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CHAPTER FOUR
THE SCOPE OF ADVERTISING:
FROM LOCAL TO GLOBAL
OBJECTIVES
The main objectives for this chapter is to introduce the people and groups who create, produce, and
run advertising here and abroad. Advertising people may serve in a variety of roles. This chapter
discusses the basic tasks of both the agency and the client, the roles of suppliers and the media, the
way agencies acquire clients and are compensated, and the overall relationship between the agency
and the client. (p. 96)
After studying this chapter, your students will be able to:
1. Describe the various groups in the advertising business and explain their relationship to one
another.
2. Explain how advertisers organize themselves to manage their advertising both here and
abroad.
3. Define the main types of advertising agencies.
4. Explain the range of tasks people perform in an ad agency and an in-house advertising
department.
5. Discuss how agencies get new clients and how they make money.
6. Debate the pros and cons of an in-house advertising agency.
7. Discuss factors that affect the client-agency relationship.
8. Explain how the media and suppliers help advertisers and agencies.
TEACHING TIPS AND STRATEGIES
The goal of this chapter is to convey the role of advertising agencies, client/agency relationship as well
as local/national advertising. In a former job, I worked for a CBS affiliate television station for over
two years. I saw first hand how agency relationships work. I will try to give the instructor brief
synopsis of my experiences to share with the class.
Advertising agencies I worked with tended to get 15% of the total dollars the customer spent on
advertising. As the instructor knows this means if an advertiser spent $100,000 total on advertising.
The agency received a commission of $15,000. None of the agencies I worked were paid on a fee
basis. I didn’t like this commission structure of the agencies I worked with, due to the fact that
regardless of the effectiveness of the advertising, the agency still got paid. The argument could be if
the television advertising didn’t work we still got paid also.
One of the biggest problems I had with local advertisers wasn’t a money issue as I thought it would be.
The problem was they would have an idea for a commercial, or they would want to see their
commercial during their favorite television programs. On the surface, this doesn’t seem like a big deal,
yet many times a client’s favorite television programs were not a good fit for the brand or service they
were trying to sell.
I remember a furniture store that had their whole family in an ad. There were over 20 family members
in the ad in one thirty second commercial. They all had a part in the ad. This strained my relationships
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with the producers of the commercial and it also hurt my relationship with the advertiser when the ad
failed to be effective. In the end the advertiser gets blamed for an ineffective ad not the client.
One way to get around this with local advertisers is to put one or two spots in a show they like and
then create a media plan that works for the advertiser. Using specialized computer programs such as
TVscan I was able to create effective media plans that were able to calculate target markets.
Advertising agencies do earn their money. They help create the concept of an ad, and work with the
client one on one to get where they want them to go. The advertising agencies I worked with had a
media buyer (who purchases the TV, radio spots, billboards, magazine ads etc.). This person usually
has several years experience in determining what type of media plan works best and puts his/her
knowledge to work for the client.
The biggest challenge for advertising agencies in my opinion is helping the client create an effective
commercial. Many times I was challenged by a client who wanted a commercial but had no idea how
to tell us what he/she wanted. One secret I learned from a producer was to come up with an idea by
figuring out who the target market is. Then get the client to buy into the idea and give the client credit
(ownership) of the idea. This really worked well.
One of the biggest lessons I learned about advertising is there is not a rock solid formula to it. To
illustrate this point, I had a media buyer of a large advertising agency that told me, “…we buy
everything, television, radio, billboards, magazine ad, and at the end of the day we hope that it works.”
I think that sums up advertising, what works for one client might not work for the next client and vice
versa.
LECTURE OUTLINE
I.
II.
Introduction: the story of how Muse Cordero Chen created a dealer kit for Honda appealing to
the African-American market, working closely with Honda’s agency of record, Rubin/Postaer.
(p. 97)
The Advertising Industry (p. 98) –– Since every successful company needs to advertise, many
people, besides those usually thought of as advertising people, are involved in the ad industry
A. The Organizations in Advertising (p. 98)
1. Advertisers (or clients) — companies that advertise themselves and their products
2. Advertising agencies — companies that plan, create and prepare client's ad campaigns
and promotional materials
3. Suppliers — include the photographers, illustrators, printers, digital service bureaus,
color film separators, video production houses, and others who assist both advertisers
and agencies in preparing advertising materials. Also includes consultants, research
firms, and other professional services that work with both advertisers and agencies.
4. Media — companies that sell time (electronic media) and space (print media) to carry
the advertiser's message to the target audience.
B. The People in Advertising (p. 98)
1. When people think of advertising, they imagine the copywriters and art directors who
work for ad agencies. But, the majority of people in advertising are actually
employed by the advertisers.
2. Many people are involved in a company's advertising function:
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III.
a. Company owners and top executives make key advertising decisions
b. Sales and marketing personnel often assist in the creative process, help choose the
ad agency and evaluate proposed ad programs
c. Artists and writers produce ads, brochures, and other materials
d. Product engineers and designers input to the creative process and provide
information about competitive products
e. Administrators evaluate the cost of ad campaigns and help plan budgets
f. Clerical staff coordinates various advertising activities
g. Talent who act, perform music, and announce in advertisements.
The Advertisers (The Clients) (p. 98)
The people who buy advertising are the advertisers, or “clients,” a diverse group ranging in
size from small, mom-and-pop retail stores to huge conglomerates.
A. Local Advertising: Where the Action Is (p. 98)
Example: Rubio’s Baja Grill local advertisers (p. 99) Rubio’s, a restaurant specializing in fish
tacos used local advertising and after 15 years, Ralph Rubio’s company has grown from one
location to 111 restaurants in five states, doing over $85 million in annual sales.
Advertising by businesses within a city or county directed toward customers within the
same geographic area is called local advertising. It is sometimes called “retail
advertising” because so much is placed by retail stores. Local advertising is critically
important because most consumer sales are made — or lost — locally.
1. Types of Local Advertisers (p. 99) – four main types
a. Dealers or local franchises of regional or national companies.
b. Stores that sell a variety of branded merchandise.
c. Specialty businesses and services.
d. Governmental, quasi-governmental, and nonprofit organizations.
A4-1 The National Jazz Museum an example of a specialty business or
organization use their uniqueness to their advantage (p. 99)
Exhibit 4-1 Typical department structure for small advertisers with high
volumes of work, such as grocery store chains (p. 100)
A4-2
2. Types of Local Advertising (p. 100)
a. Product advertising — promotes a specific product or service.
