2

The Structure of the Advertising9

and Promotion Industry:
Advertisers, Agencies, Media, and
Support Organizations

After reading and thinking about this chapter, you will be able to do the
following:
1. Discuss important trends transforming the advertising and promotion industry
2. Describe the advertising and promotion industry's size, structure, and participants.
3. Discuss the role played by advertising and promotion agencies, the services provided by
these agencies, and how the agencies are compensated.
4. Identify key external facilitators who assist in planning and executing advertising and
integrated brand promotion campaigns.
5. Discuss the role played by media organizations in executing effective advertising and
integrated brand prormotion campaigns

INTRODUCTORY ScENARIO: THE GREAT DIGITAL DivIDE.

There have always been power strugeles in the advertising and promotion industry: brand versus brand; one
agency aganst another agency: agency versus media company: big advertiser with lots of money versus big
retaaler with
lots of
money. But those old-style power struggles were
child's play compared with the 21st-century
power struggle going on now. Estimates put the number of ads the average consumer encounters in a single day
at somewhere between 1,000 and 5,000" Guess what? Consumers are tired of the barrage of ads and are look-
ing for ways to avoid most of them. So, the big power struggle now is about how the advertising industry can
successfiully adapt to the new technologies that consumers are willing and, in many cases, eager to use as they
seck more control over their mformation environment. Stated more directly, how can the ad industry overcome

1. Mathew Creamer."Caught iu the Cluuer Crossire:Your Brand" Adventsing Age. April 2, 2007, 1.35.
 70
the fact that none of ns s cagrr to haar a 30)-see o n d televsuon ad nterupt a teeVIsIOi progrAI e re really

drvde That divkling ther s,

The solut0), 1n part,. seems to be that advetRers wall start the "dig1tal
joying ad mobile tiarke'ting 1nd
Total
adveTtisnng spendmg morr mto dig1tal meda- Web advertsmg, socul neda,
AWay tronn traditonal mass media l1ke televison, newspapers, magaznes, and racdio
of advertisitig athd proinotion
he eason for d1gnal dvinde 1s that consueis, wlho have bren the target
the
them more cOiito OVer
the com
tor decades, arc discoveimg digital technologies and medu options that grve

nunn ations they sec and hear. From Facebook to lwitter to

mullions of ndividual blogs
atct
specy wcbsites
their
where the"y Control expr,
Onsumets arc sccking out mformationenvironmcnts, digital information access, cttccts arc widesprcad
The
o i f o r m a t i o n rather than an advertiser or media company
being in control.
ot acdvertisers sturveyed
lby ncarly 15 in 2009 with 77 percent
Navertising n
tradhtional media plunged percent
alteriativeSsOCal
shift more than 70 percent oftheir savilngs from
traditional media to digital
Saying they would
network media and online advertisng old system worked ike
how did used to work? The
We are all hving the new technology reality-but
it
advertising agency, lke Jeo Burnettor
Hewlett-Packard, would work with an
this:An advertiser, hke Nike
or
billboard ads. I hen, the adver
newspaper, magazine,
or

Umnicom, and think of really creative television, radio, like NBC television or Hearst newspapers, and buy
tiser and ts agency would work with a media conpany, watched television or read
the would see it when you
the ad that consumer,
ime or space to place so you, as
lot. Major media like
television, radio, and
newspaper. Dont get us wrong, this still happens-a like Hearst Corp
our moriing individual media companies
still rake in about $450 billion worldwide in a year, and
magazines the way advertisers, agencies
several billion dollars annually in revenue.'But
much has changed about
generate smart people think that
consumers. And some very
and meaa companies are trying to reach control-seeking
of even more dramatic changes.'As
We are truly headmg into a totally new age
with the industry on the cusp
want to move trom inter-
Hewlett-Packard put it, "Marketers
Michael Mendenhall, Chief Marketing Officer at
ruptive to engagement. They can
do that more effectively in the d1g1tal space."
in some greater detail.
First, from the consumer
what's in the structure ofthe mdustry
Iets explore going on
information, and entertainment, "media
media options available for news,
side. With the large number of digital and their advertising agencies. The
and a huge headache for advertisers
fragmentation" is a boon to consumers from the cable-TV generation that
new "control seeking" generation
of consumers is behaving very differently
of their PC, smart-
on the convenience and appeal (and control)
preceded it. Today's consumers are insisting There is some large degree of irony in the control
phone, iPad, and TiVo, or Slingbox (as we sawEvenChapter 1).
in
and media
that consumers are starting to exert, however. though the traditional structure of the advertising
structure has not changed-the brand needs to
industry may be changed forever, the goal of that old traditional
be highl1ghted. In fact, the change in consumer orientation will make product branding even more important

be and where they want to see them.

as consumers choose what persuas1ve nmessages they want to expOsed to
To that point, the importance of the brand in advertising and promotion was a key theme in Chapter
1. And advertising and promotion agencies and their media partners are struggl1ng with just how to insert
themselves and their clients brands into this new environment controlled by the consumer. Some thnk
allow consumers to con-
gong with the flow 1s the answer by having agencies and media companies
tribute to content (à la the Super Bowl ad competitions)." Many., as mentioned earlier. will invest more m
digital media. But digital media are not the only "non-intrusive" option open to advertisers. Coca-Cola, for
example, understands full well that consumers are losing their tolerance for passive televIsIon or magazme
ads. So, Coke and other marketers are trying to insert their brands into consumers daly lives in nmore subtle
and seemingly natural ways. Part of Coke's approach: pay $20 million to have Coke cups on the desks of the
Judges during Fox Network's American ldolprogram (see Exhibit 2.1). Another example is Kimberly-Clark

2 "Ad Spending Heads Into Tepid Recovery Advertising Age. Amual 2910, December 28, 2009, 8, Brian Steinberg. "Marketers Say TV Spending Will
Drop. Nets Stuy Bullish. Let the Deals Begin," Adeising Age, February 8, 2010,3.
"Worldwide Ad Spending by Region 2008" Advertising Age Data Cetet, hup://adage.com/globalnuarketersi9/ #302
4. Bob Garfield. "The Chaos Scenatio 20.The Post Adver tising Age.".1dtentisng 4ge, Marehh 20, 2007, 1. 12-14. "Media 2015:The Future of Media,"The
Patures Company. Special Report 2010.
5. Tim Bradshaw, "Adverts Mark A Seisnuc Shift to DigiLul" FI.com (mancial 1 mc). June 29, 29, accessed at www.ft.com/cms.
Erick Schonfeld,"Tuning Up Big Media." Bumess 2.0, April
6.
7.
6, 2006, ul-3,
Dean Foust auud Briau Grow, "Colke W o o i n g d1e 1iVo G e n e r a t o " BusmessWiek, Ni. h I, 2004 77 78.
 Ihe Strur orn of tha Advertising aned Preameton lndustry 711

ExHIBIT 2.1 Big advertisers like Coca-Cola (which still spends nearly $300 million a year on television advertising) realize
that consumers are seeking more and more control over the commercial information they are exposed to. Devices like
TiVo DVRs and consumer-controlled content options like Facebook and blogs are allowing consumers to choose how and
when they view intormation. In response, big advertisers are looking for more and varied subtle ways to reach consumers
and have their brands become more part of consumers' lifestyles--such as using promotional techniques like placing their
brands with television shows. Notice the highly visible Coke cups in front of the American ldol judges.

dropping TV ads from its marketing plan for Huggies diapers to emphas1ze the digital media its "new mom
target market uses the most."
While big advertisers like Coca-Cola and Kimberly-Clark recognize change and are trying to deal with it.
so are
big media companies. NBC Universal is often referenced as the "classic" big media company with the
deepest roots in the old media structure. But now NBC is wooing advertisers by offering to help prepare adver-
tising with the network's vast digital studio resources." Other media companies lhike Viacon are try1ng sun1lar
experiments within their media-owned programung venucs like Nick at Nite. Similarly. MIV Networks is
offering new media distribution like broadband channel MotherLoad, which is associated with Comedy Central
programming."
Change in the advertising industry is nothing new, as the following section highl1ghts. But the pace ot change
and the complexity of the change are more
challenging than any the industry has ever taced We'l spend our tume
in this chapter considering the structure in the industry and all the
"players" that are creating and being atfected
by change.

