Chapter 3

Organizing for Advertising and

Promotion: The Role of Ad Agencies
an Other Marketing Communication
Organizations

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 Learning Objectives 1 of 2
LO1 Describe how companies organize for advertising
and integrated marketing communications
functions.
LO2 Compare the advantages and disadvantages of
different ways to organize for advertising and
promotion.
LO3 Identify the types of advertising agencies and the
roles they play.

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 Learning Objectives 2 of 2
LO4 Explain how to select, compensate, and evaluate
advertising agencies.
LO5 Identify the role and functions of specialized
marketing communication organizations.
LO6 Compare the pros and cons of using an
integrated marketing services agency.

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 Participants in the Integrated Marketing
Communications Process: An Overview 1 of 3
Advertisers or Clients
– Have the products, services, or causes to be marketed
– Provide the funds that pay for advertising and promotions
– Responsible for developing marketing program
Advertising Agency
– Specializes in the creation, production, and/or placement
of the communications message
– May facilitates the integrated marketing communications
process

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 Participants in the Integrated Marketing
Communications Process: An Overview 2 of 3
Media Organizations
– Provide information, entertainment, or an environment for
a firm’s marketing communications message
Specialized Marketing Communication Services
Organizations
– Direct-marketing agencies
– Sales promotion agencies
– Digital/interactive agencies
– Public relations firms

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 Participants in the Integrated Marketing
Communications Process: An Overview 3 of 3
Collateral Services Organizations
– Collateral services: Support functions used by advertisers,
agencies, media organizations, and specialized marketing
communication firms

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 Organizing for Advertising and Promotion in the
Firm: The Client’s Role 1 of 4
Factors Affecting How Companies Organize for IMC
– Size of the organization
– Number of products it markets
– Role of advertising and promotion in the marketing mix
– Allocated budget
– Marketing organization structure

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Figure 3-2 The Advertising Department under a Centralized System

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 Organizing for Advertising and Promotion in the
Firm: The Client’s Role 2 of 4
The Centralized System
– Marketing activities are divided along functional lines
– Advertising manager
• Responsible for:
– Planning and budgeting
– Administration and execution
– Coordination with other departments
– Coordination with outside agencies and services

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 Figure 3-3 Decentralized Brand Management System

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 Organizing for Advertising and Promotion in the
Firm: The Client’s Role 3 of 4
The Decentralized System
– Used by firms with multiple divisions and many different
products
– Each product or brand is assigned to a brand manager
• Brand manager: Responsible for the total management of the
brand, including planning, budgeting, sales, and profit
performance
• Category management system: Additional layer of management
above the brand managers

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 Organizing for Advertising and Promotion in the
Firm: The Client’s Role 4 of 4
In-House Agencies
– In-house agency: an advertising agency that is set up,
owned, and operated by the advertiser
• Reduces advertising and promotion costs
• Allows companies to maintain tighter control
• Critics of in-house agencies worry about experience and
objectivity

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 Figure 3-4 Comparison of Advertising Organization Systems
Organizational System Advantages Disadvantages
Centralized • Facilitated communications • Less involvement with and
• Fewer personnel required understanding of overall
• Continuity in staff marketing goals
• Allows for more top- • Longer response time
management involvement • Inability to handle multiple
product lines
Decentralized • Concentrated managerial • Ineffective decision making
attention • Internal conflicts
• Rapid response to problems • Misallocation of funds
and opportunities • Lack of authority
• Increased flexibility • Internal rather than external
focus
In-house agencies • Cost savings • Less experience
• More control • Less objectivity
• Increased coordination • Less flexibility
• Stability • Less access to top creative
• Access to top management talent

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 Advertising Agencies 1 of 9
Ad Agency
– Service organization that specializes in planning and
executing advertising programs for its clients
Agency Consolidation
– Superagencies: Large agencies that merged with or
acquired other agencies and support organizations
– Have now evolved into 4 major agency holding companies
• Account for more than half of US agency revenue

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 Figure 3-5 Top 10 U.S. Advertising Agencies, 2015