1) Regular price-line advertising — informs consumers about services or
merchandise offered at regular prices.
2) Sale advertising — placing items on sale, offering two-for-one specials, or
reducing prices.
3) Clearance advertising — a special form of sales advertising used to make
room for new items, getting rid of old or slow-moving items. Going out of
business sales are another form of clearance advertising.
b. Institutional advertising (p. 101) — attempts to create a favorable long-term
perception of the business as a whole, not just a particular product or service.
Promotes an idea about the company to build reputation and image (used by
banks, professional firms, hospitals, restaurants).
c. Classified advertising — text ads listed under classification headers are used by
local advertisers to recruit employees, offer services (employment agencies or
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business opportunity broker), and sell or lease new or used merchandise (such as
cars, real estate, and office equipment).
3. Local advertisers: The Original Integrators (p. 101)
A4-3 example of a business that sells locally promotes its company’s identity in a
variety of ways-such as this distinctly ethnic poster from Ah Umakatta, a café in New
York (p. 101)
Local advertisers have been using integrated marketing communications (IMC) for a
long time.
a. Integrated marketing communications (IMC) — represented by Ralph Rubio who
developed a “relationship” with his customers using a variety of communication
techniques in a variety of media.
b. Local advertisers wear many hats every day. They run the cash register, deal with
customers, prepare mailers, place ads, evaluate suppliers’ trade promotions,
answer phone inquiries, spruce up the office, talk to newspaper editors, coordinate
graphics on premiums for seasonal promotions, and more. By combining their
various promotional activities, they automatically integrate their communications
4. Creating local advertising (p. 101)
Cal Worthington pitched his car dealerships in 1951 and continues today in Southern
California, sponsoring third-rate movies on late-night and Saturday afternoon TV
using zany ads where he appears in cowboy garb with a different domesticated wild
animal, all introduced as “my dog spot.” He now has a near-cult following while
others have failed miserably copying his approach.
a. Print advertising — many local advertisers succeed using a “schlock” approach —
heavy, bold type, items crowded into the ad space, loud headlines, and
unsophisticated graphic design — that is consistently repeated in a straightforward
manner.
Checklist: “Creating Local Advertising” (p. 102)
b. Finding big ideas for local advertising can be extremely difficult. Some local
advertisers look to the merchandise for ideas. An important goal is to develop and
consistently present a distinctive look.
c. Local advertisers get creative help from a variety of sources, including media
reps, local ad agencies, freelancers and consultants, creative boutiques, syndicated
art services, and from the cooperative ad programs of wholesalers, manufacturers,
and trade associations.
5. Cooperative (co-op) Advertising — ready-made advertising, cooperative programs,
or merchandising support.
a. Vertical cooperative advertising — manufacturer provides the complete ad and
shares the cost of the advertising time or space with the local company.
Exhibit 4-2 (p. 102) the importance of co-op advertising dollars
Ad Lab 4-A “The Co-Op Marriage” (p. 103)
b. Horizontal cooperative advertising — firms in the same business or in the same
part of town advertise jointly.
B. Regional and National Advertisers (p. 103)
Regional advertisers are companies that operate in one part of the country and market
exclusively within that region. Typical examples are grocery and department store chains,
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government bodies (state lotteries), franchise groups (Southern California Toyota
Dealers), telephone companies (NYNEX), and some banks.
National advertisers are companies that sell in several regions and throughout the
country. Typically include consumer package-goods manufacturers (Procter & Gamble
and RJR Nabisco), national airlines (United, American), media and entertainment
companies (Disney, AOL Time Warner), electronics manufacturers (Apple, HewlettPackard), and all the auto companies. These firms make up the membership of the
Association of National Advertisers (ANA), and comprise the largest advertisers in the
country.
Exhibit 4-3 Top 10 advertisers in the US ranked by total Us advertising spending in
2001 (p. 103)
A4-4 (p. 103)
1. How National and Local Advertisers Differ (pp. 103, 104)
Exhibit 4-4 Differences between local and national advertisers (p. 104)
104)
A4-5 (p.
A4-6 Example of a local advertisement (p. 104)
Basic principles remain the same for both national and local advertisers, but local
advertisers have special challenges stemming from the day-to-day realities of running
a small business. Hence, national and local advertisers differ in:
a. Focus
1) National advertisers
a) Focus on building brands (ads focus on competitive features).
b) Compete with only a few others for large market shares
c) Plan strategically to launch, build, and sustain brands
d) Marketing executive rarely see customers, they think in terms of large
groups (segments, niches, target markets) and design ads to speak to these
markets, getting feedback via customer complaint lines, etc.
2) Local merchants
a) Carry hundreds of different brands, so the focus is on attracting customers
to a particular point — their place of business.
b) Compete with many companies for individual customers and sales
volume.
c) Plan tactics, rather than strategically (Stay open Labor Day? Buy a new
sign?)
d) Local advertisers see their customers every day and also interact with
them in nonbusiness ways (neighbors, friends, at school), getting
feedback every day.
b. Time orientation
1) National advertisers
Think long-term (five-year plans, etc.)
2) Local advertisers
Week-to-week planners
c. Resources
1) National advertisers
a) Biggest budgets (usually over $5 million budget required)
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b) Most manpower
2) Local advertisers
a) Smallest budgets ($100,000 annual budget considered huge)
b) Smallest manpower needs (a manager and an assistant may be all that are
needed)
2. How Large Companies Manage Their Advertising (p. 105)
In large companies many people are involved in the advertising function. Large
advertisers — tend to use two basic management structures:
a. Centralized organization— centralized advertising department gives the
greatest control and offers both efficiency and continuity across divisional
boundaries. From one location, the marketing services people can handle a wide
variety of brands. Normally organized in one of five ways:
1) By product or brand
2) By sub function of advertising (copy, art, print production, outdoor, media)
3) By end user (consumer advertising, trade advertising)
4) By media (radio, TV, newspapers, outdoor)
5) By geography (western advertising, eastern advertising, European advertising)
Exhibit 4-5 General Mills has a centralized advertising department
like the model here (p. 106).
