Advertising Agency

Module 2
 Syllabus
• Advertising Agency:
– Type of agencies
– Services offered by various agencies
– Criteria for selecting the agencies and evaluation.
 Introduction
• Developing and implementing an integrated
marketing communications program is usually a
complex and detailed process
• Consumers generally give little thought to
individuals or organizations that create the clever
advertisements
• For those who involved in marketing process it is
important to understand
– The nature of the industry
– Structure and functions of the organizations involved
Participants in the IMC Process
 Participants in the IMC Process
• Advertisers or Clients
– Are the key participants in the process
– Have products, services, or causes to be marketed
– Provide funds that pay for advertising and
promotions
– Also assume major responsibility for developing
the marketing program and final decision
regarding the advertising and promotional
program to be employed
 Participants in the IMC Process
• Advertising Agency
– An outside firm that specializes in the creation,
production and/or placement of the
communications message
– May provide other services to facilitate the
marketing and promotion process
• E.g.: Procter & Gamble uses eight primary ad agencies
and two major media buying services companies
 Participants in the IMC Process
• Media Organizations
– Primary function of most media is to provide
information or entertainment to their subscribers,
viewers or readers
– From the promotional planner perspective
• Provide an environment for the firm’s marketing
communications message
 Participants in the IMC Process
• Specilised marketing communications services
• Include
– Direct marketing agencies
– Sales promotion agencies
– Interactive agencies- retained to develop websites
for the internet
– Public relation firms-used to manage publicity
• Provide services in their area of expertise
 Participants in the IMC Process
• Collateral services
– Provide support functions used by advertisers,
agencies, media organizations, and specilised
marketing communication firms
– Services include
• Designing of content package
• Event marketing services
ORGANIZING FOR ADVERTISING AND
PROMOTION IN THE FIRM: THE CLIENT’S ROLE
 Organizing for Advertising and
Promotion in the Firm
• Every business organisation uses some form of
marketing communications
• The way company organizes for these efforts
depend on
– Organization size
– The number of products it markets
– The role of advertising and promotion in its marketing
mix
– The advertising and promotional budget
– marketing organization structure
 The Centralized System

The marketing activities are divided on functional lines with

advertisement placed along with other marketing function like
sales, market research and product planning
 The Centralized System
• Basic function performed by advertising or marketing
communications managers are
– Planning & Budgeting
• Responsible for developing advertising and promotions plans
and recommending a promotions program based on the
overall marketing plan, objectives and budget
– Administration & Execution
• Supervising the execution of plans by subordinates
– Co-ordination with other department
• Like with sales and market research department
– Co-ordination with outside agencies and services
• Employing media buying houses to place ads and use
collaterals services to POP materials and develop brochures
The Decentralized System

Brand Managers are responsible

for the total management of the
brand, including planning,
budgeting, sales and profit
performance
 Decentralized System
• In separate manufacturing, research & development ,
sales and marketing department of various product
division and product line exists.
• Model is largely been used in large corporations
with diverse product lines.
• The responsibilities and duties of brand manager is same
as centralized system, but the product knowledge of the
managers are limited to one product brand.
• In multiproduct firm each brand may have its own ad
agency and may compete with against other brands
within the company, not jus against outside competitors
Many Hindustan Unilever brands compete with each other

Ad agency –Lowe India Ad agency – JWT India

 Category Managers
• Additional layer of management above the brand
managers to coordinate the efforts of all brand
managers
• Include category managers, brand and advertising
managers
• Functions of an Advertising Manager
– Planning and Budgeting
– Administration and Execution
– Coordination with other departments
– Coordination with outside agencies and services
– Provide briefs to agencies
 In House Agencies
• Companies in order to reduce cost and maintain greater
control over agency activities
• The agency is set-up , owned and operated by
the advertiser
• In some companies in-house agencies are little more
than advertising departments
• Whereas in other companies they are given a separate
identity and are responsible for the expenditure of large
sums of advertising dollars
• Large advertisers that use in-house agencies include
Hyundai and Revlon
Comparison of Advertising
Organisation System
 Reasons for Using an Outside Agency
• Obtain services of highly skilled specialists
– Artists
– Writers
– Media analysts
– Researchers
– Others with specific skills, knowledge and experience
• Obtain an objective viewpoint of the markets and
its business
– Free of internal policy constraints and biases
– Broad range of experience, having worked with:
• Diverse marketing problems
• Various types of clients
TYPES OF Ad AGENCIES
 Full Service Agency
• Offers a full range of marketing, communication and
promotional services including planning , creating
and producing the advertisement, performing
research and selecting media
• May also offer non advertising services such as
– Strategic market planning
– Sales promotions
– Direct marketing
– Interactive capabilities
– Package design
– Public relations and publicity
Full-Service Agency Organizational Chart
 Agency Services
• Account services
– Link between agency and its client
– Depending on the size of the client and its advertising budget,
one or more account executives serve as liaison
– Account executive is responsible for understanding advertisers
marketing and promotional events and interpreting them to
agency personal
• Marketing Services
– Can be broadly divided into Research Department and Media
Services
– Research department conducts primary surveys for gauging
customer requirement and effectiveness of the existing
marketing activity
– Media department of an agency analyses, selects and contracts
in the media to deliver clients message to the customers
 Agency Services
• Creative Services
– Responsible for creation and execution of the
marketing campaign
• Copywriters are responsible for what message has to say
• Art department is responsible for advertisement looks
• Art director and graphic designers prepare layouts
• Story board (for TV commercials) is responsible for frames
or panels that depict the commercial in still form