Rank Agency Headquarters U.S. Revenue

(million dollars)
1 BBDO Worldwide (Omnicom) New York 603
2 McCann (Interpublic) New York 562
3 J. Walter Thompson Co. (WPP) New York 504
4 Y&R (WPP) New York 455
5 TBWA Worldwide (Omnicom) New York 362
6 Grey (WPP) New York 336
7 DDB Worldwide (Omnicom) New York 320
8 Leo Burnett Worldwide/ARC (Publicis) Chicago 289
9 Publicis Worldwide (Publicis) Paris 288
10 Saatchi & Saatchi (Publicis) New York 282

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 Advertising Agencies 2 of 9
The Ad Agency’s Role
– Reasons for Using an Ad
Agency
• Highly skilled specialists
• Specialization in a
particular industry
• Objective viewpoint of the
market

Source: The Lambesis Agency

• Broad range of experience

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 Advertising Agencies 3 of 9
Types of Ad Agencies
– Full-Service Agencies
• Marketing, communications, and promotions services:
– Planning, creating, and producing the advertising
– Performing research
– Selecting media
• Nonadvertising services:
– Strategic market planning
– Sales promotions, direct marketing, and digital/interactive
capabilities
– Package design
– PR and publicity
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 Figure 3-6 Full-Service Agency Organization Chart

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 Advertising Agencies 4 of 9
Types of Ad Agencies continued
– Account Services
• Link between the ad agency and its clients
• Account executive: Understands the advertiser’s marketing and
promotion needs and interprets them to agency personnel
– Presents agency recommendations and obtains client
approval

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 Advertising Agencies 5 of 9
Types of Ad Agencies continued
– Marketing Services
• Research department: Gathers, analyzes, and interprets useful
information
• Account planners: Gather information that is relevant to the
client’s product or service
• Media department: Analyzes, selects, and contracts for space or
time in the media

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 Advertising Agencies 6 of 9
Types of Ad Agencies continued
– Creative Services
• Responsible for the creation and execution of advertisements
• Copywriters: Conceive ideas for the ads and write the headlines,
subheads, and body copy
• Art department: Responsible for how the ad looks
• Traffic department: Coordinates all phases of production

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 Advertising Agencies 7 of 9
Types of Ad Agencies continued
– Agency Organization and Structure
• Departmental system
– All agency functions are set up as a separate department
• Group system
– Individuals from each department work together in groups to
service particular accounts

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 Advertising Agencies 8 of 9
Other Types of Agencies and Services
– Creative Boutiques
• Small ad agencies that provide only creative services
• Advantages
– Turn out inventive creative work quickly
– Provide more attention and better access to creative talent

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 Advertising Agencies 9 of 9
Other Types of Agencies and Services continued
– Media Specialist Companies
• Specialize in the buying of media
• Agencies and clients develop media strategy
• Media buying organizations implement strategies, and buy time
and space
• Rapid growth of programmatic buying:
– The wide range of technologies that are automating the
buying, placement, and optimization of advertising media

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 Agency Compensation 1 of 5
Agency Compensation Methods
– Commissions from media
– Fee, cost, and incentive-based systems
– Percentage charges

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 Agency Compensation 2 of 5
Commissions from Media
– Commission system
• Receiving specified commission from the media on any advertising
time or space purchased for the client

– Negotiated commission system

• Based on a sliding scale that becomes lower as the clients’ media
expenditures increase

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 Agency Compensation 3 of 5
Fee, Cost, and Incentive-Based Systems
– Fee Arrangement
• Fixed-fee method: Basic monthly fee is charged for services
provided and media commissions earned are given to the client
• Fee-commission combination: Media commissions received are
credited against the fee

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 Agency Compensation 4 of 5
Fee, Cost, and Incentive-Based Systems continued
– Cost-Plus Agreement
• Agency is paid a fee based on the costs of its work plus some
agreed-on profit margin

– Incentive-Based Compensation
• Agencies are compensated above their basic costs, if they achieve
or exceed results as measured by agreed-upon metrics

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 Agency Compensation 5 of 5
Percentage Charges
– Adding a markup of percentage charges to various services
purchased from outside providers
• Market research
• Artwork
• Printing
• Photography
• Other services or materials

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 Evaluating Agencies 1 of 4
Financial Audit Qualitative Audit
– Cost and expenses – Planning
– Personnel hours billed – Program development
– Payments to media – Implementation
– Payments to suppliers – Results achieved

