Download i. participants in the integrated marketing communications process

CHAPTER 3
ORGANIZING FOR ADVERTISING AND PROMOTION:
THE ROLE OF AD AGENCIES AND OTHER MARKETING
COMMUNICATION ORGANIZATIONS
Chapter Overview
The purpose of this chapter is to familiarize the student with the various ways that organizations might
organize for purposes of developing and executing integrated marketing communications programs.
Students often have little or no idea regarding how the role of the various participants in the advertising
and promotional program and how the IMC function is organized and coordinated. The chapter begins
with a presentation of the various participants involved in the promotional planning process - advertisers,
advertising agencies, media organizations, marketing communication specialist organizations, and
collateral service organizations. This is followed by a discussion of the various organizational systems
and the advantages and disadvantages of each. An in-depth discussion of the role and functions of
advertising agencies is provided, as is an explanation of how agencies are compensated and evaluated.
The chapter also discusses organizations that provide specialized integrated marketing communication
services including direct-response, sales promotion and interactive agencies as well as public relations
firms. It is very important for students to understand that a variety of different organizations may play a
role in the development of various aspects of a company’s integrated marketing communications
program.
Chapter Objectives
1. To understand how companies organize for advertising and other aspects of integrated marketing
communications.
2. To examine methods for selecting, compensating, and evaluating advertising agencies.
3. To explain the role and functions of specialized marketing communications organizations.
4. To examine various perspectives on the use of integrated services and responsibilities of advertisers
versus agencies.
Chapter and Lecture Outline
I.
PARTICIPANTS IN THE INTEGRATED MARKETING COMMUNICATIONS
PROCESS
This chapter examines the various organizations that participate in the integrated marketing
communications process, their roles and responsibilities, and their relationship to one another. As noted in
the opening vignette on BMW’s use of short films on the Internet, marketers are always searching for
creative ways to communicate with their customers. Agencies such as Fallon Worldwide are used because
of their strong creative capabilities and their ability to bring novel approaches to their clients marketing
programs. Today, more marketers are looking for agencies that can offer a range of integrated marketing
communication capabilities and help them compete in the rapidly changing world of advertising and
promotion. The opening section provides an overview of the various participants in the integrated
marketing communications process. The student should become familiar with the various players
including clients, advertising agencies, media organizations, marketing communications specialist
organizations and those who provide collateral services. It is particularly important to note that with the
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movement toward IMC, marketing communication specialist organizations such as direct response
agencies, sales promotion agencies, public relations firms, and interactive agencies are playing an
increasingly important role in the promotional process.
II.
ORGANIZING FOR ADVERTISING AND PROMOTION IN THE FIRM: THE
CLIENT’S ROLE
How a firm organizes for advertising and promotions is a function of a number of factors including (1) the
size of the organization, (2) the number of products it markets, (3) the role that advertising and promotion
assume in the product mix, (4) the advertising and promotions budget, and (5) the structure of the firm.
Three organizational designs are discussed:
A.
B.
C.
The Centralized System—In this design, marketing activities are organized along functional lines.
A common form is to have an advertising manager (or marketing communications manager)
responsible for all advertising and promotions activities including planning and budgeting,
administration and execution, and coordination with other departments and outside agencies.
The Decentralized System—In this system, individual products or brands are the responsibility of
the product manager or brand manager. All advertising and promotion for the brand or
product will be this person’s responsibility (including responsibilities for working with all
external agencies) and s/he will be in charge of all planning, implementation and control for that
product or brand.
The In-House Agency—Some companies develop their own internal ad agencies. The design of
these agencies may vary from as small as an advertising department to as large as an external
agency. In the latter case, the in-house agency will operate as a separate entity and control
advertising and promotional expenditures in millions of dollars.
The advantages and disadvantages associated with each of these organizational designs are shown
in Exhibit 3-5. This exhibit can be used as an effective overhead for class discussion purposes.
Professor Notes:
III. ADVERTISING AGENCIES
Many large companies employ the services of an external advertising agency. In 2003 there were over
13,500 such U.S. and international agencies listed in the Standard Directory of Advertising Agencies,
(The “Red Book” can be accessed at www.redbooks.com) ranging in size from one and two person
operations to those with almost a billion dollars in worldwide income.
A.
The Ad Agency’s Role—external agencies provide a variety of services to their clients, including
those discussed in the previous section. Though many clients have the capabilities of performing
these roles themselves, they elect to use outside agencies for the following reasons: (1) the skills
offered (2) objectivity and (3) experience.
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B.