Copywriters – Individuals who conceive the ideas for the ads and write
the headlines, subheads and body copy
 Agency Services
• Management and Finance
– Perform basic operating and administrative
functions such as accounting, finance and human
resources
– It must also attempt to generate new business.
– Large agencies employ administrative,
managerial, and clerical people to perform these
functions.
 Other type of Services Offered by Media
Agency
• Creative Boutique
– Agencies that specialize in the creative process of
advertising
– Provide only creative services
– Other functions provided by the internal client
departments or outside agency such as media
buying service
– Full-service agencies may subcontract with
creative boutiques
VGC is a very successful creative boutique and design consulting firm
 Other type of Services Offered by Media
Agency
• Media Specialist Companies
– Independent companies that specialize in the
planning and purchasing of media
– Specialize in analyzing and buying media,
especially broadcast (TV and Radio)time
– Agencies and clients may develop media strategy
– Media buying organizations implement the
strategy and buy time and space
 Agency Compensation
• The Commission System
– Traditional method of compensating agencies
– Agency usually receives 15 percent
– Commissions are paid by the media
– For outdoor advertising, the commission is 16⅔
– Commission system is controversial
• Critics argued that it encourages agencies to
recommend high-priced media to their clients to
increase their commission level
– System is becoming less common
Example of Commission System Payment
 Agency Compensation
• Fee, Cost and Incentive-Based Systems
• Fee Arrangements
– Two basic types of fee arrangement systems
1. Fixed fee method
– The agency charges a basic monthly fee for all of its
services and credits to the client any media
commissions earned
2. Fee-commission method
– Media commission received by the agency are
credited against the fee
– If the commissions are less than the agreed-on fee,
the client must make up the difference
– If the agency does much work for the client in
noncommissionable media, the fee may be charged
over and above the commissions received
 Agency Compensation
• Cost-Plus Agreements
– The client agrees to pay the agency a fee based on the
costs of its work plus some agreed-on profit margin
(often percentage of total costs)
• Incentive-Based Compensation
– Agencies are compensated above their basic costs, if
they achieve or exceed results as measured by agreed-
upon metrics –Value Based Compensation
– Agencies ultimate compensation depends on how well
it meets predetermined performance goals –such as
sales, market share etc.
 Agency Compensation
• Percentage Charges
– Adding a markup of percentage charges to various
services the agency purchases from outside
providers
– May include market research, artwork, printing,
photography, and other services or materials
– Markups usually range from 17.65 to 20% and are
added to client's overall bill
AGENCY EVALUATION
 Agency Evaluation Process
• Usually involves two types of assessments
1. Financial audit
• Focuses on how the agency conducts its business.
• Designed to verify costs and expenses, the number of
personnel hours charged to an account, and payments
to media and outside suppliers.
2. Qualitative audit
• Focuses on the agency’s efforts in planning, developing,
and implementing the client’s advertising programs and
considers the results achieved.
 Why Agencies Lose Clients?
• Poor performance or service
– Client becomes dissatisfied with the quality of the advertising
and/or the service provided by the agency
• Poor communication
– The client and agency personnel failed to develop or maintain
level of communication necessary to sustain favourable working
relationship
• Unrealistic demands by the client
– Client places demand on the agency that exceed the amount of
compensation received and reduce the accounts' profitability
• Personality conflicts
– People working on the account on the client and agency sides
do not have enough rapport to work well together
 Why Agencies Lose Clients?
• Personnel changes
– Change in personnel at either the agency or the advertiser
can create problems
• Changes in size of the client or agency
– Client may outgrow the agency or decide it needs a larger
agency to handle its business
– If the agency gets too large, the client may represent too
small a percentage of its business to command attention