THE ADVERTISING INDUSTRY IN CONSTANT TRANSITION.

The introductory scenario gives some examples of the deep and complex changes that are atiecting the advertis-
ing industry. lo say that the advertising industry 18 in constant transition might seem like an exaggeration, but it's
not. If you consider
changes in technology, ccononic condtions, culture, itestyles, and busuness philosophies.
one or iore of these broad business and societal forces is
always attectung thhe advertis1ng and promotion effort.
This chapter highlights how the industry and its structure is chang1ng now and has
changed over timme. While
we consider the change and its effects, we need to keep in mnd tlhat the fundamental pocess of advertising and
the role it plays in organizations remains steadfastly the same: persuasive communications directed at target aud-

ackNer."New Hugoies,Od SpiretaunchestoGo TPree Ademtisng Age. May 4, 2w,8

Jon Fine, "Now an Ad from Our Network Busness
O. Tom
Werk, Noveniber 27, 206, 26.
Lowry."The Dileuua Vesitag Big M edia, Buses Heck, July 3, 200, 94 98
 72
technoogy econon COnaOTis, soCiety. o r bsines philose
what
matter is happenng wth not changed and will nor chan.
phe
Cnces-o and promotiOn
nas
I ne
underlyng role and purpose of advertising is i) a state ot contant transiton and the leyel ot comp
ppreate the a y the
advertismg ndustry is an industry with gre at k ea
nderstard that advertising dth and
necessary to
a t this transtion has reachcd, it is we will turn o u r attentic
highlights trends attecting change
ihen,
The section that folilows c o m m u n i c a t i o n s indutru A
ntricacy tools are n1anaged n the
advertismg and other promotonal partic\ilarly the acdvertisers and ther
hthe
Standing how in the procCss,
consider all the ditferent rarticpants
Way. we l
and pronmotion ag1CICs

PROMOTION INDUSTRY.
ADVERTISING AND
THE
TRENDs AFFECTING
Many have to do wth ners

and promotion mdustry. tech-

the advertising
are trends
affecting the vary nature ot the way commu TiiCations
The following has changed the striucture and makes sense to the mo
their applhcation what sort ot modern
communication

nologies and how with

culture and
and a Derutse.
o c c u r Others
have to do
consumer

is the critical
need to focus on
the brand, its mage. 12sTe
what is mportant
But in the end, market.
and the use of promotiom
consumer.

of that brand to the target

and promotion industry
integrated presentation that is affecting the advertising
To understand the change in the marketplace.
tive broad trends
toos, let s consider

Consumer Control: From

Social Media to Blogs to TiVo.
of the list of trends aie
control is at the top
so far, consumer
c o n s u m e r s are now
list. As we have highlighted Scenario,
Yep. top of the As teatured in the introductory
those caregoies
and promotion industry. categories and
the brands within
ing the advertising nformation receive about product video stes hke
control of the they
blogs, soCial media, wikis, and
greater and creating c o n t e n t through
individuals' sharing and services that emphasze
Collectively, generation of Web-based use
2.0-the
as Web
second when consumers log
is
YouTube are referred to and most obvious example
users. The sumplest
and sharing among information or shopping.
But n ets a lot mor
onlne collaboration visit tor either
choose to of information
on to the
Internet and visit sites they media that allow the sharing
accessible Web-based
Social media, highly most signiticant
torm of consumer
complicated from there. individuals and groups, have emerged as the worldwrde
between individuals and
between 350 millhon users
Facebook has more than
communication.
than 50 million users
who
information creation and
control o v e r other week." "Twitter has m o r e had
content with each every
and three months later
sharing 3.5 billion pieces of Honda launched a Facebook page in August of 2009 medha nd
billion tweets a year."
are already spending nearly
$1 billion on social
post 8 Firms
site (see Exhibit 2.2)." email marketng, search
marketing.
2 million friends on the than $3 bilion by 2014, surpassing
to m o r e
to rise
that number is expected
indivduas
and display ads. websites trequented by
information is through blogs. Blogs, as sophs-
control their
Another way c o n s u m e r s
opinions, and personal experiences, have emerged
s the
where they c a n post facts, information. Once criticized
with c o m m o n interests of and brand
not very objective)
sources product
ticated (although typically grraer recogition
and the babble of techno-geeks, blogs are gaining service t1rns
girls
"ephemeral scribble" of 13-year-old
Web-based
a regulr basis.
users reading blogs
on
two-thirds of U.S. Internet mases. Estinares
and organization with
casier to create, use, and
make access1ble to the
are making blogs those blog sites
like Blogdrive and Blogger 346 mllion people globally visiting
now put the of active
number blogs at 133 million with sites and but also to the powee
blogs
the popularity of social media
only to between conSu
pay attention
not
Advertisers should "word of mouth"
communication

of their communications. Research has shown that such

2010, 3.
11. "A World of Connectons." The Ecmomist, January 10, 18, 2010, S1.
12. Spencer E. Ante. "The Real Value of Tweets," Bloomberg
Businessueek, Jamuary
13. Jean Halliday. "Honda Feels the Love on Facebook," Advertising Age, October 26, 2009, 53
2009, /
14. "U.S. Interactive Markeüng Forecast, 2014," Forrester Research, Inc.. July 30,
2009 to
theluturebuzz.com. January 12, 2009. www.tuurebuzz.coN
Internet Suts,"
5. Adam Singer, "Soial Media, Web 2.0 and
 The Structure of the
Advertising and Promotion
Industry 73

(H
eVerybody knows somebody
wholoves honda

ErHIBIT 2.2 Firms ot all types are trying to tap social media as a way to communicate with target audiences. Honda
aunched a Facebook page in 2009 and within 3 months had 2 million "friends" the
on
site
ers results in
longer lasting impressions and greater effects than traditional
new customer
acquisition marketing
efforts.
As discussed earlier, another dramatic example of consumer control is the growth in use of d1g1tal video
recorders (DVRs) like TiVo and controllers like Slingbox. Analysts expect that the use of DVRs will reduce ad
viewership by as much as 30 percent. That translates into taking approximately $20 billion out of U.S. advertis-
ing industry revenue. And advertisers and their agencies expect that by 2010, approximately 39 percent of all
U.S. television households have *"ad-skipping" capability
Obviously, advertisers and their agencies are trying to adapt to the concept that consumers are gain1ng greater
control over the informnation they choose to receive. How will they adapt? Creativity is one answer. lhe more
entertaining and informative an ad is, the more likely consumers will want to actualy watch the ad. Another
technique, less creative but certainly effective, is to run advertising messages along the bottom ot the progrun
ming. Finally, TiVo itself is rolling out a service that sounds crazy: ads on demand. TiVo oters advertisers the
opportunity to include their brands in the companys "Showcase" service, whih allows Tivo owners the chance
to watch promotional videos and shop for products through their DVR. Consuners about to buy expensve
tems like cars, appiances, or resort vacations may want to watch intornation about alternative brants.