Types of Advertising Agencies—all agencies are not the same of course. This section discusses
the various types of agencies including the following:
1. Full Service—these agencies offer their clients a full range of services including account
services, marketing planning and research, media planning and buying, sales promotion,
creative services, and interactive media. The various departments of a full service agency
include:

Account services—the link between the advertising agency and its clients. Account
executives serve as the liaison between the agency and client and are responsible for
coordinating the agency's efforts in planning, creating and producing ads.

Marketing services—many full-service agencies provide a variety of marketing services
to their clients and maintain departments such as research, strategy and planning and
media. In a full-service agency the media department is very important since many clients
are consolidating their media buying to save money and improve media efficiency.

Creative services—agency personnel in this department include artists and copywriters
who are responsible for the creation and execution of the clients advertising messages.
Creative services may also include print and broadcast production departments which are
responsible for actually producing the advertising messages and putting them into final
form. The traffic department coordinates all phases of production and sees that all ads
are completed on time and deadlines for submitting the ads to the media are met.

Management and finance—like any other business, an advertising agency must be
managed and must perform basic operating and administrative functions such as
accounting, finance and human resources
Attention should also be given to the two basic types or agency organization structures used
by agencies. Under the departmental system each of the agency functions is set up as a
separate department and is called upon to perform its specialty for all of the agency’s clients.
Many agencies use the group system in which individuals from each department work
together as teams to service a particular account. Many clients prefer the group system
because agency employees become very familiar with their business and it ensures continuity
in servicing the account.
Other Types of Agencies and Services
1. Creative boutiques—these types of agencies specialize in and provide only advertising
creative services. IMC Perspective 3-2 provides some insights into these small agencies.
2. Media buying services—these are independent companies that specialize in media
planning and buying. Many companies use independent media buying to plan and
purchase media and an advertising agency to handle their creative work.
Professor Notes
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IV.
AGENCY COMPENSATION
Agency agencies may be compensated in a variety of ways including:
A.
Commissions from Media—the agency is compensated based on the time or space it purchases
for its client. The commission is typically 15% (16 2/3% for outdoor), and sometimes has been
negotiated downward. The commission system has been the target of criticism for a number of
years as critics argue that it ties agency compensation to media costs and encourages agencies to
rely too much on expensive, commissionable media such as network television and avoid
noncommissionable media. Many advertisers have moved to a negotiated commission system
that takes the form of reduced percentage rates, variable commission rates and minimum and
maximum compensation rates. A recent survey by the Association of National Advertisers found
that less than 10 percent of clients pay their agencies a 15% commission. However, most clients
do use the 15% commission as a benchmark to evaluate their current agency compensation
agreement.
B.
Fee, Cost and Incentive-based Systems—in situations where billings are low, and/or the client
does not wish to pay a direct commission, an agreement may be reached in which the agency is
compensated in the way of a fee, cost-plus or incentive-based compensation system.
1. Fee arrangements are of two types: a fixed-fee method where the agency charges a basic
monthly fee for all of its services and credits to the client any media commissions earned.
Under a fee-commission combination the media commissions received by the agency are
credited against the fee. If commissions are less than the agreed-on fee, client must make up
the difference.
2. Cost-plus agreement—under this compensation method the client agrees to pay the agency a
fee based on costs of its work plus some agreed-on profit margin. This system requires the
agency to keep detailed records of costs incurred in working on a client’s account.
3. Incentive-based compensation—while there are many variations on this system, the basic
idea is that the agency’s compensation level will depend upon how well it meets
predetermined performance goals for its clients such as sales or market share. Incentive-based
compensation. Incentive based compensation systems are becoming more prevalent as
marketers are seek to make their agencies more accountable and reduce costs.
C.
Percentage Charges—when agencies purchase services from other outside agencies they typically
add a percentage in the form of a markup charge as their compensation. These markups usually
range from 17.65 to 20 percent.
Professor Notes
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V.
EVALUATING AGENCIES
Given the substantial amounts of money being spent on advertising by many companies, demands for
accountability are increasing. The agency evaluation process generally involves two types of
assessments—financial audits and qualitative audits. An increasing trend among larger firms is to
formalize this process as demonstrated by the Borden example shown in Exhibit 3-7 of the text.
A.
Gaining and Losing Clients—agencies are like their clients in the sense that they must solicit
business, and often gain and lose business. The text offers a variety of reasons as to why agencies
gain and lose clients, as well as some of the activities they perform in seeking new business.
Current issues of Advertising Age or AdWeek will be useful in providing the instructor with
examples of recent account changes and some of the reasons the clients decided to change
agencies. IMC Perspective 3-3 discusses how Gateway has changed agencies five times in the
past ten years and provides some insight into the reasons for the changes.