A4-7 (p. 106)
b. Decentralized Organization (p. 106)
1) As a company becomes larger, it sets up separate departments for different
divisions, subsidiaries, products, countries, regions, brands or other categories
that suit the company's needs. The general manager of each division is
responsible for that division's advertising in a decentralized system.
Exhibit 4-6 in a decentralized department, each division is its own marketing
department (p. 107).
A4-8 (p. 107)
2) More flexible: media schedules can be adjusted faster; creative ideas can be
introduced more easily.
3) Drawback — decentralized departments often concentrate on own budgets,
problems, and promotions rather than the good of the firm as a whole. Ads
typically lack uniformity, diminishing the power of repetitive corporate
advertising. Rivalry among brand managers may escalate into unhealthy
competition or deteriorate into secrecy and jealousy.
B. Transnational Advertisers (pp.106, 107)
Companies advertising abroad typically face markets with different value systems,
environments, and languages. As they get more involved in foreign markets, they may
form join ventures or invest in foreign sales offices, warehouses, plants, and other
facilities.
1. Decentralized international structure may be used in which the divisions are
responsible for their own product lines, marketing operations, and profits, and
typically create customized advertising for each national market.
2. Procter & Gamble is the biggest and most influential consumer advertiser in the
world. Annual U.S. expenditures $2.7 billion. But half its sales come from abroad.
a. Each consumer product division is set up almost like a separate company with its
own research and development department, manufacturing plant, advertising
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department, sales force, and finance and accounting staff. Every brand within a
division has a brand manager. Each brand manager has his or her own ad
agency. Brand managers report to marketing managers who report to category
managers.
b. Each division also has its own ad department, to coordinate sales promotion and
merchandising programs across brands, and provides statistical information and
guidance.
c. The category manager focuses on sharpening overall strategy and building profits.
3. As companies grow and prosper around the world, they may invest directly into many
countries to become integrated fully into world markets, and become true
multinational corporations.
a. Multinational corporations usually exert strong centralized control
b. Multinational corporations that use a “standardized approach” to marketing and
advertising in all countries are global marketers. These include companies like:
Coca-Cola, British Airways, British Petroleum, Max Factor, Federal Express, and
Chiclets.
4. Companies must research extensively before attempting global advertising. They must
first be able to answer “yes” to the following questions:
a. Has each country’s market for the product developed in the same way?
b. Are the targets similar in different nations?
c. Do consumers share the same wants and needs?
5. The worldwide creative director of J. Walter Thompson considers the secret to success
in global advertising is knowing how to tap into basic human emotions and uncover
the universal appeals that don’t depend solely on language.
6. Ultimately, every organization operates in a slightly different environment. This
alters the search for an “ideal structure” into a search for a "suitable structure."
IV. The Advertising Agency (p. 108)
A. The Role of the Advertising Agency (p. 109) — The American Association of Advertising
Agencies (AAAA) defines an advertising agency as an independent organization of
creative people and business people who specialize in developing and preparing marketing
and advertising plans, advertisements, and other promotional tools. This definition offers
clues as to why so many advertisers (clients) hire ad agencies:
1. Agencies are independent organizations (not owned by the advertiser, the media or the
suppliers), so they bring an outside, objective viewpoint to the advertiser's business.
2. Agencies employ a combination of business people and creative people including
administrators, accountants, marketing executives, researchers, market and media
analysts, writers, and artists.
3. The agency provides yet another service by researching, negotiating, arranging, and
contracting for commercial space and time with the various print and electronic
media. Because of its media expertise, the agency saves the client time and money.
4. Agencies work for their clients, not for the media or the suppliers; their moral, ethical,
financial, and even legal obligation is to their clients.
5. Good agencies serve the needs of a variety of clients because of their daily exposure
to a broad spectrum of marketing situations and problems.
Ad Lab 4-B “How Big Is the Agency Business?” (p. 110)
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B. Types of Agencies (p. 109)
1. Local Agencies
a. Every community of any size has reputable small ad agencies that offer expert
assistance to local advertisers. A competent local agency can help:
1) Analyze local advertiser’s business and products.
2) Evaluate markets (business, channels of distribution).
3) Evaluate competitive position.
4) Evaluate media alternatives.
5) Devise and implement an integrated communications plan.
6) Save the advertiser time by handling media.
7) Assist in other aspects of advertising such as implementing sales, contests,
publicity, grand openings, and other activities.
b. Local advertising budgets are often so low that local advertisers won’t use an
agency. Use of an agency isn’t warranted, and the agency won’t accept the work
because the agency’s overhead exceeds the advertiser’s budget.
2. Regional and National Agencies (p. 111)
a. Regional and National agencies typically participate in either the 4As (American
Association of Advertising Agencies) or a similar trade group such as the Western
States Advertising Agency Association (WSAAA).
b. These agencies are named in directories such as the Standard Directory of
Advertising Agencies (the Red Book) and listed geographically.
3. International Agencies
a. Largest national agencies are also international agencies, with offices and
affiliates in every major communications centers around the world.
b. They help their clients market internationally or globally as needed.
4. Full-service advertising agency supplies both advertising and no advertising services
in all areas of communication and promotion (p. 111)
Advertising services include planning, creating, and producing ads, performing
research and selecting media
Nonadvertising services include packaging, public relations, sales promotion, annual
reports, trade show exhibits, and sales training materials.
a. General consumer agencies — A general consumer agency represents the widest
variety of accounts but it concentrates on consumer accounts — companies that
make goods purchased chiefly by consumers (soaps, cereals, cars, pet foods,
toiletries). Most of the ads are placed in consumer media (TV, radio, billboards,
newspapers and magazines) that pay a commission to the agency. This category
may include the large super agencies or the many thousands of smaller
entrepreneurial agencies or even ethnic agencies.
b. Business-to-business (or high-tech) agencies. A business-to-business agency—
represents clients who market products to other businesses e.g., electronic
components for computer manufacturers, equipment used in oil and gas refineries,
and MRI equipment for radiology.
1) Require highly developed technical knowledge
2) Place most of advertising in trade and professional magazines
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3) Income is often fee-based rather than commission based
5. Specialized Service Agencies — fostering many small agency-type groups (p. 105)
a. Creative Boutiques
1) Organizations of creative specialists (e.g., graphic designers and copywriters)
2) Work for advertisers directly and occasionally subcontract to advertising
agencies
3) Offer creativity, responsiveness and economy
4) Don't provide the research, marketing, and sales expertise full-service agencies
offer
b. Media-buying services
1) Media specialists experienced in purchasing and packaging radio and television
time make up a media-buying service.