Media Proliferation, Consolidation, and "Multiplatform" Media Organizations.

At another level of the industry, the media level. proliferation and consoludatkn have beetn taking place simuta-
alternative
neously. The proliferation of cable television channels, direct nnarketung technology. Web options, and
new media (mobile marketing, for example) have caused a VIsible proliteratuon ot media options. Diversity of

luternet Social
of Word-of Mouth lraditional Markeung Findings ftrom au

l6. Michael Trusov, Randolph E. Bucklin, and Koen Pauwels,"Eflecu

versus

Networking Site Journal f Marketing vol. 73 (September 2009), 90 102

7. David Kiley "Learing to Love the Dreaded Tivo Busines Heek April 17, 2006, 88.

18. Ibid.
 74

media
options and the advertising dollars they
attract has always been
a driving force thehind many medts
panies. Historically, has been a legal batrier to ust how mmuch control any one Ihedia company coul :17e
there
caia companies of all types tend to pursue tmore and o r e "properties it they Are allowed to l ally, thus
Consider the evolutioh of
canng what are now referred to as "multiplatfor1n med12 O L meda
(iox). newspapers mere than 20 world
g1ant News Corp. and its holdings, which inchude television new (OX News). News
satellite, and cable systems
emstat-TV Guide lntetnational). and rcach cvery corner of the
earthP
worldwide media holdings than 830 billion in r e v e n u c holds an interest in t
generate m o r e w o r i d ancd

MySpace in the soCial net

work ncdia
n e w owner of ultimate mult1platform may
be
Disney, which owne
scrvice. As big as Ncws Cortp. is, the cabie stations, 15 radic. sta
. o group, plus nultiplc other
Casting network and the ESPN cable nctwork d e m a n d , DoOKS, a n d magazines-
video o n you
podcasting operations,
o u p l e ot dozen websites,cight
name t, Disney uscs it to rcach audicnces. conglomerates. InterActive
op (IAC) has amassed a me
media n t e r n e t conglomerate with a oTab
Ot to be outdone, the WWeb has its o w n
successful. TAC 1s a n
diverse as they arc
pire of Internet sites that are search engine Ask.com online dating s e r v i c e
as Match.comServiceMagic
and smmaller proner
ag of onli1ne offerings, incuding professionals; and v a r i o u s I n t e r n e t start-ups
Internet merchants like Google are bioe
Site that c o n n e c t s c o n s u n e r s to
home-service
r e v e n u e . Other
about $1 billion in has spawned new
In turn, the evolution of media options
ties. logether, these sites generate

at about $7 billion in r e v e n u e
but not as diversified. Exhibit 2.3).
media options (see
and consult for these n e w
specialized agencies to sell, manage, "cover all the b a s e s i n reaching audiences. hae
that media companies, in an effort to effectively
The point is c o n s u m e r s i n as many ways
as possible from tra
during the last decade to engage
been wheeling and dealing and magazines-to cable and
sateil1te broadcast and all
ditionalmedia-broadcast television, newspapers, radio,
communication.
forms of Internet-based

Media Clutter and Frogmentation Means More IBP.

Even though the media and agency levels of the industry may
be consolidating into fewer and fewer large irms,
the contrary 1s true. There are more ways to try to
that does not mean that there are fewer media options. Quite
reach consumers than ever before. In 1994, the consumer had access to about 27 television channels. Today, the
to reach
2verage U.S. household has access to more than 100 channels. In 1995, it took three well-placed TV spots
80 percent of women television viewers. By 2003, it took 97 spots to reach them! From television ads to virnuai
billboards to banner 2ds on the Internet to podcasts of advertising messages, new and increased media options
have resulted in so much clutter that the probability of any one advertisement breaking through and makinga
real difference continues to diminish. Advertisers are developing a lack of faith in advertis1ng alone, so promo-
tion options such as online communication, brand placement in film and television, point-of-purchase displays.
and sponsorships are more attractive to advertisers. For example, advertisers on the Super Bow!, notorious for
its clutter and outrageous ad prices (about $2.5 million to $3 million for a 30-second spot). have turned instead
to promorional tie-ins to enhance the effect of the advertising. Tlo combat the clutter and expense at one Super
Bowl, Miller Brewing distributed thousands of inflatable Miller Lite chairs by game day. The chairs were a tie-in
with a national advertising campaign that
began durmg the regular season before the Super Bowl.
Given the backlash against advertising that clutter can cause,
advertisers and their agencies are rethinking
the way they try to communicate with consumers.
tools within the overall
Fundamentally, there is a greater tocus on ntegrating ore
promotional effort in an attempt to reaclh more consunmers in more different ways. I ns
approach by advertisers is wreaking havoc on traditional media
& Johnson. In expenditures. Consider the decision by Johnsot
2007, Johnson & Johnson announced that it had shifted $250 million in
spending from traditiona
media-television, magazines, newspapers-to "digital media,"
nclhuding the Internet and blogs.
19. Nat Ives,
"Special Report: More Than Magazines,"
20. Matthew Advertising 4ge, March 12, 2007, sl so.
Boyle, "Brand Killers," Fortune, April 11, 2003,
21. Jack 89-100,
Neff, "J&J Joles Old Media' with
Really" Advertising Age. February 21, 2007,$25OM Spend Shift" Advenising Age. March 19, 2007, 1, 29; Jean Halliday."GM Cuts $600M ott Ad Yes,
1, 25. >pen
 The Struchure of the Acvertising and Promohion Industry 75

wart ehaif that refates,

DoubleCliER

ExHIBIT 2.3 Media proliferation and fragmentation has given rise to specialized media organizations. DoubleClick,
now

part of the Google organization, specializes in digital marketing and advertising solutions

Advertisers are shifting spending out of traditional media and are lookng to the tull compleent o promottonal
uew medi optious, and pudhec
opportunities in sales promotions (like the Miller chairs), event sponsorsups,
ettort tor brands. ln tact, some advertisers are
relations as means to support and enhance the primary advertising
ettort to get their brannds teatured ul televsaon programs
cnlisting the help of Hollyw0od talent agences n an
and films. The payoff for strategic placement m a nlm or televisio1) sboW can be huge. Gettg Coca-Cola cups
Cstatel be worth up to S20 mllhon m tradtional medha
Amerian Idol, talked aboul carler, is to
placed on as we
|6 when we consuder brande<d entertanent n detanl
advertising2This topic is covered n Chapter

Crowdsourcing tanly sunnple concept. Crowdsourcing

the related concept of user geerated cotent) is a
Crowdsourcing (and consuners."Del
groups (crowls) of experts, cnthusiasts,
or even
tasks to
involves the onl1ne distribution of certan
"MyStarbucksldea" asks
launched the "ldea Storm" website to solicit compung ueas tronm the public.Starbucks
and services tor Starbucks outkts. The
udea behnd erowdsourcing is
Starbucks fans to recomend new products
conmutted to a bramd m a Way that passive, intrusive advertisng simply
to get consumers nmore involved with alnd

2003, 14o 150.