• Conflict of interests
– Conflict may develop when an agency merges with
another agency or when a client is part of an acquisition or
merger
 Why Agencies Lose Clients?
• Changes in the client’s corporate and/or marketing strategy
– Client may change its marketing strategy and deicide that a new
agency is needed to carry out the new program
– IMC approach by companies look for companies which can
handle more than just media advertising
• Declining sales
– When sales of the client’s product or service are stagnant or
declining, advertising may be seen as contributing to the
problem
– New agency may be sought for more creative approach
• Conflicting compensation philosophies
– Disagreement may develop over the level or method of
compensation
 Why Agencies Lose Clients?
• Changes in policies
– Policy changes may result when either party reevaluates the
importance of the relationship
– The agency acquires a new(and larger) client, or either side
undergoes a merger or acquisition
• Disagreements over marketing and/or creative strategy
– Agencies sometimes disagree with clients over the marketing
strategy the want to pursue or the creative approach that might
be best for the brand
• Lack of integrated marketing capabilities
– Many clients are changing agencies in search of a shop with a
broader range of capabilities across various integrated
marketing communication areas or greater expertise in a
particular area such as digital marketing
 How Agencies Gain Clients?
• Referrals
– From existing clients ,media representatives and even
other agencies
• Solicitations
– Though direct solicitation
– In smaller agencies, the president may solicit new accounts
– In large agencies a new business development group seeks
out and establishes contact with new clients
– The group is responsible for writing solicitation letters,
making cold calls and following up on leads
• Presentations
– Basic goal of the new business development group is to
receive an invitation from a company to make presentation
– Gives the agency an opportunity to sell itself
 How Agencies Gain Clients?
• Public Relations
– Agencies also seek business through publicity/ public
relation efforts
– Agencies often participate in civic and social groups
and work with charitable organizations to earn
respect in the community
• Image and Reputation
– Most effective way through its reputation for doing
excellent work for the clients it serves
– Many award competitions in which advertisers may
enter their work and have it recognized
SPECIALIZED SERVICES
 Direct Response Agencies
• Agencies that specialize in providing direct
marketing services to their clients
• Services include:
– Data Base Management
– Direct Mail Programs
– Research
– Media Services
– Creative
– Production
Select Direct promotes its direct marketing services
 Sales Promotion Specialists
• Agencies that specialize in developing and
administering sales promotion programs
• Services include
– Promotion Planning
– Creative
– Research
– Design and Production
• Contests/sweepstakes
• Refunds and rebates
• Sampling and incentive programs
 Public Relations Firms
• Firms that develop and implement programs to
manage an organization’s publicity, image and
affairs with consumers and publics
• Services include:
– Strategy Development
– Program Planning
– Generating Publicity
– Lobbying
– Public Affairs
– Image portrayal
– Damage control
Adfactors PR is one of the
leading public relations
agencies in India
 Interactive Agencies
• Agencies that specialize in the development and
strategic use of various interactive marketing tools
• Services include:
– Development of strategy for Internet and other
interactive marketing tools
– Interactive Media Creation
• Web sites
• Web banner ads
• Digitized content (audio, video, animation)
• CD-ROMs
• Kiosks
Webchutney’s interactive program
Superchooha specializes in campaigns that utilize social media platforms
 Collateral Services
• Include
– Marketing Research Firms(widely used)
– Package Design Firms
– Video Production Companies
– Photographers
– Printers
– Event Marketing Companies
ADVERTISING OBJECTIVES
AND BUDGETING
 Syllabus
• Advertising objectives and Budgeting:
– Goal setting – DAGMAR approach
– Various budgeting methods used.
ESTABLISHING OBJECTIVES AND
BUDGETING FOR THE PROMOTIONAL
PROGRAM
What is the objective of advertisement?
The objective of this ad is to benefit from Indians’ love for cricket
Tata Tea going beyond sales in its ad objective
Conclusion :