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Source: “Report on the Agency– Advertiser Value Survey,” American Association

of Advertising Agencies and Association of National Advertisers, August 2007.
Figure 3-9 How Agencies Add Value to a Client’s Business
 Evaluating Agencies 2 of 4
Gaining and Losing Clients
– Why Agencies Lose Clients
• Poor performance or service
• Poor communication
• Unrealistic demands by the client
• Personality conflicts
• Personnel changes
• Changes in size of the client or agency
• Changes in the client’s corporate and/or marketing strategy

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 Evaluating Agencies 3 of 4
Gaining and Losing Clients continued
– Why Agencies Lose Clients continued
• Conflicts of interest
• Declining sales
• Conflicting compensation philosophies
• Changes in policies
• Disagreements over marketing and/or creative strategy
• Lack of integrated marketing capabilities

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 Evaluating Agencies 4 of 4
Gaining and Losing Clients continued
– How Agencies Gain Clients
• Solicitations
• Referrals
• Presentations
• Public relations
• Image and reputation

© gyro
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 Specialized Services 1 of 5
Direct-Marketing Agencies
– Provide a variety of services
• Database analytics and management
• Direct mail
• Research and media services
• Creative and production capabilities

– Has following departments:

• Account management
• Creative
• Media
• Database development/management

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 Specialized Services 2 of 5
Sales Promotion Agencies
– Involved with the developing and managing of sales
promotion programs
– Provide following services:
• Promotional planning, creative research, and tie-in coordination
• Fulfillment
• Premium design and manufacturing
• Catalog production
• Contest/sweepstakes management

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 Specialized Services 3 of 5
Public Relations Firms
– Develops and implements programs to manage
organization’s:
• Publicity
• Image
• Affairs with consumers and other relevant publics
– Employees, suppliers, stockholders, government, labor
groups, citizen action groups, and the general public

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 Specialized Services 4 of 5
Public Relations Firms continued
– Functions Performed by Public Relations Firms
• Strategy development
• Generating publicity
• Lobbying
• Public affairs
• News releases, communication
• Research
• Managing crisis
• Special events
• Coordination with promotional areas

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 Specialized Services 5 of 5
Digital/Interactive Agencies
– Specialize in the development and strategic use of various
digital marketing tools
• Websites for the Internet
• Banner ads
• Search engine optimization
• Mobile marketing

Source: Volkswagen® Group of America, Inc.

• Social media campaigns

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 Collateral Services
Marketing research
Package design
Consultants
Photographers
Printers
Video production
Event marketing

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Integrated Marketing Communications Services 1 of 2
Pros and Cons of Integrated Services
– Pros
• Greater synergy
• Convenience
• Single image for product or service

– Cons
• Budget politics
• Poor communication
• No synergy

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Integrated Marketing Communications Services 2 of 2
Responsibility for IMC: Agency versus Client
– Key Obstacles
• Lack of people with a broad perspective and the skills to make it
work
• Internal turf battles
• Agency egos
• Fear of budget reductions
• Ensuring consistent execution
• Measuring success
• Compensation

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 Figure 3-10 Foundations of the 2020 Agency 1 of 2
Areas Foundational Elements
Accountability • Responsibility for outcomes, not just outputs
• Attention to success metrics vs. just cost of service
• Measuring what matters: results for clients instead of agency time
Agility • Agile philosophy applied to work flow
• Prototyping and minimum viable products
• Interdisciplinary teams vs. departments
Collaboration • Culture that values collaboration over managing hours
• Teams of givers, not just takers
• Agency partners as peaceful competitors
Digital Fitness • Individuals with high digital IQ
• Digital as competency across agency, not just a department
• Deep understanding of data and personalization
Effectiveness • Provider of solutions, not just services
• True project management vs. tracking of hours
• Focus on effectiveness for clients, not just efficiency for agency

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 Figure 3-10 Foundations of the 2020 Agency 2 of 2
Areas Foundational Elements
Expertise • Knowledge of specific markets or audiences
• Best-in-class business model vs. full service
• Centers of excellence and best practices
Innovation • Revenue streams from intellectual property, not just work for hire
• Labs as independent business units
• Marketing invention business, not just service business
Pricing • Pricing as a core competency versus costing
• Aligning the economic incentives of both client and agency
• Professional sellers negotiating with professional buyers

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