1. Reasons 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
 Conflicts of interest
 Changes in the client’s corporate and/or marketing strategy
 Declining sales
 Conflicting compensation philosophies
 Changes in policies
2. How agencies gain clients
 Referrals
 Solicitations
 Presentations
 Public relations
 Image and reputation
Professor Notes
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VI.
SPECIALIZED SERVICES
In addition to advertising agencies, other outside organizations may provide marketers with specialized
services that are important in developing and executing integrated marketing communication programs.
A.
Direct Response Agencies—one of the fastest growing areas in IMC is direct marketing where
companies communicate with their customers through telemarketing, direct mail and other forms
of direct-response advertising. Direct response agencies provide their clients a variety of services
including data base development and management, direct mail, research, media services, and
creative and production capabilities.
B.
Sales Promotions Agencies—there are many companies specializing in the provision of sales
promotions such as contests, games, sweepstakes, and refund and rebate offers. Services provided
by large sales promotion agencies include promotional planning, creative, research, tie-in
coordination, fulfillment, premium design, and contest/sweepstakes management. Some time
might also be spent discussing how promotional agencies are becoming important participants in
the development of integrated marketing communications strategy for various companies.
B.
Public Relations/Publicity Agencies—many large companies use both advertising agencies and
public relations (PR) firms. Public relations firms develop and implement programs to manage an
organization’s publicity, image, and affairs with consumers and other relevant publics including
employers, suppliers, stockholders, government, labor and the general public. The role of PR
firms is examined in more detail in Chapter 17.
D.
Interactive Agencies—with the rapid growth of the Internet and other forms of interactive media,
a new type of specialized marketing communication organization has evolved—the interactive
agency. While many traditional agencies like have established interactive capabilities, a number
of marketers are turning to more specialized firms such as Digitas and Agency.com to develop
web sites, banner ads for the Internet, and other forms of interactive advertising.
Professor Notes
VII.
COLLATERAL SERVICES
The final group of participants in the promotional process is those organizations that provide collateral
services such as marketing research, package design, consulting, photography, event sponsorship
planning and production and broadcast production services. One of the more widely used collateral
service organizations is marketing research firms that conduct both qualitative research such as focus
groups and quantitative studies such as market surveys.
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VIII.
INTEGRATED MARKETING COMMUNICATION SERVICES
A significant trend in the advertising industry is to combine all of the above services under one roof.
These one-stop service agencies bring together service providers so that the client needs only to use their
firm to receive all of the marketing support s/he requires. Specific advantages and disadvantages of these
arrangements have been cited:
A.
Pros and Cons of Integrated Services—It has been argued that IMC is nothing new, particularly in
smaller companies and communication agencies that have coordinating promotion tools for years.
The text discusses the advantages and disadvantages of the one-stop shop.
1. Advantages of integrated services
 Greater control of the promotional process allows for more synergy among each of the
communication program elements

More convenient for clients to coordinate all promotional efforts with one agency

Agencies with IMC capabilities can create a single image for the client
2. Disadvantages of integrated services
 Synergy and economies of scale are often not achieved by a single agency handling all
communication areas
B.

Internal conflicts often arise within various departments within a large agency over areas
such as advertising, public relations or sales promotion

Limits client’s ability to take advantage of specialists in various IMC areas
Responsibility for IMC: Agency versus Client—A final area covered in this section is a
discussion of whether the client or advertising agency should have the primary responsibility for
planning and coordinating the IMC process. Most marketers believe it is their responsibility to set
strategy for and coordinated integrated campaigns while agency executives see this as their
domain. The major barrier is a lack of people in agencies with the broad perspective and skills
needed to make IMC work effectively. Internal turf battles, agency egos, and fear of budget
reductions are also cited as major barriers to successful integrated marketing campaigns.
Professor Notes
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Teaching Suggestions
As noted earlier, the student is usually unfamiliar with how companies organize for advertising and
promotion, and the role that various organizations play in this process. While most students are somewhat
familiar with advertising agencies, they are less likely to know anything about direct response and sales
promotion agencies, public relations firms and interactive agencies. You might note that there are some
excellent career opportunities available in these areas. Students are often interested in working for an
advertising agency. This chapter will help to familiarize them with other major participants in the IMC
process and the important role they play. You might encourage students to visit the web sites of a
promotion agency such as DVC Worldwide (www.dvc.com ) or an interactive agency such as
Agency.com (www.agency.com ) or Digitas, (www.digitas.com) both of which have very informative
sites.