1. Not all Ads are designed to achieve Sales

2. Advertising and promotion are not the only marketing
activities involved in generating sales

3. It is not always not possible or necessary to measure

the effects of advertising in terms of sales
 The Value of Objectives
• Communications
– The advertising and promotional program must be coordinated within
the company, inside the ad agency, and between the two.
• Planning and Decision Making
– Promotional planners are often face problems with choosing creative
options, selecting media, and allocating the budget among various
elements of the promotional mix.
– Choices should be made based on how well particular strategy
matches the firm’s promotional objectives.
• Measurement and Evaluation of Results
– setting specific objectives provide a benchmark against which the
success or failure of the promotional campaign can be measured.
• One characteristic of good objectives is that they are
measurable.
DETERMINING INTEGRATED
MARKETING COMMUNICATIONS
OBJECTIVES
 Determining Integrated Marketing
Communications Objectives
• IMC objectives should be based on
– Situation analysis
• Marketing and promotional issues facing the company
or a brand
• Foundation for determining marketing objectives
• IMC objectives evolve from company’s overall
marketing plan
• Advertising and promotion objectives are
different from marketing objectives
 Types of Objectives
• Marketing versus Communications Objectives
– Marketing Objectives
• Statements of what is to be accomplished by the overall
marketing program within a given time period.
• Need to be quantifiable such as sales volume, market share,
profits, or ROI.
• Need to be realistic, measurable and attainable
– IMC Objectives
• Statements of what various aspects of the IMC program will
accomplish
• Based on communication tasks required to deliver
appropriate messages to the target audience.
 Types of Objectives
• Sales versus Communications Objectives
– Sales oriented objectives
• Managers are of the opinion that the basis reason a
firm spends money on advertising and promotion is to
sell its product or service
• Determining the specific return of advertising and
promotional dollars is often quite difficult task
 Problems With Sales Objectives
• Sales are a function of many factors, not just
advertising and promotion.
• Carryover effect
– Money spent on advertising do not necessarily have an
immediate impact on sales.
– Advertising may create awareness, interest, and/or
favourable attitudes toward a brand
– But these feelings will not result in an actual purchase until
the consumer enters the market for the product, which
may occur later.
• Sales objectives provide little guidance to those
responsible for planning and developing the IMC
program
Factors influencing Sales
Where Sales Objectives are Appropriate
• For promotional efforts that are direct action in
nature and can induce an immediate behavioral
response.
– Sales promotion
– Direct response advertising(based on sales)
– Retail advertising for sales or special events
• When advertising plays a dominant role in a
firm’s marketing program and other factors are
relatively stable
• When sales effects of an IMC variable can be
isolated
Direct response advertising –The sales response generated by pizza
hut ad can be measured based on the number of orders placed
 Communication Objectives
• The primary goal of an
IMC program is to
communicate and
planning should be based
on communications
objectives such as
– Brand awareness
– Knowledge
– Interest
– Attitudes
– Image
– and purchase intention
Communication
Objectives
Communications Effects Pyramid
DAGMAR: AN APPROACH
TO SETTING OBJECTIVES
DAGMAR: An Approach to Setting Objectives

• In 1961, Russell Colley prepared a report for the

Association of National Advertisers titled Defining
Advertising Goals for Measured Advertising Results
(DAGMAR).
• Major thesis of the DAGMAR model
– Communications effects are the logical basis for
advertising goals and objectives against which success or
failure should be measured.
– An advertising goal involves a communication task that is
specific and measurable
DAGMAR: An Approach to Setting Objectives

• Colley proposed that the communications task be

based on a hierarchical model of the
communications process with four stages:
1) Awareness—making the consumer aware of the
existence of the brand or company.
2) Comprehension—developing an understanding of
what the product is and what it will do for the
consumer.
3) Conviction—developing a mental disposition in the
consumer to buy the product.
4) Action—getting the consumer to purchase the
product.
 Characteristics of Objectives
• DAGMAR’s definition of what constitute a
good objective
1. Concrete, Measurable Communication Tasks
2. Well-Defined Target Audience
3. Benchmark and Degree of change sought
• Target audience's present status concerning response
hierarchy
4. Specified Time Period
 Hyundai’s initiative to increase
its customer satisfaction ratings
by improving the consumer's
perceptions of their cars is an
example for clarity in objective
and specific communication
actions
 Criticisms of DAGMAR
• Problems with the response hierarchy
– Major criticism is that it relies of Hierarchy of effects model
– Consumers don’t always go through this sequence of
communications effects before making purchases
• Sales objectives
– Sales are all that really counts, not communications objectives.
• Practicality and Cost
– More money must be spent on research to establish
quantitative benchmarks and measure changes in response
hierarchy
– Costly and time consuming
• Inhibition of Creativity
– It inhibits advertising creativity by imposing too much structure
on the people responsible for developing the advertising
Traditional Advertising-Based View of
Marketing Communications