Lunch," Busnes» 2 0, Septeuber
Auerican Brands Are Doiug
Besy Sueisand,"Why Great Next, posted at ad.age.coun/digitaluext ou April l0, 2009.
. Garrik Sehuniu,"Can CreauvityBe Crowdsourced?" Adventistng.Age, Digtal
 76
also can Comm
datons
for features
omethng corporare Jaunched advert
Canot Conumers help "bnld the brand with recommienetat
the brand to audcners m wavs that scems nattital anid (red ed by ford
Forcd Motor ompany Ford m.
by
( o n c e r v e d

ng
efhort
Car.
The progra Consusrs 100 Fie
struggles wth Consdet the elalborate it Testa
conpact
behind
the fiesa Movenmct as a way to attta1 atteint fO1n t o
ts
" who wIl spend
y tnonths
wheel of
applhKants) and commer
entaries on ther
(e hosen trom of than 4,(MM) month agents
post videos
agents a
pool
} ot more
Lach Arnd technology (w
fiestarmcwement
ther expetCmes.
activisn,

ther own lesta lifestre social

"ollow everything across the ocal
ros and
adventute,
mission ITavrl,
expetiences related to themed advertisers, though. When Krat
for adverti: raft foods
you to vIew sits risks
risks for
of the Australian d
com). Not surprisngly, Fond cneouages 18 o t
without
version vOF Ite
network sites o n alrcady usc."
Crowdsourc1ng
come up
with a more spreaaaDie
name
for the product." Bur, the proje
to a
for help the firm for
thc call Tor people to with
suggestions
Media box
describes.
"t dd come up the Social
Vganite., 48 thousand people
as
nam¢1Snack 2.0,
agamst thhe
E a global backlash

SoCIAL MEDIA
Crowdsourcing Gone Bad irm deveiop intecratad re

helpHng your
invoved in
Ford is doing it with its Festa
even anaward.Fos
consumers

idea. Get
a pretty good effort and maybe
rOwdsourcing is realiy the MySiartkside.
them iots of
visibility for and services at its sidea
and then give ideas for new products
motion ideas submit invoÁved with
your
You get consumers
customers
promo is having
Starbucks and applications.
Movement campaign. new features
So, Kraft thought that it
wrui
suggest to accompish.
computer users could never hope
ste and Dell is having intrusive advertising procict Vecamita
that oid style,
passive
for a new variation
of popLiar Austraian
their
brand in a way chance-43.0n
unped af the
the name

idea to have people suggest vegamite. ConsUners

be a GREAT cheese and
combination of cream backiash. Mosiy
wouid be a reaction in themarket? gobal
A
The new product
name. The
winner? iSnack2.0. he in digital product
ideas for a new expioltationofcichés
submitted their
nothing to do product and was a mere
with
criticism has shown up e
that the name had
people thought media have
articles lambastedthe name and harsh Better Than Snack 2.0
nomenclature.
Dozens of mainstream
and Twitter. There is even
a calied "Names That Are
website Web 2.0 generation
2.0 is total'y irrelevant to the Pod.
on Facebook
hundreds of posts
professionals argue that "iSnack
Advertising and marketing
the name was chosen "based on a personal cal to
don't see that
it way. They claim
Krat executives, not surprisingly, origina." Wel, the executve
and clear identification of a new and diferent Vegamte to the
acton, relevarce to snacking
thinkit's a bad name
commentary sournds about right. TrOuble is. people
cn Api t6. 2009 Matthew
Be Crowdsourced? Adyertising Age Digital Next,
posted at adage com/digtanext
Sournes Cak Schntt, a n Creativty Glotbal News, posted at adage com/dlobanews on September 29, 2009
Geere, rowdsourcing Done Wrorg Advertiang Age,

Mobile Marketing/Mobile Media.

a
turn out to the biggestor
Of the trendsaffecting the advertising and promotion industry, nobile media may
least the most relevant. It all depecnds on consumer reaction. Technology has resulted in signiticant opportunty
for advertisers to reach consumers with messages directed to consumers' mobile devices-primarily smartphones,
tablets like Apple's iPad, e-readers like Amazon's Kindle-but personal navigation devices (knowu as PNDS o
GPS systems) can also accommodate messages in the wireless world. But, doing so tlies directly in the tace ot
consumer control. The process of mobile marketing and mobile media is relatively simple. Since al these mob
devices have wireless capabilty, advertisers can negotiate ways of including brand mesages that will show

24. Mauhew (Creamer, "Crowdsourcing Done Wrong" Advertising Age, Global News, posted at ad-age.con/globalnews on September ,
 The Structure of the Advertising and Promotion Industry 77
out
ing on the devices. The obvious opportunity is to send ads directly to the devices likely to meet with harsh reac
ted tion from consuners. But other, more subtle opportunities exist. One would be sponsoring content and apps
Sta on e-readers. Another would be embedding brand visuals in the rch multnedia content that tablets are capable
of ofrecewing But, analysts ofter the., perhaps obvious, caution to advertisers. "But ts not, 'What's the available
media I cam buy?" It's thinking about how consumers are behaving and what role do devices play in the way they
t behave"2 So far. consumers don't seem too put off. AdMob. the firm that serves up graphical banner and text link
al ads for mobile devices. is seeing 10 billion ad requests a month! And. within two months of Coogle's latinch of its
Android operating systenm, more than1 billion ads requests were being received each month"Advertsersseem
billhon annually
caper to jump
on board.
Spending on moble is
expected to grow to more
marketing than 31.2
t by 2014-second only to spending on social media in the intcractive marketing category
For decades to come, these trends and the changes they bring about will force advertisers to think diter
ently about advertising and IBP Similarly, advertising agencies wil need to think about the way they serve their
chents and the way communications are delivered to audiences. As you have rcad, big spenders such as Procter
& Gamble. Starbucks, Miller Brewing, and Ford Motor Company are alrecady demanding new and innovative
programs to enhance the impact of their advertising and promotional dollars. The goal of creating persuasive
so the dynamies of
communication r e m a i n s intact-attract attention and develop preference for a brand-and
the communications environment just discussed all direcly impact that overall goa.

THE ScOPE AND STrUCTURE OF THE ADVERTISING INDUSTRY AND PROMOTION.

