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Chapter 2
The Promotion Industry
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1. Discuss important trends transforming the
promotion industry.
2. Describe the promotion industry’s size,
structure, and participants.
3. Summarize what advertising and promotion
agencies do and how they are compensated.
4. Identify experts who help plan and execute
integrated marketing communication (IMC)
campaigns.
5. Discuss the role played by media organizations
in IMC campaigns.
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Promotion Industry Trends
• Consolidation into giant full-service advertising agencies to provide
a large array of fully integrated services. Limitations of these giant
agencies include a possible lack of specialization and creativity of
smaller shops, conflicts of interest with multiple businesses,
unwieldy size and debt. The “unconsolidation” of some of these
agencies seems inevitable.
• Narrower media control due to relaxed FCC regulations and
media consolidation
• Media clutter due to new and increased media options and
resulting in fewer focused media outlets to reach target audiences
• Consumer control has increased due to interactive media such as
Internet, social media, DVRs, etc.
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Promotion Industry Trends, Continued
Not to be outdone, the Web has its own media conglomerates. InterActiveCorp (IAC) has amassed a
media empire of Internet sites that include Ask.com, Match.com, Evite, and Dictionary.com. Together,
these sites generate about $7 billion in revenue, which makes IAC nearly as big as better-known
Internet merchants, but much more diversified.
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Industry Scope and Structure
• Marketers are business, not-for-profit, and government organizations that use
advertising and other promotional techniques to communicate with target markets and
to stimulate awareness and demand for their brands.
• Marketers include: manufacturers and service firms; trade resellers; federal,
state, and local governments; social and not-for-profit organizations.
• Marketers who hire advertising and promotional agencies are responsible for
defining and managing the brand values and objectives as well as the market
position, target, and supply/demand chains.
• Advertising and Promotion Agencies An advertising agency is an organization
that provides creative and business services to clients in planning, preparing, and
placing advertisements. Promotion agencies handle specific promotional efforts,
including sampling, event promotions, or promotional tie-ins.
• External facilitators are organizations or individuals that provide specialized
services to marketers and agencies that may need more expertise in areas such as
research, consulting, production, and software.
• Media organizations own and manage the media access to consumers.
• Target audiences are the consumers advertising and promotional efforts are directed
towards. If there is no audience no communication can take place.
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Industry Scope and Structure, Continued
Exhibit 2.1 Structure of the Promotion Industry
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Advertising and Promotion Agencies
• Most marketers use the services of an advertising agency. It is up to the marketer to
determine which agency or set of agencies fulfill the marketing company’s needs.
•
Full service agencies include an array of advertising professionals to meet all the
advertising needs and even some promotional needs of their clients. These firms can be
large, medium, or even small in size.
•
Creative boutiques emphasize creative concept development, copywriting, and artistic
services. A marketer can employ this alternative for the strict purpose of infusing greater
creativity into the message theme or individual advertisement.
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Interactive agencies help advertisers prepare communications for new media such as
the Internet, podcasting, interactive kiosks, CDs, and interactive television. They focus on
ways to use Web-based solutions for direct marketing and target market communications.
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In-house agencies are the advertising departments in a firm that take responsibility for
the planning and preparation of advertising materials. This offers greater coordination and
control of all phases of the IMC process, marketer’s personnel have direct control over
and knowledge of marketing activities, and the ability to cut outside spending. Limitations
include a possible lack of objectivity, resources, and specialized expertise.
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Media specialists are organizations that specialize in buying media time and space and
that offer media strategy consulting to advertising agencies and advertisers. Strategic
coordination of media and promotional efforts has become more complex because of the
proliferation of media options and extensive use of promotional tools beyond advertising.
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Advertising and Promotion Agencies, Continued
Interactive-advertising agencies specialize in developing banner ads and
corporate websites. An example is Bluestreak, whose goal is to provide the
infrastructure so that marketers and their agencies can create online
campaigns that meet goals for consumers to click on links and then make
purchases.
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Advertising and Promotion Agencies, Continued
Exhibit 2.2 Advertising Agency Positions
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Advertising and Promotion Agencies, Continued
• Different types of promotion agencies handle different promotional outlets and tools.
• Direct marketing agencies and database agencies maintain and manage large databases of
mailing lists to target customers. They also develop direct-marketing campaigns and
promotional materials and execute campaigns. Fulfillment centers ensure consumers receive
products ordered in response to direct marketing efforts.
• E-commerce agencies handle a variety of planning and execution activities related to
promotions using electronic commerce. They differ from interactive agencies (a type of
advertising agency). Rather than creating websites or banner ads, they help firms conduct all
forms of promotion (sweepstakes, coupons, sampling, etc.) through electronic media,
particularly the Internet.
• Sale promotion agencies design and then operate contests, sweepstakes, special displays, or
coupon campaigns for advertisers. Consumer sales promotions focus on price-off deals,
coupons, sampling, rebates, and premiums. Trade-market sales promotions designed to help
advertisers use promotions aimed at wholesalers, retailers, vendors, and trade resellers, such
as incentive programs, trade shows, sales force contests, in-store merchandising, and point-ofpurchase materials.
• Event-planning agencies are experts in finding locations, securing dates, and putting together
a team of people to pull off a promotional event.