2) Due to volume can negotiate special discount rates
3) Provide clients with detailed analysis of each media buy
4) Place orders, verify performance (and assure “make good” for missed spots),
pay media bills
5) May be compensated by fee or by incentive based on savings to client
c. Interactive agency
Highly specialized in digital page design for the World Wide Web and other
digital media.
d. Other specialists
Offer greater expertise and accountability
1) Direct-response agencies
2) Sales promotion agencies
C. What People in an Agency Do (p. 113)
American Association of Advertising Agencies, the national organization of the agency
business, (4As) explains the purpose of agencies to: 1) Interpret to the public or target
market information about the product; 2) analyze the product’s present and potential
market; 3) formulate a plan to carry the advertiser’ message to consumers, dealers,
wholesalers, etc.; 4) design and produce ads; 5) contract for media space and time; 6)
verify media insertions; 7) invoice for services and media used. To do this the agency
performs numerous functions:
1. Account Management (p. 114) — is an essential part of the agency's organization.
Account executives (AEs) are the liaison between the agency and the client and
responsible for managing the client's account at the agency. Large agencies typically
have many AEs, who report to management (or account) supervisors.
2. Research and Account Planning (p. 114)
a. Before creating any advertising, agencies research the uses and advantages of the
product, analyze current and potential customers, and try to determine what will
influence them to buy. After the ads are placed, agencies use more research to
investigate how the campaign fared (see Chapter 6 for more).
b. Account Planning bridges the gap between research, account management, and
creative. The account planner defends the consumer's point of view and the
creative strategy in the debate between the agency's creative team and the client.
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3.
4.
5.
6.
7.
8.
Account planners study consumer needs and desires, putting the consumer —
instead of the advertiser — at the center of the process.
Creative Concepts (p. 115) — development of advertising copy (the words that make
up the headline and message). The people who create these words are called
copywriters. Ads also use nonverbal communication. That is the purview of the art
directors, graphic designers, and production artists who determine how the ad's
verbal and visual symbols will fit together. Copywriters and artists work as a creative
team under a creative director (see chapters 12-14).
Advertising Production: Print and Broadcast (p. 116) — once an ad is designed,
written, and approved by the client, it is turned over to the print production manager
or broadcast producers.
a. Print — production department buys type, photos, illustrations, and other
components and works with printers, reproduction service bureaus, and other
suppliers.
b. Broadcast — production personnel work with an approved script or storyboard.
They use actors, camera operators, etc., to produce a commercial on tape (radio)
or on film or videotape (TV).
Media Planning and Buying (p. 116)
a. Media planning is critical, because the only way advertisers can communicate is
through some medium. Media buying consists of researching, negotiating,
scheduling, buying, and verifying (see chapters 9 and 15-18).
b. Fragmented audiences and an explosion of new media options make media buying
complex. With IMC, media planning is expanded to include relationship
marketing methods.
c. Tight budgets further force media buyers to be tough negotiators and to pay close
attention to details.
Traffic management (p. 116) — coordinates all phases of production and makes sure
everything is completed before media deadlines (some agencies have interns begin
their training here, so see Appendix D for career information).
Additional Services (pp. 116, 117) — with the trend toward integrating marketing
communications, agencies employ specialists who provide services besides
advertising such as a sales promotion department (to produce dealer ads, window
posters and sales materials), or other departments for public relations, direct mail,
package design, etc.
Agency Administration (p. 117) — In small agencies, administrative functions may be
handled by firm's principals. Large agencies have accounting, human resources, data
processing, purchasing, financial analysis, and insurance departments.
D. How Agencies Are Structured (p. 117)
Exhibit 4-7 Muse Cordero Chen organization
chart (p. 117)
1. Small agencies (less than $20 million in billings)
a. Daily operations, client services and new business development supervised by
owner or president
b. Client contact handled by account executives
c. Creative concepts and copy may also be originated by account executives
d. Artwork may come from inside art director or freelance designers
e. Media may be handled by a media buyer or the account executives
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2. Departmental system
Used by medium to large agencies
RL 4-1 (Website)
a. Organized by various agency functions — account management, creative, media
— handled by separate departments
b. Each department is called on, as needed, for its specialty
3. Group system
V.
Used by largest agencies
RL 4-2 (website)
a. Agencies divided into a number of little agencies or groups
b. Each group composed of account executive, copywriter, art director, media buyer,
and other specialists, as needed
c. Each group may serve one or several clients
d. Large agencies may have a dozen such groups
E. How Agencies Are Compensated (p. 118)
Recently, profits have become more difficult for agencies to realize for a variety of
reasons: the mega merger trend; lower media ad budgets; shifts in emphasis from
advertising to sales promotion and direct marketing; increased production costs;
fragmentation of media vehicles. Today agencies make money in three ways:
1. Media Commissions — typically 15% on any space or time purchased on behalf of
the client is allowed by the media to be retained from the total payment by the client
2. Markup— traditionally, 17.65% is added onto the cost of outside services (type,
photography, printing, etc.) purchased on behalf of clients. Today, many agencies find
that markups fail to cover their costs of handling work (and they use markups of 20 or
25 percent).
3. Fees — clients expect agencies to solve problems rather than just place ads, so fees
are becoming more common. Pricing methods in the fee system:
a. Fee-commission combination — combination of basic monthly fee and media
commissions earned.
b. Straight fee or retainer method — agencies charge for all their services and
credit any media commissions earned to the client.
c. Incentive system — agency earns more if the campaign attains specific, agreedon goals.
F. The in-house agency (or house agency) (p. 120) — does all the work of an independent
full-service agency, including creative tasks, production, media placement, publicity, and
sales promotion. Advertisers with in-house agencies hope to save money by cutting
overhead, keeping the media commission, and avoiding markups on outside purchases.
In-house flexibility is often won at the expense of creativity. Difficult to attract and keep
the best creative people, who tend to prefer variety and challenge offered by independent
agencies.
The Client-Agency Relationship (p. 120)
Many factors affect the success of a company's advertising program, one of the most
important is the relationship between advertiser and agency.
A. How Agencies Get Clients (p. 120)
1. Referrals — existing clients, friends, agency review consultants, or even other
agencies suggest a prospect use the agency.