2 first consider the absolute size.
To fully appreciate the structure of the advertising and promotion industry, let's
billion spent in the United
Remember from Chapter 1 that the advertising industry is huge: m o r e than $300
States alone o n various categories of advertising, with nearly $600 billion spent
worldwide. Spending o n other
forms of integrated brand promotion is no less impressive. Spending on all forms of integrated brand promotion,

including advertising, exceeds a trillion dollars year."

is the amount spent o n advert1sng by
indi-
Another perspective on tlhe scope of advertising and promotion
in the case of the largest spenders, billions of dollars a
vidual firms. Hundreds of millions of dollars a year and,
$2.9 billhon spent
of money to spend on advertising. But we have to realize that the
year is truly a huge amount Procter & Gamble spent
about 2.6 of GM's sales. Similarly,
by General Motors on advertising was only percent
its sales. So even though the absolute
about $4.8 billion, but this amount represented only
about 6 percent of
is often much more modest. Also note that anong
the top 20 spenders,
dollars seem huge, the relative spending States across the
shows the increase in advertising in the United
11 showed a decrease in ad spending. Exhibit 2.4
2.5 shows that spendng integrated brand promotion
20th century and into the 21st century. Finally, Exhibit
o n

well total nearly $100 billion annually across all torms ot promotion.
tools other than advertising is impressive as

Structure of the Advertising and Promotion Industry.

we understand the
the issue. When
the structure of the mdustry is really key
Beyond the scope of spending, order, during the process.
know who does what, in uvhat
structure of the advertising
and promotion industry, we
of a wide range ot talented people, all ot whom have special expertise and
The industry is actually a collection ot advertising. Exhibir 2.6 shows the s t r u c t u r e
in planning, preparing, and placing
perform a wide variety of tasks are n the process.
of the advertising and promotion ndustry by
showing who the ditterent participants
as Kellogg) can employ the services ot sgencies (such as Grey
Exhibit 2.6 demonstrates that advertisers (such services with various extemal faalitators (suuch
as
contract for specialized
Global Group) that may (or may not)

Noven1ber 30, 2009, I0.

25. "Mobile Markeing Beyond the Mobile Plhone," Abetising Age,
Chang, Two Months."
26. Ibid. Brian White, "Googles
Mobile Ad Requests Double in Just
www.nnetrics.adunob.com;
October 2009,
AdMob Mobile Metrics Report,
,
January 6, 2010, www.bloggingstocks.con
cit., 7.
US Interactive Markeing orecast, 2009-2014, p.
28,
22, 2009, S-4.
00 Naional Adverisers," Advertising Age, June
Leading
 78
billions)
dollars in
Advertising Spending (U.S.
300
280-
260
240
220
200
180
160
140-
120
100

60
40
20 2003 2004 2005
2006 2008 2009 2010
1962 1978 2000 2001 2002 2010
1776-1876 1914 1930 1946 with permission.
O Cran Communications,
ine
estimates. Heprinted
Age annual
Advertisers." Adverisng
National
100 Leadng
Sounce. into the 21st century.
the United States
from the founding of
ExHIBIT 2.4 Annual advertising spending

Total U.s. Spending

Promotional Tool
$2.19 billion
Loyalty programs
3.9 billon
Product placement (Brand
insertion

social networkS, mobile)

25.6 bilion
Digital marketing (email,
551 million
Promotional products
20.79billion
Point-of-purchase
2.2billion
Product sampling
Games and sweepstakes
1.86billion
21.25 billion
Event marketing
34.3 billion
Direct maketing
2.6 billion
Coupons (edeemed)
SOuCAS: 20Y9 PrATO NAIslty Irais Kpxnt, Fomo Alyazu, dala avallat k: al www.foOaa?u la.cM/
09promo ustry 1 4 /

EXHIBIT 2.5 Spending on integrated brand promotion tools in 2009

Sunmons Market Research Burcau), which esults in advertising and promotion being directed with thehei
various media orgamizations (such as the 'T BS cable network and Google) to one or more taget dudienes (ukeyo
Note the dashed ine on the left side of Exhibit 2.6. 1This line indicates that advertisers do not always need
employ the services of agencies. Nor do advertisers or agencies always seek the services of external Tactd
Some advertisers deal directly with media organizations and Internet portals for placement of their advertIset
or implementation of their promotions. This happens either when an advertiser has an internal advertising/ pro
 The Structure of the Advertising and Promotion Industry 79

Advertisers

Manufactureis and 1ade resellers retailer, Goverrnent anid sOcial

Selvice fitms wholesalers, and organizations
distributors

Advertising and Promotion Agencies

Advertising agencies Agency Services Agency Compensatiori

Full-service agencies Account services Cormmissior
Creative boutiques Creative research Markup charges
Interactive agencies and development Fee systerm
In-house agencies Creative and production Pay-for-results
Media specialists services
Marketing servicees
Promotion agencies Media planning, research,
Direct marketing and and buying services
database agencies Public relations
Commerce agencies Direct-marketing and
Sales promotion agencies promotion services
Event-planning agencies Administrative services
Design firms
Public elations firms

External Facilitators
Marketing and advertising Production facilitators Other communcatons
1esear.chfims Consultants Organizations
Intormation
intermediators
Software firms

Media Organizations
Broadcast media Interactive media Media conglomer ates
Print media Support media Internet portals
Media specialists

Target Audience(s)

ExeBIT 2.6 Structure of the advertising and promotion industry and participants in the process.

motions department that prepares all the aterials tor the proces, or when media organizationns (especzally radio
television, and newspapers) provide technical assistance n the preparation of materials. The new interactive and
media formats also provide advertisers the opportunity drectly
to work with entertaunment programming
De
ns, Such as Walt Disney, Sony, and LiveNation, to provide integrated progranuning that features brand place-
as you will see, many of the new media
ES 1n flms and television
programs or at entertainment events. And,
ECncies provide the creative and technical assistance advertisers need to implement canmpaigns through new media.
80
take a look at each lev!. with
So kcts
Each level in the s u r c t u r e ofthe
mdustry 1s conplex. devisc adver
need to devise
o u need
advert1sing or a fully ticular enphass
When you
ageneies. u ú. pron
a c t v t i e s of AgenCy o
pronotion agency yu work with A
on the nature and
Or promotion
than he
the advertis1ng or
advertising
be m o r e
vahuable
firepower to thhe prCeSS and represent a critic
the process And renrooe
Smg and
tion, no s o u r c e will ative tircpovwer
essental creative k m the
provnde the
promotin agcncies
structure.

Advertisers. I'rOm your local pet stero

irst the of advertising

structure
is the dvcrtisers
theiisclves.

sizcs scek to bencfit

to benefit
cft
from the ctects of advertising. Advertisers
tisers
nultinatiotnare
in
all types and sizcs seck promoric
Corporations,
organ17ations of that USC addvertising and other promotional tech
governnient
organizations
tor their brands Ad es
business, not-for-profit, and stinnllate
a w a r e n e s s ancd deimand
are
markets and to ofad
with target partners, Differcnt types
to communicate
and proimotion agcncy Ise
clients by their advert11Sing product they markar he
or service
also referred to as
somewhat difterently,depenaing
on
the type ot them
advertising and promotion advertisers and the role advertising plays for em
ditferent types of
describe the
following categories aw
imanutacturers of consumer products and seryices
national
Firms. Large billions of dollars annually P
Manufocturers and Service and promotion,
often spending t&

most prominent
users of advertising
InBev all have national
or global markets for their prodhurs
ucts
Verizon, and Anhetuser-Busch 1s Creatimo
Gamble, General Foods,
these tirms essential to
media advertising, by ting
The use of advertising, particularly mass national or multinational firm rms,
and services. is useful not to just
for their brands. But advertising on advertising. For exampie
awareness and preference also rely heavily
household goods and
services
a few states
regional and local producers of cheese, and other dairy products in regions usually comprising
sell nilk, editions of magazines. urther, couponing and
regional dairy companies in newspapers
and regional
These firms often use ads placed are well suited to regional
application.
markets with IBPs that
c o m m u n i c a t e with target
samplng are ways
to
markets. Local producers
of products are relatively rare.
and wineries also serve only regional and arts orz
Some breweries restaurants, auto dealers,
Medical fac1lities, hair salons,
but local service organizations
are c o m m o n .
create a w a r e n e s s and
stimulate demand
that use advertis1ng to
nizations are examples
of local service providers broadcast to attract
advertised a holiday event or
used a remote local radio
What car dealer in America has not

attention
for all organizations m the marketing
Irade Resellers. The term trade reseller is simply a general description shows, resellers can be
retalers.