• Design firms provide experts such as designers and graphics specialists. Designers specialize
in the execution of creative ideas and efforts by designing logos and other visual promotional
pieces.
• Public relations firms manage an organization’s relationships with the media, the local
community, competitors, industry associations, and government organizations. Their tools
include press releases, feature stories, lobbying, spokespersons, and company newsletters.
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Advertising and Promotion Agencies, Continued
Exhibit 2.3 Structure of a Full-Service Ad Agency
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Advertising and Promotion Agencies, Continued
Agency Services
• Before hiring an agency to provide services, marketers need to identify which services they need.
• Account services work with clients to determine how the brand can benefit most from promotion
and then to develop a complete promotion plan. Account service managers work with the creative
and media services to ensure the best promotional message is delivered via the most effective
media strategy. Account services also works to keep various agency teams on budget and schedule.
• Marketing research services locate studies (conducted by research agencies and organizations)
that relate to the client’s market or promotional objectives. This department also helps translate
research data for the client or other departments and may engage in some consumer testing to
check the efficacy of the promotional message.
• Account planners coordinate research efforts to ensure that the input is included at each
stage of the campaign development.
• Creative services come up with the concepts that express the value of a company’s brand in
interesting and memorable ways. Clients will push their agencies hard to come up with interesting
and expressive ways to represent the brand.
• Production services include producers (and sometimes directors) who take creative ideas and turn
them into advertisements, direct-mail pieces, or events materials.
• Media Planning and Buying Services Full-service advertising agencies also provide media
planning and buying services similar to those of the specialized agencies to determine how a
client’s message can most effectively and efficiently reach the target audience.
• Administrative services manage the agency’s business affairs. Agencies have personnel
departments, accounting and billing departments, and sales staffs that go out and sell the agency to
clients. The traffic department is responsible for monitoring projects to be sure that deadlines are
met.
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Advertising and Promotion Agencies, Continued
Agency Compensation
• Different agencies get paid somewhat differently. Traditionally advertising agencies work
on a commission basis, but this is changing. Promotion agencies usually work on a fee
basis.
• Commission systems are based on an agreed-upon percent (traditionally 15%) of the
total amount billed by a media organization. This amount is retained by the advertising or
promotion agency as compensation for all costs in creating advertising/promotion for the
advertiser. Some agencies and clients wonder if this system encourages agencies to
choose the most expensive methods rather than the most effective.
Exhibit 2.4 Agency Commissions: An Example
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Advertising and Promotion Agencies, Continued
Agency Compensation, Continued
• Markup charges are based on adding a percentage charge to a variety of services
the agency purchases from outside suppliers. This became prevalent because so
many agencies were providing services that did not use traditional media and thus
could not be charged under the commission system. A typical markup on outside
services is 17.65 to 20 percent.
• Fee systems use an agreed-upon hourly rate across all services. Another version is
the fixed fee, or contract, set between the client and agency for compensation of all
work. The agency and the marketer agree on precisely what services will be
provided, by what departments in the agency, and over what specified period of time.
In addition, the parties must agree on which supplies, materials, travel costs, and
other expenses will be reimbursed beyond the fixed fee. Advertising agencies are
often opposed to this system, arguing that creativity cannot be measured in “work
hours.”
• Pay-for-results programs use results criteria of communications objectives such as
the target audience’s brand awareness, brand identification, or knowledge of brand
features and then base the fee upon achieving these results. Sales volumes are not
used as result criteria because they are also related to factors outside the agency’s
control (product features, pricing strategy, distribution programs).
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Advertising and Promotion Agencies, Continued
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External Facilitators
• External facilitators provide specialized services in areas that full-service ad or
promotional agencies may not have the expertise.
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Marketing and Advertising Research Firms Marketing research firms
perform original research for marketers, using focus groups, surveys, or
experiments to assist in understanding the potential market for consumer
perceptions of a product or services. Other research firms routinely collect
data (from grocery store scanners, for example) and have these data
available for a fee.
•
Consultants specialize in areas related to the promotional process.
Consultants can provide expert advise on marketing planning, creativity,
communications, event planning, public relations, media mix and
placement, database identification and management, website development
and management, and customer relationship management (CRM).
•
Production facilitators provide the elements to produce a broadcast
production or print advertisement, including studio facilities, producers,
directors, actors, models, technicians, etc. This is the area where
advertisers rely most heavily on external facilitators.
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Software firms provide software that gathers and analyzes data on the
behavior of Web surfers, streams audio and video files, and manages
relationships with trade partners.
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Media Organizations
• Media organizations are essential to the IMC process because they
own and manage access to consumers.
Exhibit 2.5 Types of Media Organizations
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Media Organizations, Continued
• Types of Media Organizations Explained
• Broadcast media include television and radio.
• Print media include magazines, newspapers, direct mail, and
specialty publications (handbills, theater programs, etc.).
• Interactive media include online computer services, homeshopping broadcasts, kiosks, CDs, podcasts, and cell phones.
• Support media include outdoor ads, directories, premiums,
point-of-purchase displays, event sponsorships, and brand
placements in entertainment.
• Media conglomerates own multiple media outlets usually
including broadcast, cable, film, print, and Internet organizations.