2. Presentations
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a. Informal presentation of philosophy, past work, etc. is made to a prospective
client.
b. Formal speculative presentation in which agency presents complete campaign
concept to client — often competitively — to win the account; frowned on in
business, but common nonetheless. Some agencies spend up to $500,000 to stage
a new business presentation.
3. Networking and community relations — sometimes employee’s friends, working pro
bono (for free) for charities and nonprofit organizations lead to new clients (p. 121).
4. Soliciting and advertising for new business — writing letters, making cold calls, and
following up business leads can bring more work and new clients (p. 122).
Ethical Issue “Accounting for Account Reviews” (pp. 122, 123)
B. Stages in the Client-Agency Relationship (p. 122)
There are three distinct stages:
1. Prerelationship stage (p. 122) — the period before the agency has been hired; the
first-impression stage when all are on their best behavior, trying to get the business or
get the best agency
Checklist “Agency Review” (p. 124)
2. The Development stage (p. 123)
The honeymoon period immediately after the agency has been retained
a. Rules are set and relationship established
b. First taste of reality of relationship
3. The Maintenance Stage
a. Maintenance stage is the day-to-day working relationship. May last decades. (p.
123)
b. Period when all problems are tested which may or may not be resolved
4. The Termination Stage – Irreconcilable difference may occur, and the relationship
may enter the termination stage. The way the termination stage is handled is an
important factor in determining whether the two ever get back together, e.g.
Chiat/Day's classy handling of the loss of the Apple Computer account.
C. Factors Affecting the Client-Agency Relationship (p. 124)
1. Chemistry — between client and agency staffs.
2. Communication — constant, open, honest communication vital to success.
3. Conduct — what everyone in the relationship does — both the work process and the
work product?
4. Changes
a. Personnel
b. Competitive situation
c. Environment
VI.
Checklist “Ways to Be a Better Client” (p. 125)
The Suppliers in Advertising (p. 126)
Suppliers are the people and organizations that provide specialized services to the advertising
business. A few of the important ones include:
A. Art Studios and Web Designers (p. 126) — art studios design and produce artwork and
illustrations for advertisements. Web design houses employ specialists who understand
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VII.
the intricacies of HTML and Java programming languages and have the artistic skill to
design Web pages that are both effective and cost efficient.
B. Printers and Related Specialists (p. 126) — are highly trained specialists who produce
brochures, stationery, business cards, sales promotion materials, and point-of-purchase
displays, and are vital to the advertising business using printing presses of various sizes
and capabilities, and sometime large copy machines (see Chapter 11).
C. Film and Video Houses (p. 126) — independent production houses specialize in film or
video production or both.
D. Research Companies (p. 126) — independent research companies come in all sizes and
specialties, and they employ staff statisticians, field interviewers, and computer
programmers, as well as analysts with degrees in psychology, sociology, and marketing
(see Chapter 7).
The Media of Advertising (p. 127)
Media describes channels of mass communications such as television, radio, newspapers, and
magazines, direct-mail, out-of-home media (transit, billboards, etc.), specialized media (aerial,
blimps, inflatables, etc.), specialty advertising items (imprinted mugs, etc.) and new
communication technologies such as interactive TV, fax, and satellite networks.
A.
B.
C.
D.
Exhibit 4-8 Top media companies in 2001, by category ($ millions) (p. 128)
Print Media (p. 127) — refers to commercially published, printed medium — such as
newspapers and magazines — whose sales department sells advertising space to a variety
of advertisers. Also includes directories.
Electronic Media (p. 128) — TV and radio (local and network) also referred to as
broadcast media (see Chapter 16).
Digital Interactive Media (p. 128) — channels of communication with which the
audience can participate actively and immediately using digital electronic equipment.
They are changing the way advertisers and agencies do business.
Out-of-Home Media (p. 129)
2. Outdoor advertising (billboard) companies are local firms, but most of the revenue
comes from national advertisers such as tobacco, liquor, and airline companies.
A4-9 an example of a billboard ad for Chick-fil-a (p. 129)
3. Transit advertising (bus, taxi, and subway advertising) is an effective and
inexpensive to reach local audiences.
A4-10 Example of an ad for Citibank seen by travelers as they walk up the stairs at a
Pittsburgh train terminal (p. 129).
E. Direct Mail (p. 129) — When companies mail advertising directly to prospective
customers via a postal service. A typical direct-mail package contains a sales letter,
coupons, brochure, samples, and devices to stimulate responses (see Chapter 16).
F. Other Media (p. 129)
1. Videocassettes and computer disks — can be mailed containing commercial
messages. Videos and CD-ROM disks can be quite lengthy and the computer disks
(1.4 Mb diskettes or CD-ROM) can be interactive and involve the prospective
customer.
2. Computers — can dial telephone numbers and play prerecorded messages to those
who answer.
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G. Media Around the World (p. 130) — many U.S. advertising people get used to foreign
styles of advertising faster than they get used to foreign media. Virtually every country
has access to radio, television, newspapers, magazines, outdoor media, and direct mail.
However, the legalities of different media forms vary from country to country, including
countries where the government controls certain mediums. Media available to the
international advertiser can be categorized as either:
1. International Media — serves several countries, usually without a change in content
— has been limited to newspapers and magazines (Reader’s Digest is distributed in
126 countries). Television is also a viable international medium and beginning to see
the emergence of global media vehicles, such as CNN.
2. Foreign media — the local media of each country that is used for large campaigns
targeted to consumers or businesses within a single country. May have an edition for
separate dialects or languages within the country.
AD LAB 4-A “The Co-Op Marriage” (p. 103)
1. Look through today’s edition of a daily paper in your city. Identify two ads that can qualify as coop. Do the ads fit both the store’s image and the manufacturer’s image? Explain.
Answer guidelines:
a. The goal of this exercise is to identify and separate the layout and copy choices stipulated by
the manufacturer from those made by the small business.
b. As in any marriage, each partner has his or her own agenda that must be fulfilled to some
degree with each event. If unfulfilled, dissatisfaction can end the process.
c. Money talks — typically, manufacturers’ resources put them in the driver’s seat. Under the
threat of non-reimbursement, they often specify what imagery and wording they will not
accept, how much white space should surround the logo, its exact color (PMS ink or process
color percentages), placement on the page, how many other logos can appear along with
theirs, etc. These are some of the areas that will come up in discussion.
d. Advertisers are often the final deciders of the tone and look of the ads because they are the
ones who place the ads in the media. They usually follow the regulations specified by the
manufacturer closely in order to be eligible for the co-op dollars. However, their choices for
the layout may be tacky; the headline may appear too small and the body copy seems too big;
the message may be very straightforward, boring and based on a negative appeal.