Because of the rapidly changing advertising environment, it is important for the instructor to keep up to
date with events that are taking place. Good sources of information on advertising are publications such
as Advertising Age, AdWeek, and BrandWeek. You can also access information from these publications
online at www.adage.com and www.adweek.com, and. For excellent articles and sources of information
on sales promotion students should be referred to Promo magazine which can be accessed online at
www.promomagazine.com . We suggest that use of the outline provided here be supplemented by
additional articles from the media listed above. We have also found strong student interest in identifying
which current advertisements have been created by various agencies. Most major agencies have excellent
websites which contain client rosters, examples of their advertising, information about their advertising
philosophy, approaches to branding and content related to other areas IMC areas.
There are some very interesting books on the advertising industry that could be suggested readings for
students. Some of these provide insights into the workings of the advertising world while others discuss
the various perspectives that agencies operate from. Some suggestions include:








Rosser Reeves, Reality in Advertising
Alison Fendley, Saatchi & Saatchi, The Inside Story
Kevin Goldman, Conflicting Accounts (The Creation and Crash of the Saatchi & Saatchi Advertising
Empire)
David Ogilvy, Ogilvy on Advertising, Confessions of an Advertising Man
David Ogilvy, Eric Clark, The Want Makers
Jon Steel, Truth, Lies & Advertising: The Art of Account Planning
John O’Toole, The Trouble With Advertising
Martin Mayer, Madison Avenue, U.S.A.
There are also some more recent books which provide insight into changes that are impacting the
traditional advertising agency business and provide interesting perspectives on the industry. These
include:

Bob Garfield, And Now A Few Words From Me

Sergio Zyman, The End of Advertising as We Know It

Al Ries and Laura Ries, The Fall Of Advertising & The Rise of PR
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Answers to Discussion Questions
1. Evaluate the decision by BMW and its advertising agency, Fallon Worldwide, to develop short films
that can be viewed at the BMW Films.com website. Do you think more companies will be using the
“advertainment”concept to promote their products?
As discussed in the opening vignette to the chapter, two major factors drove the decision by BMW
and Fallon Worldwide to pursue the “advertainment” concept and develop short films that could be
viewed at the BMWFilms.com site on the Internet. First there was a concern that traditional media
advertising for BMW was losing its effectiveness and it was becoming more difficult to differentiate
the brand. Second was the desire to exploit the popularity of the Internet among car buyers and
BMW’s target audience in particular. BMW wanted to keep its brand relevant and cool, particularly
with younger customers between the ages of 25 and 44 who are entering the luxury car market. The
short film campaign provides consumers the opportunity to discover and experience the brand on
their own terms while showcasing the performance of different BMW models. It also allows BMW to
show the car performing in extreme conditions and circumstances that could never be conveyed in a
traditional TV spot. For example, network censors might reject an ad showing a car being driven at
high speeds or engaging in potentially dangerous maneuvers. The BMW films campaign has been
very successful. During the four-month core of the promotion, the films were viewed more than 11
million times, initially drawing more visits than the site could handle. The campaign has also
delivered on program objectives by driving dramatic increases in brand measures such as personal
relevance of the brand, purchase receptivity, dealer visits and ultimately sales. BMW sales increased
by 12.5 percent in 2001 without the benefit of any major product launches, surpassing the 200,000
mark for the first time in history.
The success of the BMWFilms campaign is already motivating other companies to use the
“advertainment” concept and develop short films that can be shown on their web site. As discussed in
the text, Skyy Spirits has been showing short films on the web site for Skyy vodka for several years.
Other companies and brands such as Levi Strauss, and Absolut vodka have developed short films that
can be viewed on their web sites and companies are developing other forms of branded content as
well.
2. Identify the various organizations that participate in the integrated marketing communications process
and briefly discuss the roles and responsibilities.
Advertisers or clients are the key participants. It is their product or service that is being offered and
that must be marketed. The advertiser is responsible for all marketing aspects, and will ultimately
have the final say regarding approval of the proposed promotional programs. It is the advertiser who
ultimately pays the bills.
The advertising agency is an external organization specializing in the creation, production and
placement of the communications messages. They may also provide additional services designed to
facilitate the marketing effort.
Media organizations provide the advertiser with a channel for their communications. Media may
include print, broadcast, outdoor, etc., and media organizations attempt to provide the advertiser with
the proper environment for the message.
Marketing communication specialist organizations provide services in specific areas of marketing
communications. They include direct response agencies, sales promotion agencies, public relations
firms and interactive agencies.
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Collateral services participants are those who provide a wide range of support services including
marketing research, package design firms, consultants, photographers, event sponsorship firms, and
the like. Their function will vary in accordance with the needs of the promotional program.
3. What are some of the specific responsibilities and duties of the advertising manager under a
centralized advertising department structure? Why is an advertising manager needed if a company
uses an outside agency?