channel of distr1bution that buy próducts to

resell to customers. As Exhibit 2.6
busness buyerS at aii geo
wholesalers, or distributors. These resellers deal
with both household consumers and
graphic market levels.
reseller advertisers and promOtion uscts.
Retalers that sell in national or global markets are the most visible
retail companies that use varios tor
Walimart, The Gap, and McDonald's are examples of national and global
retail chains. typcally grocery cnaua
of integrated brand promotion to communicate with customers. Regional
such as Albertson's or department stores such as Dillard's, serve multistate markets
and use advertising suiteu
their regonal customers. At the local level, small retail shops of all sorts rely on newspaper, rado, televISIO i
billboard advertising and special promotional events to reach a relatively sumall geographie area (see EXn
and
Wholesalers and distributors, such as ldeal Supply, Inc. (a company that supplies contractors wth blastug
these types of compaies deal
SLurveying cquipment), are completely different breed of reseller.Technically,
a

since their position in the distribution channel dictates that they sell procucts eu
wt Dushness custoers, ners).
producers (who buy goods to produce other goods) or to retailers (who resell goods to househol d radio
rade
Wholesalers and distrilbutors have little need for mass media advertising over nnedia such as televisi d1rect

Rather, they use trade publicatioms, directory advertising such as the Yellow Pages and trade are
mail, personal selling, and their Internet websites as their main advertising media.
as

Federal, Stote, and Local Governments. At first,. you might think it is odd to include gove
advertising users, but government bodies invest millions of dollars in advertising annually. The . d Ically
often ranks as one of the 50 largest spenders on advertising in the Unmited States, with expenditu
 The Struc ture of the Acdvertising and Promotion lndustry 81

Where Art
Meets Power

Amerkcan IromHorse Motorcycle Compan

Offers the industries most innovative designs.
Bullding oach top performing V-twin motorcycle
by hand-to each customer's specifications

Sir Models Three Rngine Opdos Te Whe

Desns and tniiatced Palart Desgns

RockyM

ouniain
COPERS Bozeman, MT

Highway 191, five miles south of Four Carners

406-763-5010 rmchoppers.com

or global markets like

e s e r ved for just big companies with national
EXHIBIT 2.7 Advertising and promotion are not
Microsot and Nike. Organizations that serve regional
and local markets, like Rocky Mountain Choppers, can make
well
effective use of advertising and promotion as

It you auld un other lBP expenses hke brochures.

exceeding $1.0 billion annually. " And hats just o audvertisug. ottices,
ot recrung thç U.S. gOveruen easly spends more
recruiting fairs, and the personal selling expense s is concentrated m
than 82 billion annually. The federal governnent speincding on alvertising and pronwton
uses broad-
areas: armed forces recruiting and
soC1al issuues. As au eNauple, tlhe US. goverent regularly
WO U.S. Arny's "Aruuy Strong" canpaign uses telev1sion,
DaSca advertising campaigns for mihtary recrutng." Th

adverising. "lo0 L eadiug

Nauoml Adverisers. Advertising
30. TH e was 31st al $1.19 billion amu.al spendug vl

0 ranking for the U.S. governmenl

Age, June 22, 2009, S-4. Novenmber 13, 2006, 57.
.Bob Garfield, "Army Ad Stron-If You Jotally Forgel We're
at War."Ad1veotising le.
 82
hosted at the Army recruiting webit
(Ancraa Arnny)
gazine, newspapers, and interactive ganes (htp //
www.goarmy.com)
Advertising organizations at the national, stat
by
soc1al

Social and Notfor-Profit Oroanizations. Ked Cross, and art organizatid

zations
Conservancy. United Way. American
use
ievel is common. 1he Nature to shape behavior (de adver.
seck donatio1s,
atcd
atteinipt
thcir organizations, sich as these use both the
TIsng to taise awareness of OrgganiZations
for exanmple). and
very state has its own uniaute
self-exammations,
or encourage brcast and services (see
FxhiDit
a.0). economicdo ide
direct mail to promote their caluses CoulnCil, a toutisim oftice, an

organizations, such as Citizcins

against lHunger, a state arts
unities reprcsent
represent a variety of special into
opment
Social organizations in local
coimunities

advertis. nterests
Oficc, or a historical socicty.
to chiki c a r e organizations. The
ncighborhood ed
fraternal organizations carricd out by maior mu
from comnputer clubs to fundamental purpose
as the advertising
1onal
the same multinationals might i s e
Dy soCial organizations has disscninate
i n t o r m a t i o n . While big

local media and local events and O

and
corporations: to stimulate demand on advertising through no-
rely
CVen globaladvertising, local organizations
tions to reach local audiences.

dmerican
Cross

ToCETHER%
******

EXHIBIT
2.8 Government, social, and not-forprofit
theAmerican Red Cross is using advertising organizations can use advertising as etfectively as Here
to communicate to
families the of
corporano olan"
in case of a fire or other catastrophe. Note how the American Red importance havinga "tamily disasieP
developing "brand" recognition-just like Cross is highlighting its logo in this ad as wayo
a
corporations dol (http://www.redcross.org)
 The Structure of the Advertising and Promotion Industry 83

Do all these advertisers sound familhar? They should. Remember from Chapter 1 that we discussed these types
of advertisers as distimct "audiences" as well. Firms are targets for advertising as well as advertisers themselves

The Role of the Advertiser in 1BP.

and
Very tew ot the advertisers just discussed have the employees or the financial resources to strateg1cally plan
then totally prepare effective advertising and IBP programs. This is where advertis1ng and promotipn agencie
play such an important role in the structure of the advertising industry But there is an important role playedy
discussed, nave
the advertiser before the services of an agency are enlisted. Advertisers of all sizes and types, as JUSt
is, it 1s
to do its job effectively. Ihat
to be prepared tor their mteraction with an agency in order for the agency
the advertiser's role to
.Fully understand and describe the value that the firms brand() provides to users
the market relative competitive brands
Fully understand and describe the brand's position in to

extensions, inter-
Describe the tirms objectives for the brand in the near term and long term (e.g., brand
national market launches)
ldentify market(s) that are most likely to respond favorably to the brand
the target
will most effectively reach the target markets
Tdentity and manage the supply chain/distribution system that
overall mar-
Be committed to using advertising and other promotional tools as part of the organization'a
keting strategy to grow the brand
the
factors above, then and only then is it time to enlist
Once an advertiser has done its job with respect to the six that
the 'market for the brand. This is not to say
services of an agency to help effectively and creatively develop
with an advertiser to help better define and refine
these factors. Rather, ie is a mistake
an agency will not work
without first doing its homework and beng
for an advertiser to enter a relationship with an agency (of any type)
prepared for a productive partnership.