2. A store may develop its own ad and drop in the manufacturer’s logo or it may take an ad created
by the manufacturer and simply add the store’s location. Which are your two ads?
Answer guidelines:
a. See the second part of question one’s answer.
b. One way to tell the difference between an ad provided by the manufacturer or the wholesaler
is to see if the spacing between blocks of texts and visuals has an even, overall consistency.
Often local retailer-designed ads look clumsy and irregularly spaced. Also, the visuals
provided by manufacturers are often very professional and powerful in their appearance,
whereas local retailers often ask amateur artists and photographers to create the visuals at a cut
rate, resulting in weak ads.
c. Another way to identify manufacturer-supplied ad layouts is that they leave an area of the ad
blank for placing the local company’s logo, pertinent information, address and telephone
number.
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AD LAB 4-B “How Big is the Agency Business” (p. 110)
From your school library, obtain a copy of the agency Red Book. How many agencies in your town
are listed? If none, what town nearest you has agency listings? How many?
Answers will vary according to location.
ETHICAL ISSUE “Accounting for Account Reviews”
(pp. 122-123)
1. What degree of loyalty should clients have to agencies and vice versa? Is it ethical for agencies to
represent multiple clients within the same industry?
Sample Answer: This answer will vary.
I think clients tend to be loyal to an agency if it is producing and doing well. After all the longer
people work together. The more friendships and loyalties that develop over time. If something is
working why fix it?
Some clients frown upon agencies that represent multiple clients in the same industry. One
advantage of this type of relationship is the agency has lots of expertise in a certain industry. On
the other hand I would be worried about the agency divulging my trade secrets etc. I personally
would avoid an agency that represents other clients in the same industry.
2. What do you think might be done to reduce the amount of account reviews motivated by unethical
gains?
Answer guidelines:
a. Clients could benefit by reviewing the issues listed in the checklist on pages 124 and 125,
“Agency Review” and “Ways to Be a Better Client.”
b. In addition to following the suggestions in the “Relationships” section in the Checklist: “Ways
to Be a Better Client” (p. 125), agencies should:
 Establish the ground rules for the relationship — preferably in writing — as early as
possible.
 Be sensitive to the client’s behavior — a client facing budget problems, unrealistic
deadlines, heavy competition, etc., may show signs of anxiety or depression, an indication
that he may not be able to fulfill his ethical commitments to the relationship.
 Make every attempt to build a win-win relationship.
 Always keep your client’s needs in mind.
 Meet your promises.
3. How can the account review process be structured to fairly incorporate smaller agencies? What
can be done to lower the cost of participating in an agency review?
The answer to this question will vary:
Advertisers that call for a review could offer some money upfront to help the smaller agencies with
participating in the review. To lower the costs of participating in a review advertising agencies will
65
need to create less commercials etc, and go in with storyboards etc. The problem with this strategy is
that other companies will not do the same thing.
REVIEW QUESTIONS
1. What roles do the major organizations involved in the advertising business perform? (p. 98)
The advertising business is composed of two main groups — advertisers and agencies. The
advertisers (or clients) are the companies that advertise themselves and their products. Assisting
them are the agencies, which plan, create, and prepare advertising campaigns and materials for the
advertisers. In addition to these two groups are the media, which sell time and space, and the
suppliers who assist both advertisers and agencies in the preparation of advertising materials.
2. What’s the difference between a local advertiser and a national advertiser? (pp. 99-103)
Local and national advertisers differ in three major ways: focus, time, and resources (see Exhibit
4-4). The focus of a national and a local advertiser are very different. National companies are
concerned about building their brands, so their advertising tends to focus on the competitive
features of one brand over another, especially in conquest sales situations. Local merchants or
dealers often carry hundreds of different brands. Their focus is on attracting customers to a
particular point – their place of business. Due to differences in their focus and perspective,
national and local advertisers also have a different time orientation. National companies think
long-term. Local advertisers have to think about advertising from week to week. Finally, national
advertisers have more resources available- both money and people.
3. What services might a modern full-service advertising agency offer a large business-to-business
advertiser? (pp. 109-110)
A modern full-service advertising agency could supply both advertising and non-advertising
services to a large business-to-business advertiser. Advertising services include planning,
creating, and producing ads, performing research, and selecting media. Nonadvertising functions
run the gamut from packaging to public relations to producing sales promotion material, annual
reports, and trade-show exhibits.
4. What are the most important things an advertiser should consider when selecting an agency? (pp.
104-107)
It is important for an advertiser to consider many things when choosing an agency. The answer to
this question may be inferred from the material on pages 114-118 and from the checklist on page
118 (which lists many factors to consider grouped in 7 categories).
5. How does an agency make money? What is the best way to compensate an agency? Explain your
answer. (pp. 118-1119)
Traditionally, agencies have had only three ways to make money: commissions, markups, and fees
or retainers – and usually some combination of the three. More recently, clients and agencies have
begun using incentive systems whereby the agency receives more if their campaigns achieve
certain measurable results. In an era of accountability, this seems a better way to compensate
agencies, but not every situation will allow for it.
6. If you owned an ad agency, what would you do to attract new business? Be specific. (pp. 120)
The students' answers may include:
a. Personal contact with top management
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b. Referrals from satisfied clients
c. Publicity on recent successful campaigns
d. Trade advertising
e. Direct-mail solicitation
f. The agency's general reputation
Ways to develop new business are:
a. Having clients who strongly champion the agency (referrals)
b. Having superior presentation skills
c. Networking — cultivating a personal relationship (relationship management) with a
network of top executives
d. Soliciting and advertising for new business
7. What are the advantages and disadvantages of an in-house advertising agency? (pp. 120-121)
Advantages: Possibility of realizing savings; greater attention from advertising personnel; faster
response; greater control over production process; greater understanding of company's products
and markets.