The specific duties of the advertising or marketing communications manager will vary depending
upon the size, organization and makeup of the firm. In a centralized system the manager may have
responsibilities for all promotional functions except sales. These responsibilities may include
planning and budgeting, administration and execution of the promotional program, coordination with
other departments and outside agencies, and program evaluation.
An advertising or marketing communication manager may still be needed if an outside agency is
used, as the agency may not perform all of the marketing tasks required. There is also still a need for
someone to plan and coordinate the IMC program internally as well as to serve as the liaison between
the agency and the firm. In addition, the ad manager will be responsible for evaluating the external
agency’s performance.
4. Discuss the pros and cons of using an in-house agency. What are some of the reasons why companies
might change from using an in-house agency and hire an outside agency?
Some of the reasons why firms use in-house agencies include: (1) cost savings; (2) control; and (3)
increased ability to coordinate marketing and promotional activities. Negative aspects include: (1)
internal employees may have less experience and inferior skills than their external counterparts; (2)
they may be less objective about the product and its capabilities; and, (3) they may be less flexible
with respect to what they are willing and able to do with the product and/or brands programs.
Companies often use an in-house agency when they have sufficient and capable staff to conduct the
advertising and promotional activities themselves; they have a very large advertising and promotional
budget and wish to save the costs of fees and commissions; and/or when they believe that the ability
to coordinate and control the promotional activities is more feasible with this design. Companies such
as Calvin Klein and Benetton, which have often used controversial “shock” type ads, do their
advertising in-house to retain total control over the creative process. No Fear is another example of a
company that does its advertising in-house. The company likes to have control over its advertising
function and maintain somewhat of a mysterious image and positioning for the brand. They also feel
they have the creative capabilities to design and implement creative and effective advertising
messages. In some cases No Fear will have some of its creative work done outside by a creative
specialist or boutique.
Companies change from using an in-house agency and hire an outside agency for various reasons.
Many marketers feel that the use of an outside agency provides greater objectivity with respect to the
advertising. When an in-house agency is used, management may get too close to the advertising
process and product and lose its objectivity when evaluating the ads. Outside agencies can provide a
more objective perspective on the market and business that is not subject to internal biases and
politics. Companies often move from in-house to outside agencies as they become larger and their
advertising and other marketing communication needs become greater. Rather than continuing to
expand the in-house agency, many companies will move to using an outside agency that has the
various services and expertise needed by the company. It should be noted that perhaps the major
reason why outside agencies are used is that they provide the client with the services of highly skilled
individuals who are specialists in the advertising area. Outside agencies also offer more flexibility to
an advertiser as they can always switch agencies and hire a new one if they are dissatisfied with the
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work being done. It is much more difficult to terminate an in-house agency and hire new personnel to
replace them.
5. Discuss some of the reasons why traditional advertising agencies have been developing more
integrated marketing communications capabilities. What changes might traditional agencies have to
make to improve their IMC capabilities?
As discussed in IMC Perspective 3-1, traditional advertising agencies have been developing more
IMC capabilities because their clients are shifting more and more of their promotional dollars away
from mass media advertising to other areas of marketing communication such as direct marketing,
public relations, sales promotion, the Internet and event marketing and sponsorships. By expanding
their capabilities, traditional agencies can offer a full range of IMC services and provide a total
communications solution to their clients. By expanding their IMC capabilities and services,
traditional agencies can also make money from other areas of their clients promotional spending such
as direct marketing, interactive, sales promotion and public relations.
The greatest change that traditional agencies have to make to improve their IMC capabilities is to
develop or acquire expertise in these other areas. Traditionally agencies have been experts in areas
related to advertising including creative and media. To expand their IMC capabilities agencies have
to offer a broader range of services and develop expertise in areas such as direct marketing, event
marketing, sales promotion, interactive and public relations. Many agencies have been acquiring these
capabilities by purchasing companies such as interactive agencies, public relations and direct
marketing firms or promotional agencies. Others have been working to develop these IMC skills
internally through their hiring and training processes.
6. Why might a company choose to use a creative boutique rather than a larger, full-service agency?
Find an example of a company that uses a creative boutique and discuss why the decision to use a
smaller agency may be appropriate for this firm.
Creative boutiques are agencies the provide only creative services and have developed in response to
some companies’ desires to use only the creative talent of agency. There are a number of reasons
why marketers use creative boutiques. These smaller agencies often turn out excellent creative work
and do not have the bureaucracy and politics of larger agencies. Many companies also feel that by
working with a smaller creative boutique they can get more attention and better access to creative
talent than they would at a larger agency. Many creative boutiques are formed when creative people
leave large agencies and form their own agencies. Often they take with them a client with whom they
have worked closely and developed a strong relationship. Another reason why a company might use
a creative boutique is that there are companies available to handle other parts of the advertising and
promotional program. Independent media buying companies can be used to develop and implement
the media strategy and plan while other types of companies can provide specialized services in other
areas such as direct response, sales promotion, and interactive agencies as well as PR firms.
