their clients is greater reservoir of
talent to draw upon.A major disadvantage of mega-agencies for their clients is conflicts with
competing accounts.An inherent reality that mega-agencies seem to forger when they decide
to create an agency to serve a single account is the need for top create who don’t mind
working on a single account.

45 Agency Networks - Top 5 Mega-Agencies

Omnicom Group.WPP Group.Publicis Groupe.Dentsu.With the Product.With the
Service.With the Technology.Advantages of Mega-agenciesInventory of talent.Shifting of
work among agencies.
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46 Other Advertising Services

Talent and Production Agencies Creating Creative.Independent Creative Services.A La Carte
Agencies.In-House Agency.Rolodex Agency.Outside Media Buying Services.In-House
Media Services.Media As Client Creative Resource.

47 Other Advertising Services –Talent and Production Agencies Creating Creative

New services are continually springing up in competition with advertising agencies. Each
new service is designed to serve clients’ needs a little differently. This competition has
impacted agency structure and operations. Today, we’re seeing a lot of innovation related to
gaming, mobile, and interactive services.Talent and Production Agencies Creating Creative –
A few major clients attempt to meld Hollywood talent and related skills sources into their
advertising planning.Some production and talent agencies get entertainment stars, writers,
and directors involved; and they develop advertising concepts and commercials for
advertisers.

 Other Advertising Services – Independent Creative Services Agency

Independent Creative Services - Some advertisers seek top creative talent on a freelance, per-
job basis.Many creative people do freelance work.Some open their own creative shops or
boutiques.In general these creative people have no media department, no researchers, and no
account executives.The purpose to the shop is strictly to develop creative ideas for
clients.With a combined 20 years of experience creating award winning advertising, Martin +
Owen is a source for Branded Content and Original programming, say their promotions (see
Exhibit 5.7). ”Quite simply we are storytellers.We write and produce original content for a
variety of clients such as television networks, movie studios, websites, and traditional
markets.Creative Shop

 Exhibit 5.7. Independent Creative Services Agency – Other Advertising Services

EXHIBIT Martin+Owen write and produce original content for television networks, web site
marketers, and agencies.

 Other Advertising Services – A La Carte Agency and Rolodex Agency

A La Carte Agency – La Carte Agency arrangement primarily offers creative service for a
fee.The La Carte Agency arrangement is used mostly for creative services and for media
planning and placement.Rolodex Agency – The kind of agency arrangement where several
advertising specialists-usually account and/or creative people-have no basic staff but hire
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specialists is called Rolodex Agency.Clients are told a Rolodex agency has a major advantage
over a small full-service agency because of its access to expertise that the small full service
agency just can’t match.

51 Other Advertising Service – In-House Agency

In-House Agency – A major reason to create an in-house agency is to allow for more control
over every aspect of their business.As a rule, the in-house agency is an administrative center
that gathers and directs various outside service for its operation and has a minimum
staff.Companies are always seeking the best means to deliver their marketing services
efficiently and at lower costs.Broyhill Furniture’s constantly has to educate account people
about the furniture business.Broyhill solved its problem by building a strong in- house agency
(see Exhibit 5.8.)

52 EXHIBIT 5.8. Created by Broyhill’s In-House Agency.

Other Advertising Service – In-House Agency –The Broyhill’s In-House AgencyEXHIBIT
Created by Broyhill’s In-House Agency.

53 In-House Media Services – Outside Media-Buying Services – Media As Client

Creative Resource
In-House Media Service - A few large advertisers have taken the media-buying function in-
house so they will have more control over the buying operation.It is more likely that
advertisers will keep a seasoned media consultant on staff to ride herd on their agency or
media service’s performance.Outside Media-Buying Services – One of the major changes
that began in the mid-1990s was the way advertising agencies handle media.Media As Client
Creative Resource – Companies such as Procter & Gamble, Johnson & Johnson, Kimberly
Clark Corp., have enlisted media companies lately, not only as conduits to reach consumers
but also as co-creators of programs to do so.