Disadvantages: Possible loss of objectivity and creativity; inflexibility in staffing; difficulty of
attracting and keeping the best creative talent; loss of independent agency experience; tendency to
produce company-oriented rather than customer-oriented advertising, loss of media commissions
in some cases.
8. What are the major influences on the client/agency relationship? What can clients and agencies do
to maintain a good relationship? (pp. 120-121)
The major influences of the client-agency relationship are:
a. Chemistry: personality mix and quality of communication between agency staff and client
personnel.
b. Creativity: skill, talent and expertise of agency.
c. Competence: range and scope of agency services and ability to handle clients' needs.
d. Courage: to remain independent and give the client what is needed rather than what may
be wanted.
Perhaps the best way to improve understanding between clients and agencies would be to have
staff members change places for a while. (e.g., A Foote, Cone & Belding account executive did
just that with great success, filling in temporarily as marketing manager at Levi's Jeans for
Women. It gave her a whole new perspective on her agency job and the daily challenges faced by
her client).
9. What is meant by the term interactive media? Give some examples. (pp. 128)
Interactive media refers to electronic channels of communication, such as the Internet, which
allow the audience to participate actively and immediately. Student examples will vary.
10. If you were planning to advertise your brand of computers in Europe, would you likely use foreign
or international media? Why? (pp. 130-131)
It would depend on the consumer or your target market. High-end, brand name products
distributed in many countries do best in international media whose audiences are well-educated,
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upper income consumers. Products designed for lower-income consumers are best advertised in
foreign media because they must be advertised in local languages and, thereby, distributed within
local areas.
EXPLORING THE INTERNET
The Internet Exercises for Chapter 3 cover two of the four areas of the advertising world that were
discussed: advertising agencies (Exercise 1) and advertisers (Exercise 2).
A good place to start surfing the Web for information on advertising is “The Internet Resource Guide
To Advertising” (www.adweb.com) or the “Advertising Worldwide Information” (www.awinet.com).
1. Advertising Agencies
Ad agencies often specialize in a particular type of business or focus on a special market and/or
consumer. Visit the Web sites for the following agencies.
 Bates USA (www.batesusa.com)
 BBDO (www.techsetter.com)
 CKS Partners (www.cks.com)
 Dailey & Associates (www.daileyads.com)
 D’Arcy Masius Benton & Bowles (DMB&B) (www.dmbb.com)
 DDB Needham (www.ddbniac.com)
 Fallon McElligott (www.fallon.com)
 Foote, Cone & Belding (FCB) (www.fcb-tg.com)
 GroundZero (www.groundzero.com)
 Ketchum Directory Advertising (www.kda.com)
 Kirshenbaum Bond & Partners (www.kb.com)
 Leo Burnett (www.leoburnett.com)
 McCann-Erickson (www.meric.com)
 Muse Cordero Chen (www.musecordero.com)
 Ogilvy & Mather Worldwide (www.ogilvy.com)
 Poppe Tyson (www.poppe.com)
 Rubin Postaer Associates (www.rpa.com)
 Saatchi & Saatchi Business Communications (www.saatchibuscomm.com)
 TBWA Chiat/Day (www.tbwachiat.com)
 TeamOne Advertising (www.teamoneadv.com)
 The Phelps Group (www.phelpsgroup.com)
 J. Walter Thompson (www.jwtworks.com)
 Young & Rubicam (www.yr.com)
Answer the following questions for each.
a. What is the focus of the agency’s work (e.g., consumer, business-to-business, ethnic, general
market)?
b. What is the scope and size of the agency’s business? Who makes up its clientele?
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c. What is the agency’s mission statement and/or philosophy? How does that affect its client
base?
d. What is the agency’s positioning (e.g., creative-driven, strategy (account)-driven, mediadriven)?
e. What is your overall impression of the agency and its work?
Sample Answer:
TBWA Chiat-Day
a. The focus of the agency’s work is consumer, handling many of packaged goods to the general
market. However, the agency’s work for Infiniti and Nissan also covers business-to-business
(automotive fleet advertising) and ethnic marketing (Hispanic commercials).
b. Mostly national, with worldwide projects; current clients include ABC, Absolut Vodka, Apple
Computers, Energizer, Infiniti, Nissan, Sony PlayStation, Taco Bell, and The Weather
Channel.
c. TBWA Chiat-Day’s philosophy centers on a drive to produce the best creative in the industry.
The agency’s focus is to make itself “indispensable” to its clients, which has made the agency
very successful. Today, the agency often picks the clients (not the other way around). Chiat’s
clients must relinquish a great deal of creative and strategic control to the agency.
d. The agency is almost completely creative-driven.
e. The overall impression of the agency is that it is a major player worldwide, and is respected
for its creative, both by clients and by the advertising community at large.
2. Agencies and Clients (Advertisers)
The advertising industry is truly vast, and advertisers and their agencies focus on a wide range of
businesses in a broad scope of markets. Visit the following Web sites and familiarize yourself
further with the nature and scope of the advertising world.
Advertisers
 Global: International Advertising Association (IAA) (www.iaaglobal.org)
 National: Association of National Advertisers (ANA) (www.ana.net)
Advertising Agencies
 National: American Association of Advertising Agencies (AAAA) (www.aaaa.org)
 National: Institute of Canadian Advertising (ICA) (www.ica-ad.com)
Advertising Practitioners
 International: Institute of Practitioners in Advertising (IPA) (www.ipa.co.uk)
 National: American Advertising Federation (AAF) (www.aaf.org)
 Regional: Denver Advertising Federation (DAF) (www.daf.org)
 Local: AdClub of Greater Boston (www.adclub.org)
Advertising Publications
 National: Advertising Age (www.adage.com)
 Regional/Local: AdWeek (www.adweek.com)
Answer the following questions for each.
a. What advertising group (advertiser, ad agency, practitioner, trade press) sponsors the site?
Who is the intended audience?
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b. What is the scope and size of the organization?
c. What is the organization’s purpose? The site’s purpose?
d. What benefit does the organization provide individual members? The advertising community
at large?
e. How is this organization important to the advertising industry? Why?