7. Discuss the various methods by which advertising agencies are compensated. What factors will
determine the type of compensation system a company uses with an agency?
Agencies are typically compensated in three ways: through commissions from the media, some type
of fee arrangement or percentage charges. The traditional method of compensating agencies has been
through media commissions whereby the agency receives a specified commission from the media on
any advertising time or space it purchases for the client. There are two basic types of fee
arrangements systems. Under the fixed-fee method the agency charges a basic fee for all of its
services and credits to the client and credits any media commissions earned. Sometimes agencies are
compensated through a fee-commission combination, whereby the media commissions received by
the agency are credited against the fee. Another type of fee-based compensation arrangement is the
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cost-plus system whereby the client agrees to pay the agency a fee based on the cost of its work plus
some agreed-on profit margin.
The type of compensation system a company uses with an agency will depend upon a number of
factors including the size of the advertising budget the role of advertising and their reliance on
traditional media advertising versus other forms of integrated marketing communications. Most small
companies do not have large enough advertising budgets to warrant the use of the traditional
commission system. Thus some type of fee arrangement or cost-plus system is likely to be used.
Many large advertisers are moving away from the traditional commission system and using incentivebased systems where agency compensation is tied to performance. The performance measures may
include objective measures such as sales and/or market share as more subjective measures such as
evaluations of the agency’s creative work. As more marketers adopt an integrated marketing
communication perspective and move away from traditional mass media, changes in compensation
systems are taking place. This may include a combination of compensation systems such as a
negotiated set fee or media commission rate as well as incentives.
8. Why are many companies moving away from the traditional commission system and using incentivebased compensation for their advertising agencies. Why might an agency be reluctant to accept an
incentive-based compensation system?
There are several reasons why many companies are moving away from the traditional 15 percent
commission system and using an incentive-based method of compensating their agencies. One of the
major reasons for this change is that companies are demanding greater accountability from their
agencies and feel that an incentive-based compensation system is one way of achieving this.
Companies feel that if agencies really want to be true partners, they will be willing to share in the
sales performance of the product or service with them. For many companies, advertising plays a
major role in determining the sales success of their product or service. Incentive-based compensation
systems also encourage agencies to look beyond traditional mass media advertising and to consider
how other IMC tools that might be more effective in driving sales. For example, the text notes that
General Motors and Procter & Gamble are now using performance-based systems and encouraging
their agencies to look beyond traditional media advertising to reach consumers.
There are a number of reasons why an agency might be reluctant to accept an incentive-based
compensation system? A system in which the agency is compensated based on the brand’s
performance in the marketplace has the potential to be a fair system, but may be fraught with
problems as well. If the basis for evaluation is tied to communications objectives (as will be discussed
later in this text) the system has may be acceptable to the agency. On the other hand, tying the
compensation to market performance measures such as brand share and/or sales could be unfair. As
the student will learn later in this text, it is very difficult—if not impossible—to tie market share and
sales figures directly to advertising. For example, while the advertising may be working very well,
other marketing variables may hinder sales and/or market share performance. Excellent advertising
will not compensate for poor product quality, over pricing or a poor distribution system. Thus, if one
were to see poor performance of the brand in the marketplace, the advertising agency might be
punished for problems beyond their control. In many instances, the agency is let go when sales are
down, and often this is not the proper place to lay the blame. On the other hand, many agencies see
incentive based compensation methods as a way of differentiating themselves and proving to clients
that they are confident in their ability to develop advertising that will have a favorable impact on
sales. Since clients are expecting more accountability from their advertising and promotional
programs, and agencies may feel that their willingness to work under a incentive based compensation
system will increase their likelihood of getting a company’s advertising business.
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9. IMC Perspective 3-2 discusses how Gateway has changed advertising agencies five times in the past
ten years. Discuss the various reasons why Gateway has changed agencies so often and how the
changes may have impacted its advertising.