3 Advertising and Promotion Agencies.

that specialize in literally every detail of advertis-
Advertisers are fortunate to have a full complement of agencies
advertisers can rely on to help create their
and promotion. Let's take a closer look at the types of agencies
ing
advertising and IBP campa1gns.

an advertising agency. An advertising

Adverhising Agencies. Most advertisers choose to enl1st the services of
clients m planning,.
creative and bus1ness services to
is an organization
of protessionals who provide
agency on advertisng agencies is that agencies
The reason so many tirms rely
preparing, and placing advertisements. and expertise that sinply cannot be
with very specialized talent, experience,
house a collection of professionals
matched by in-house talent. often
States have advertisung agencies. Advertising agencies
small towns in the United
Most big cities and even
section on trends attecting the advertising industry,
megamergers
are global businesses as well.
As discussed n the
2.9 shows the world's 10 largest advertising orga
for several years. I'xhibit
between agencies have been occurring tor ad agencies reached $33.7 billion in 2008.2
income. Worldwide revenue
nizations and their worldwide gross in tie planning. preparation, and placement of
advertis
who help advertisers
The types ofagency professionals
activities include the tollowng:
ng and other promotional
Creative directors
Account planners Sales promotion and event planners
Marketing special1sts Copywriters
Account executives Direct marketing specialists
Media buyers
www.adage.comn/agencynews
27, 2009,
lor 09),Adage.com,.April
2. 3.7% (but watch out

Dradley Johnson, "U.S. Revenue Rises

 84
ers
Art directors Rado an«d tclevisnn pto
Graphic designers Web deveopers
Lead account planners Rescarc hers
IntetactNe medu planner
Chief cxecutive ofticers (CEO)
Chief financial ofticers (CHO) Artists
Chicf technology officers (CTO) So 1al mcdia expecrts

Pubhc relatons specialhsts

Worldwide R e v e n u e

2008
2007 %Chg
Rank H e a d q u a r t e r s

$13,598 $12,383 3.6

2008 2007 Agenoy
L.ondon
12,694 5.2
WPP 13,360
New York
Omrnicom Group 6,963 6,554 6.2
New York
Group of
Cos.
6,393 7.3
Interpublic 6,900
Paris 2.4
Pubicis Groupe 2.932
3,296
Tokyo 24
Dentsu 2,490 2,215
London
Aegis Group 2,094 10.2
Suresnes, France
2,307
Havas 1,392 12.1
1,560
Hakuhodo DY Holdings Tokyo 9.5
585 534
Toronto/New York
MDC Partners
9 503 454
ASatsu-DK
Tokyo
ComunkationsS

2010 a n

Source:
Adage.com/datacente.
Copyrighted
revenue,
U.S. dolars in millions
worldwide gross
organizations (ranked by
10 advertising
ExHIBIT 2.9 The world's top
s e r v i c e s , trom campaign
a host ot
with
note trom this list
can provide advertisers
agencies e t t e c t i v e n e s s . Also
s o m e advertisng
As this list suggests, to measuring
other busines. Salaries
to i n t e r a c t i v e campaigns
creative concepts and CTOs just like any
planning through have CEOs, CFOs, otticer (Barry
indecd a business. Agencies chiet e x e c u t i v e
that an agency is about several million a year tor a big agency
$50.000 a year tor a
above range from in 2005!) to about
in the positions listed stock options at InterActiveCorp market or a small
million in salary and in a big urban
Diller made $295 on whether youre
those salaries change depending
nedia planner." Of course,
market. all sorts ot agenc3
regional or local to the advertiser.
Be aware that there are
available
of agencies are background
Several dfferent types advertiser to dig deep into an agency's
and services. It is up to the ot
with varyng degrees of expertise short description
will fulfill the advertisers needs. A
or set of nuluple agencies
and determne which agency
follows:
the major different types of agencies
inclutes professionals to meet
an array of advertising
Full-Service Agencies. A full-service agency typically te

clients. Often, such an agency will also

otter a client global contacts (see
all the promotional necds of are not necessarily latg
Globalization box). Omnicom Group and
Dentsu are examples. l'ull-service agences
hundreds or even thousands of people.
Smaller shops can be fiull service withJUust a iew
w
organizatons employ1ng in Miami-not
is a highly creative shop
dozen employees and serve big cients. Crispin
Porter + Bogusky Min
creative campaigns for VW, Burger King, and
York or Los Angeles--and has produced ful service, highly of millions ol u
full-service is built on giant accounts worth hundreds
USA."Smlarly, not every agency

4, 20Ho, S-2.
33. Bradley Johnson, "Diller Leads Top Execs in 2005 Pay.".Advetising.lge. Decenber
34. David Kiley, "The Craziest Ad Guys in America." Business Hek, May 22. 20xO, 72
80.
 The Structure of the Advertising and Promotion Industry 85

Globalization
Hispanic, Chinese, Dutch Agencies-It's Al Good and All Growing
The globalization of markets has produced huge growth in specialized agerncies both withirn and outside the United states
One phenomenon is the growth of Hispanic agencies within the United States to develop advertising and prorrioUOn o ui
fast-growing Spanish-speaking consumer market. These agencies have been oxperiencing double-digit grown tor severa
years with some agenciesin Miami and Los Angeles growing at 30 and 40 percent annually. And now that Hisparic onine
Spending has grown to more than $150 milion annually; more Latino agencies are starting interáctive Units.
China, known for its huge growth in GDP and bulging trade surpluses, is struggling to keep up with the ree o
their situation as
advertising and promotional materials fueled by that economic growth. In fact, some agencies describe
reSearcn,
dozens of vacancies in creative,
a "crisis fom the standpoint of trying to find enough talented people to handle
the market is growing ana
media-yOu name it. But they call this a "good" crisis because the need for talent means
business is good. Business is especially good when it comes to the opportunities for digital communication. China has 33

that is not a typol). Ihe nternet

million Internet users (despite severe restrictions) and more than 1 billion mobile phones (no,
and about 10 percent or all
is the third-strongest medium for communication in China, behind television and newspapers,
ad dollars go to the lInternet.
Finally, Amsterdam has emerged as a very hot agency market. When Sony recently hired a new agency for all its U.S
the
called 180. But Sony was not early
in

creative work, it wernt to Amsterdam and hired a small independent agency in thne
and Coca-Cola had been using shops
discovery of the highily creative shops in the Netherlands. Adidas, IKEA, broad
attracts creative talent, and features
metro area of Amsterdam for many years. Why, the city itself is artistic, easily
being swallowed up
to be in touch with the world without
diversity. As one agency exec put it, "Amsterdam allows
us

by any particular culture."