54 Other Services – Barter – Research/Planning Service – Managing Integrated Brands

Barter - Is the original business model. Long before monetary systems came into existence,
trade was the primary form of commerce.In bartering, the one item that neither an agency nor
an advertiser offers media is cash.Research/Planning Service – The advertiser, the agency, or
an independent research firm can conduct any needed original research. Large agencies may
have substantial in-house research departments.Managing Integrated Brands – A brand needs
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a single architect, someone who will implement and coordinate a cohesive strategy across
multiple media and markets. The advertising agency is often a strong candidate for this role.

55 Other Services – Managing Integrated Brands

Managing Integrated Brands – The challenge for today’s agency is to develop an integrated
program that accesses and employs a wide range of communication vehicles which may
include the following:Agency Conglomerate – The hope is that advertisers will buy one-stop
coordinated communications.In-House Generalist Agency – Another option is to expand the
agency’s capabilities to include such functions as promotion and public relations.Service
Cluster – A service cluster is a group of people drawn together from all agency affiliate
organizations and whose purpose is to create ideas rather than ads.Communication Integrator
– In the communication integrator approach, the agency draws from sources outside the
agency and integrates these services for the brands.

56 Approaches to Integrating Brand Communications – Brand Strategy In-House

Agency Conglomerate.In-House Generalist Agency.Service Cluster.Communication
Integrator.Brand Strategy In-House – Many advertisers choose not to rely on the agency at all
for managing brand strategy.Their view may be that agencies may be great at creating
advertisements, but the brand management team may be better at planning brand strategy.

57 Forms of Agency Compensation

Media Commissions.Production Commissions or Markups.Fee Arrangements.Performance
Fees.EXHIBIT This complex production piece involved many photos pieced together in
PhotoShop. There had to be a mutual understanding between client and agency over
production changes.

58 Forms of Agency Compensation

Media Commissions – The traditional 15 percent commission remains a form of agency
income, especially for modestly budgeted accounts. Clients and agency may agree to a
relationship in which the rate is fixed at less than 15 percent. This generally applies to large-
budget accounts-the larger the budget, the lower the rate for the agency.The types of work for
which an agency can negotiate a fixed fee include artwork charges based on the salary of the
personnel involved.
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59 Forms of Agency Compensation

Production Commissions or Markups – Agencies subcontract production work (all outside
purchases such as type, photography, or illustrators) and charge the client the cost plus a
commission percent is the norm. Exhibit involved different photos for each plate of food, plus
the background.

60 Forms of Agency Compensation

Fee Arrangements – The form of compensation an agency might receive for its variety of
work could include:Flat-fee arrangement – Is an agreed-on payment based on the type of
work being done.Labor-based fee-plus-profit-arrangement – Covers the agency’s cost for
servicing the account plus a markup.Sliding scale based on client expenditures – Here the
agency and client may negotiate a fee arrangement based on the client cost.Mark-ups – Here
we are talking about the difference between the cost and the selling price.

61 Forms of Agency Compensation

Performance Fees – The type of compensation an agency can ask for based on an agreed-
upon goal is called a performance fee.A predetermined performance goal may determine the
compensation fee.If the agency meets the goals, compensation may be at the 15 percent level;
if it exceeds them, a bonus could give the agency a 20 percent level.

62 Extending Clients Credit and Cost-Based Versus Performance-Based Fees

Extending Clients Credit - What happens to the bills, if clients don’t pay? Always a sticky
point in any business relationship.In 2009, Omnicom standardized the language in its contract
to emphasize that “production companies will be paid when agencies are paid by
marketers.Cost-Based Versus Performance-Based Fees – The industry has moved in the
direction of cost-based fee arrangements, rather than moving in the direction of value-and
performance-based arrangement.This shift to cost-based arrangements, which are
predominant today, is not optimal for either agencies or advertisers.