There are a number of reasons why Gateway has changed agencies so many times over the past ten
years. The company initially relied solely on print advertising used an in-house agency. However, as
the company grew rapidly television was added to the media mix and an outside agency, Carmichael
Lynch, was retained to work with the company’s in-house advertising department. However, as
Gateway grew and its international sales increased, the company decided that it needed a global
agency so it moved its account to the larger D’Arcy Masius Benton & Bowles. Both agency changes
occurred because of changes in the size of the client (Gateway). However, Gateway’s founder and
CEO Ted Wait, was dissatisfied with the traditional campaigns developed by DMB&B and decided to
move the advertising to a small creative boutique. He also brought back Henry Corra, the director and
filmmaker, who had worked on Gateway commercials when the account was at Carmichael Lynch.
the agency to direct the commercials. Gateway changed agencies once again when Jeff Weitzen was
hired as the new CEO of the company and he moved the account to McCann Erickson. When
Weitzen left the company after three years and Waitt once again took control of the company,
McCann Erickson was dismissed and the advertising was moved to another creative boutique,
Siltanen/Keehn. These changes show that the preferences of top management often play an important
role in the decision to change agencies and that personal relationships are an important factor in
agency selection and retention decisions. However, Gateway retained Siltanen/Kehn for less than a
year and then moved its advertising to another agency, the Arnell Group. This change was part of
Gateway’s decision to reposition itself as more cool and hip company and to put more emphasis on
selling products through its Gateway Country stores. This shows that decisions to switch agencies
often occur as result of changes in the client’s corporate and/or marketing strategy.
A problem that can arise from Gateway’s frequent changes in agencies is a lack of consistency in its
advertising and branding message. If Gateway continues to change agencies frequently, the company
will have difficulty establishing a clear position and image in the mind of consumers. Agency
changes usually result in a change in advertising campaign themes and approaches. Thus it is
important that the company settle on an agency and stay with a consistent advertising campaign and
branding message. You may want to pay attention to Gateway’s advertising as well as advertising
industry publications to see if the company stays with the Arnell Group and the “Gateway. A Better
Way” campaign theme that began in late 2002.
10. Discuss the role of agencies that perform specialized marketing communication services such as
public relations firms, direct response, sales promotion and interactive agencies. Why might a
company choose to use these specialized services rather than using a full service agency for all of its
integrated marketing communication functions?
Firms that specialized in specific areas of integrated marketing communications such as sales
promotion, public relations, direct marketing and interactive media play an important role in the IMC
process. These agencies are important because they are specialists in planning, developing and
implementing these various IMC functions and can provide a great deal of expertise to these areas.
For example, an interactive agency is an organization that specializes in the development and
strategic use of various interactive marketing tools such as websites for the Internet, banner ads, CDROMS, kiosks and other forms of interactive media. Many marketers are using interactive agencies
because they are specialists in field of interactive media and have capabilities beyond what might be
found in a full service advertising agency. Companies that are making the Internet a major part of
their IMC programs may use an interactive agency that has strategy, creative and technology
capabilities and can help these companies integrate the Internet into various aspects of their business
such as brand building, communications, transactions, and customer service.
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Companies may choose to use these specialized agencies rather than a full service agency because
they feel they offer more expertise in the particular area in which they specialize. These specialized
agencies are often smaller and companies may feel that their account is getting more attention or is
being handled by more talented individuals. The specialized agencies may also cost less since they
may be smaller and thus have less overhead and other costs to cover. However, some marketers prefer
to have all of their IMC activities performed by one agency rather than using multiple agencies that
specialize in various areas such as direct marketing, sales promotion, interactive marketing, and
public relations. These companies feel that by having all of the IMC functions performed by one
agency makes it easier to develop and implement a consistent and uniform program where everyone
is working with the same information and toward the same goals and objectives. They also feel that
giving one agency control of entire IMC program achieves greater synergy among each of the
communication elements. It also makes it easier for the client when all of the promotional elements
such as advertising, direct mail, event marketing, sales promotion, interactive marketing and public
relations are handled by one large agency.
Additional Discussion Questions (not in text)
11. What are the advantages of a company using a decentralized system to organize for advertising and
promotion? Discuss the responsibilities of a product manager with respect to advertising and
promotions.
Advantages of a decentralized system include the following: (1) the product or brand receives more
concentrated managerial attention; (2) problems and opportunities may be responded to more quickly;
(3) the product or brand has an advocate; and (4) the system offers increased flexibility.
In a decentralized system, the product manager has the primary responsibility for the planning,
implementation and control of marketing programs for a specific product. S/he will also be
responsible for sales projections, budgeting and profit performances. An important part of the product
manager’s responsibility is to work with the advertising agency and other marketing communication
organizations in developing promotional plans and programs for the brand. Product managers may
have input into the advertising campaign including the creative strategy, media plan and evaluation of
effectiveness.
12. Discuss the various functions a full-service agency performs for its clients. Might any one of these
functions be more important than the other?