Acting on Consumers
 What we’re What we need
willing and to achieve our
able to spend objectives

BUDGETING DECISIONS
 Establishing the Budget
• Involve determining how much money will be spent on
advertising and promotion each year and how the
monies will be allocated
• A comparison of advertising and promotional texts
over the past 10 years would reveal the same methods
for establishing budgets.
• Advertisers also use an approach based on
contribution margin—the difference between the total
revenue generated by a brand and its total variable
costs.
• Procter and Gamble spend more than $2 billion per
year to promote their products
Theoretical issues in Budget setting
• Most of the models used to establish advertising
budgets can be categorized as taking an economic or
a sales response perspective
• Marginal analysis
– As advertising/promotional expenditures increase,
sales and gross margins also increase to a point, but
then they level off
– Assumptions:
• Sales are a direct measure of advertising and promotions
efforts.
• Sales are determined solely by advertising and promotion.
Marginal Analysis
 Sales Response Models
Advertising Sales/Response Functions

A. Concave-Downward • The concave-downward function

Response Curve • Effects of advertising budget follows law
of diminishing returns
• The amount of advertising increases ,its
incremental value decreases
• Those with the greatest potential to buy
will likely act on the first(or earliest)
Incremental Sales

exposures
• Those less likely to buy are not likely to
change as a result of the advertising
• For those who may be the potential
buyers, each additional ad will supply
little or no information that will affect
Advertising Expenditures
their decision
 Sales Response Models
Advertising Sales/Response Functions
B. S-Shaped Response • S-shaped response curve
Function • Initial outlays of the
advertising budget have little
impact –Range A
• After a certain budget level
has been reached , advertising
and promotional efforts begin
Incremental Sales

to have an effect –Range B

Initial Spending

High Spending
Middle Level

• The incremental gain

Little Effect
Little Effect

High Effect

continues only to a point,

additional expenditures begin
to return little or nothing the
Range A Range B Range C
way of sales – Range C
Advertising Expenditures
BUDGETING APPROACHES
Vary according to the size and sophistication of the firm
Top –Down versus Bottom-Up approaches to Budget Setting

Top-Down Budgeting Bottom-Up Budgeting

 Other Budgeting Approaches
• The Affordable Method
– Often referred to as the “all you-can-afford method”
– Firm determines the amount to be spent in various
areas such as production and operations.
– Allocates what’s left to advertising and promotion,
considering this to be the amount it can afford.
• Arbitrary Allocation
– No theoretical basis is considered
– Budget is determined by management solely on the
basis of what is felt to be necessary
 Other Budgeting Approaches
• Percentage of Sales
– Most commonly used method for budget setting
(particularly in large firms)
– The advertising and promotions budget is based on
sales of the product.
– Management determines the amount by either
1. Taking a percentage of the sales dollars or
2. Assigning a fixed amount of the unit product cost to
promotion and multiplying this amount by the
number of units sold.
• Competitive Parity
– The managers establish budget amounts by matching
the competition’s percentage-of-sales expenditures.
Percentage of Sales Method
 Other Budgeting Approaches
• Return on Investment (ROI)
– Advertising and promotions are considered
investments, like plant and equipment.
• Objective and Task Method
– Uses a build-up approach consisting of three steps:
1. Defining the communications objectives to be
accomplished
2. Determining the specific strategies and tasks needed to
attain them
3. Estimating the costs associated with performance of these
strategies and tasks.
 Objective and Task Method
Establish Objectives
(create awareness of new product
among 20 percent of target market)

Determine Specific Tasks

(advertise on market area
television and radio and local
newspapers)

Estimate Costs Associated with Tasks

(create awareness of new product
among 20 percent of target market)
 Payout Planning
• To determine how much to spend, marketers develop a
payout plan
• Determines the investment value of the advertising and
promotion appropriation
 Allocating the Budget
• Allocation depends on
– Market Size
– Market Potential
– Market Share Goals (maintaining vs. Increasing market
share)
– Economies of Scale in Advertising
• Firms having larger market share have an advantage over
smaller competitors and thus can spend less money on
advertising and realize a better return
• Enjoy advertising of several products jointly
– Organizational Characteristics
• The organization’s structure—centralized versus
decentralized, formalization, and complexity.
• Power and politics in the organizational hierarchy.
• The use of expert opinions
 Schroer’s suggestions for spending
priorities in various markets

SOV- Share of Voice, Share of voice is the share of exposure a brand gets.
It can be used to measure brand awareness and gauge how visible a brand
is to a specific audience.
End of Module 2

Thank You