Sample Answer:
Association of National Advertisers (ANA)
a. Association of National Advertisers (ANA); individual ANA member companies and the
overall advertising/marketing community.
b. National with over 7,300 brands represented among its members.
c. The ANA mission is to “act as a catalyst in bringing together industry leaders, advertising,
marketing and communication professionals and members of other trade associations to
confront pressing issues and explore emerging ideas critical to our industry”; the purpose of
the site is to provide information about the organization, its conferences, as well as provide
access to the ANA’s newsletter and its library of industry information.
d. Members receive a source of marketing information, professional training and development,
customized problem-solving, legislative and regulatory protection, networking opportunities,
executive recruitment assistance, and a host of other secondary benefits; the advertising
community benefits from the collective power of the largest advertisers in the world and from
the ANA’s lobby influence with major political, legislative, and industry forces.
e. See second part of section d.
IMPORTANT TERMS
accounts executives (AEs), 114
account planning, 114
advertising agency, 109
art director, 115
art studio, 126
Association of National Advertisers (ANA), 103
brand manager, 107
business-to-business agency, 111
centralized advertising department, 105
classified advertising, 101
clearance advertising, 100
cooperative (co-op) advertising, 102
copy, 115
copywriter, 115
creative boutique, 112
creative director, 115
decentralized system, 106
departmental system, 117
development stage, 123
international agency, 111
international media, 130
international structure, 107
local advertising, 99
local agency, 109
maintenance stage, 123
management (account) supervisors, 114
markup, 119
media, 127
media-buying services, 113
media commission, 118
multinational corporation, 108
national advertising, 103
national agency, 110
outdoor advertising, 129
point, 104
prerelationship stage, 122
print media, 127
printer, 126
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digital interactive media, 128
direct-mail advertising, 129
electronic media, 128
fee-commission combination, 119
foreign media, 131
full-service advertising agency, 111
general consumer agency, 111
global marketers, 108
group system, 118
horizontal cooperative advertising, 103
incentive system, 119
independent production house, 126
independent research company, 127
in-house agency, 120
institutional advertising, 101
integrated marketing communication(IMC), 101
interactive agency, 113
product advertising, 100
regional advertising, 103
regional agency, 110
regular price-line advertising, 100
sale advertising, 100
sales promotion department, 117
speculative presentation, 121
straight fee (retainer) method, 119
supplier, 126
termination stage, 124
transit advertising, 129
vertical cooperative advertising, 102
web design house, 126
ANCILLARY
ACTIVITIES & EXERCISES
1. Have students do a web search to find articles on P&G going to a fee only commission structure.
Students should summarize the article and do a PowerPoint presentation on the advantages of fee
versus commission structure. (There is also an excellent debatable issue below which could be
used in conjunction with this exercise to help students understand the advantages/disadvantages of
fee v. commission only structure).
2. Have students contact a local business and identify the type of agency it uses i.e., large or small
agency. Find out what tasks the agency performs for the business and how the client evaluates the
agency's effectiveness. Does the business owner/president deal directly with the agency or is there
an advertising manager who handles this task for the business? How did the business choose the
advertising agency i.e., by referral, yellow pages, etc? Suggest using the checklists on pages 124
and 125.
3. The students are to create a fictitious advertising agency and develop an organizational flow chart
for the agency, which presents the various people within the agency and what those people do.
The chart should include the various positions mentioned in the text, (pp. 117) along with a brief
description of each person’s responsibilities.
4. Select a large, U.S. advertising agency. Write a paper to describe the agency in detail, including:
a. Name of the agency president
b. Number of personnel the agency employs
c. Number of offices both in the United States and overseas
d. Names of the agency's major current accounts
e. Agency’s total billings and recent growth record
f. Areas of specialization, if any
g. Agency’s expenditures for media, broken down by type
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h. Description of several newspaper or magazine advertisements created by the agency
5. Use appropriate reference materials to obtain the information you need: trade magazines such as
Advertising Age (U.S.), (particularly their special annual "U.S. Agency Profiles" issue published each
spring); reference books (Standard Directory of Advertising Agencies), and periodical directories
(Business Periodicals Index).
In summation, discuss the agency's recent growth or decline and what do you think is its outlook
for the immediate future. Support your statements.
DEBATABLE ISSUE
Is the Fee System Better Than the Commission System of Agency Compensation?
A controversy facing many advertising agencies today is their method of compensation. The most
popular forms of agency compensation are a) fee and b) commission. Each of these systems has
inherent advantages and disadvantages.
PRO
The fee system is better than the commission system of agency compensation because...
There is a direct relationship to the quality of advertising rather than to the amount of advertising time
and space purchased.
It leads to unbiased counsel in selecting and recommending services since these do not directly affect
agency earnings.
The fee assures that every account is profitable to the agency and that none is served at the expense of
others.
The fee helps competent agencies grow and prosper since it reflects the quality of the services
rendered. Conversely, it discourages the growth of inept agencies.
CON
The fee system is not better than the commission system of agency compensation because...
Both the agency and the client are better served when the agency is rewarded in proportion to the use
made of its ideas — the more space or time bought, the larger the agency's compensation.
It makes clients less receptive to new ideas because they feel the cost directly. The client is more
receptive if the cost is hidden in the media commission.
The advertiser is in a strong bargaining position. The agency may find it difficult to obtain a
satisfactory fee.
With commissions, the cost of services is hidden. Thus, it is easier for the agency to develop new
clients and to motivate present clients to expand their media budget.
Questions
1. What additional points can you make, either pro or con, for the fee system or for the commission
system?
2. If you owned an advertising agency, which system would you use, and why?
4. If you were an advertiser, which system would you want your agency to use, and why?
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IMAGES FROM THE TEXT
Images are available as color acetates through your local McGraw-Hill/Irwin sales
representative.
A4-1
A4-2
A4-3
A4-4
A4-5
A4-6
A4-7
Exhibit 4-1
Exhibit 4-3
Exhibit 4-4
Exhibit 4-5
A4-8 Exhibit 4-6
A4-9
A4-10
The National Jazz Museum ad (p. 99)
Small advertising department structure (p. 100)
Ah Umakatta Café ad (p.101)
Top 10 advertisers in the U.S. (p. 103)
Difference between local and national advertisers (p. 104)
Example of a local advertisement (p.104)
General Mills centralized advertising department system
(p. 106)
Decentralized department system (p. 107)
Chik-fil-A (p.129)
Citibank ad (p.129)
REFERENCE LIBRARY
Located on the McGraw-Hill
Contemporary Advertising website:
www.mhhe.com/arens04
RL 4-1
RL 4-2
Agency department system
Agency group system
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