Full service agencies provide their clients with a broad range of integrated marketing communications
services including planning, creating and producing the advertising, account planning, marketing
research, developing media strategies and selecting and purchasing media. Some full service agencies
also provide non-advertising related services including strategic market planning, direct marketing,
promotional programs, interactive marketing and web site design, and public relations. The
importance of the various function provided by a full service agency will depend upon the client.
Some companies want agencies that are very strong in the creative area and can develop ads that
strike a responsive chord with consumers. Companies that are competing in markets where brand
image and identity is very important may put a major emphasis on creative capabilities in selecting
and agency. Some companies want agencies that are very strong in media strategy and buying and
can maximize their media expenditures. As more companies adopt the IMC approach, full service
agencies may be called upon to provide clients with services in areas such as sales promotion, direct
marketing and interactive marketing.
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13. Discuss the reasons companies use outside agencies. Analyze the importance of the various services
provided by a full-service agency.
A number of reasons may be cited as to why companies use outside agencies. Perhaps the main
reason outside agencies are used is that they provide the client with the services of highly skilled
individuals who are specialists in their chosen fields. This offers the firm expertise not available in
house. A second reason is that an outside agency can provide a more objective viewpoint of the
market and business that is not subject to internal politics, policies, etc. Because some agencies
specialize in specific areas (for example, recruiting, travel, etc.), they may bring additional
experiences to the task, as well as different perspectives. Finally, the fact that the agency may have
worked with a company’s competitors may also add a dimension of attractiveness.
The various services that the outside agency offers the firm are important as well. For example,
copywriting, art, and media planning and buying are not skills that most businesses or non-profit
organizations have readily available. Because the agency has skilled persons in these areas, they offer
the organization opportunities that are not available internally.
14. Discuss the pros and cons of the commission system method of agency compensation. Do you think
this system is outdated and needs to be replaced? Defend your position.
The commission system method of compensation pays the agency a percentage (usually 15%) based
on size of the amount of money spent on advertising media.. While this system is simple and easy to
understand, it has received its share of criticism. Some critics argue that this form of compensation
does not reward agencies equally, in that the amount of effort expended in the creation and production
of an ad may be the same, yet one agency will be compensated more should the media expenditures
be higher. According to some, this would encourage the agency to recommend higher media budgets
to increase their own compensation. Yet another criticism is that media costs have increased more
rapidly than has inflation, which results in higher payment than is necessary. Other arguments against
the commission system are that it removes any incentive on the part of the agency to control costs and
that agencies may choose not to use media for which they are not commissioned (for example, direct
mail, specialties and/or sales promotions) even though it may be in the best interest of the marketer to
use these media. The commission system will likely survive if for no other reason than the fact that it
has been around for so long, and it is simple. However, as noted in the text, a number of large firms
have altered this system or abandoned it completely.
15. Discuss the various reasons why marketers often choose to switch advertising agencies. Find an
example of a company that has recently changed advertising agencies and analyze the reasons given
for the change.
The relationship between a client and an agency is influenced by a variety of factors. These include
perspectives on compensation policies, the demands clients place on agencies, the level of service the
agency provides, the personalities of agency and client personnel, the performance of the client’s
product or service, the perceived quality of the agency work in various areas (including account
planning and management, creative, media, use of non-traditional media), and changes in the
competitive situation. Changes in top management of a client may also affect the agency client
relationship. New management may prefer a particular agency or certain approach to advertising and
promotion which can affect the client’s relationship with the agency.
An advertiser may decide to switch agencies for a number of reasons. Some of the most common
reasons why clients switch agencies are discussed on pages 90 and 92 of the text. These reasons can
apply to long-term clients as well. When marketers are having problems such as stagnant or declining
sales or losses in market share they will often look to advertising. Often the problems are blamed on
advertising agencies. In the competitive world or advertising, agencies are always looking for new
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business and major advertisers know they can attract a great deal of interest and attention when they
put their accounts up for review.
Student should be encouraged to find an example of a company that has recently switched advertising
agencies and research the reasons given for the change. Advertising industry publications such as
Advertising Age and AdWeek as well as the Wall Street Journal often have articles about major agency
account switches.
IMC Exercise
Find several examples of companies who have switched advertising agencies recently. This can be done
through research using sources such as Advertising Age, AdWeek and The Wall Street Journal. Your
research should focus on determining the reasons the company decided to change agencies and their
rationale for choosing their new agency. Discuss the implications of your findings with respect to clientagency relationships. Find examples of advertising and other promotional programs that were developed
by the old agency and examples of ads developed by the new agency. Do you think the advertising
campaign and messages being developed by the new agency are better and/or more appropriate for the
company than those of the prior agency? Why or why not?
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