Laurel Wentz and Normandy Madden.
Thrive," Advertising Age, December 4, 2006, 31;
Sources: Laurel Wentz, "Look at Them Grow: U.S. Hispanic Agencies
Red-Hot Ad Shops" BusinessvWeek.
December 11, 2006, 6; Jack Ewing, "Amsterdam's
"China's Ad World: A New Crisis Every Day," Advertising Age, Stats, wwvw.internetworldstats.com/stats3.htm, 2009.
statistics from Intemet World
December 18, 2006, 52. China Internet usage

at a
nternational clients one small/medium account
Cramer-Krasselt, a midsize agency has built a stable of
beer."
time-the most prominent of which is Corona
creative concept development, copywring.
Creative Boutiques. A creative boutique typically emphas1zes
advertiser can employ this alternative for
the strict purpose of infusing greater
and artistic services to clients. An
advertisement. As one advertising expert put it, "If all
clients want
or individual
creativity into the message theme hearts' delight, they wont want conventional,
are ideas, lots of them, from
which they can pick and mix to their
boutiques these idea facto-
factories.° (Creative are
full-service flashy, fee-based idea
agencies. They all want fast, McCann-Lirickson creative-only
Worldwde and Leo Burnett have set up
such as
ries. Some large global agencies
creative witlh mixed results. The truth is that as the
boutiques,
project shops that mimic the services proVided by oft expansion-contraction-
evolve, the creative boutiques may become a casuaty
continues to
advertising industry there are still some great mdependent
creative
multiservice agencies. Be asstured,
expansion by the big global
Idea Lab (http://www.fusionidealab.com).
boutiques around,like Fusion niche expertise, may be its greatest liabilty
as well. As firms search

The creative boutique's greatest advantage,

the creative boutque may be an extra expense
commitment to IBP campaigns, and
for IBP programs and make a will learn in Chapter 9 on creativity
can aftord. But, as you
dont feel they in
and step that advertisers simplyis so essential to ettecctive brand buildng that creativity will rise to prominence
aavertising, the creative effort to delver that valtue.
are well positioned
e
process, and creative boutiques

September 11, 2000, 32.

T hinks Small," Advetising Age,
Chura and Kate MacArthur, "Cramer-Krassele
lary Grounds." Advertising Age, April
13, 1998, 22
Marun Sorell, "Agencies Face New Batle
 86

Digital/ Interactive Agencies. These agencies hely advertisers prepare co nications for new med
as the Internet, mobile markcting, and mtetactive television. Digital/interactive agencies focus on
use web-based solutions for ditcet marketing and target 1arket coinunicatic0s (see Exhibit 2.10) ntowAys
loday, even a midsize full service auen
agcncies do work for BMW Oracle, Nimtendo, and the US. Army
the case, l4ny ritis have consolidated all the
Oter digtal and mtetactive services to cients. This being
needs, inchiding imteractive media, with their main full-service agency In tact, top dig1tal agencies like D
and Omnicom. That doesn't mean ther
andorganic are owned by large full-scrvice agcncies Publicis that prodice leading edge digital cam
B-Reel and 11-Res
nundreds of highly creative snmaller shops like over a wide range of activities that formery rea
e-cOmmerce

ahd interactive agencies have also taken

gital used to special1ze in
solutions and now provided
c-cominerce
frul
Specialized agency scrvices. 24/7 real mcdia
g o r Services tlhrough digital/interactive progranis and consilting

I am

aloestresk

agencies that specialize in

ExHIBIT 2.10 The of new media has spawned new digital/interactive advertising
era with the
communications, and corporate websites. Blvestreak is an agency
developing banner ads, mobile marketing that generaie
create results-driven campaigns
of providing the infrastructure for marketers and agencies to
stated purpose
transaction rates. Check out its philosophy and purpose
at
dramaticaly higher click-through, conversion, and
http://www.bluestreak.com
Heres a heads-up on the next evolution in digital and interactive services-the virtual agency. a v nake
ice

agency 1s a website (see http://www.pick-n-clicka.com as an example) where users who pay a tiat
n
L
brought "mainstream" by Z1mmeran quckly
their own IV. print, radio, and interactive ads. The idea beinglike
is
Group) as a way for multiunit businesses, franchises and car dealers, respon
to
or
the mnicompreparing
Partspecitically-by
and their own interactive ads-to varying geographic or competitive iec

15. 2007, 15.

37. Jonah Bloom, "Zimmermans Virtual Agency Marks the Rise of Machines," Advetising.4ge. January
 The Structure of the Advertising and Promotion Industry 87

In-House Agencies. An in-house ageney s often referrcd to as the advertising department in a firm and takes
responsibihty for the planning and prepatation of advertisimg materials. This option has the advantage of greater
coonination and control m all phases of the advertisng and promoton proce. Some prominent advertisers
who do most oftheir work m-house are Benetton, (Calvn Klem. and Revlon. Ihe advertisers own personnel
and distribution tactics
have control over and knowledge of marketing activities, such as product development
that can prOvIde unique msights into target markets. Another advantage is that the firm can essentially keep al
the prohts from conissions that an external agency would have carned. Even though the advantages of doing
advertising work in-house are attractive, there are two severc limitations. First, there may be a lack of objectivity.
that an
thereby constraiming the execution of all phases of the advertising proces. Second, it is highly unlikely
in-house agency could ever match the breadth and depth of talent available in an external agency

Media Specialists. Although not techically agencies, media specialists are organizations that specialize in

time and space and offer meda strategy consulting to advertising agencies and
advertisers. The task
buy1ng media
of strategic coordination ot media and promotional efforts has become more complex because of the prolifera-
ot these
tion ot media options and extensive use beyond advertising. An example of one
of promotional tools
of Paris-based Publ1cis
1s Starcom MediaVest
special1sts Group (http://www.starcommedia.com), a subsidiary in media
contact architects specializing
Groupe. Starcom encompases an integrated network of nearly 6,200
branded entertainment, sports sponsorships,
management, Internet and digtal communications, mobile media, focuses on brand
offices in 67 countries
event marketing, and multicultural media. Starcom's network of 110
building for many of the world's leading companies.
media specialists is that since they buy media in large quantities, they
otten
One additional advantage of using
media special1sts often have
much lower cost than an agency or advertiser could. Also,
acquire media time at a
to advertisers. Media-buying
servites have been
time and space in inventory and can offer last-minute placement
structure for many years. In recent years, however,
media plann1ng has been
a part of the advertising industry
Unilever, the Dutch consumer progucts conglom-
added to the task of simply buying media space. At one point,
erate. decided to turn over its $575
million media-buying and planning tasks to a specialized agency. M1ndShare
into the media strategy 2s well.
Firms are findingthat the firm that buys the space can also provide keen insights
tor
Promotion Agencies. Although advertisers often rely agency as a steering organization
on an advertising
often enter the process and are reterred to as promnotion
their promotional efforts, nmany special1zed agencies more on the adver-
even full-service agencies, will concentrate
agencies. This is because advertising agencies, services tor other promotional ettorts. This is particularly true
key anc1llary
tising and often provide only a fewmedia markets.
to c o m m u i c a t e to target
are oftering so many difterent ways
in the current era, in which new
trom sampling to event pronotions to etaul promotional tie-ins.
Promotion agencies can handle everything
and their services follow
Descriptions of d1fferent types of promotional agencies

These agencies (sonetimes also called direct response agencies)

Direct Marketing and Database Agencies. and database agencies maintan
services. Direct marketing agencies
provide a variety of direct marketing lists as one ot their services. These tirnns can design direct murketing
and manage large databases of mailing all torns ot meda. These
mail or telenmarketing, or direct response campaigus usung
campaigns that use either customers, erge databass, develop PromotiOnal materials.
databases of target
agencies help advertisers construct maintain tultillnent centers, which ensure that
In many cascs, these agencIes
and then e x e c u t e the campaign. drectnedia.com) is
ordered through direct a u . Direct Meda, Inc. (http://www.
Customers receive the product clhents With serviCes m both the c o n s u m e r
list manapgement and ist brokerage firn, providiung
the world's largest and around the world.
markets across the cOuntry will design
and the business-to-business s e r v c e s to clents. These tirms
creative and production
are set up to prOVIde radio, television,
Many of these agencies cannpaigins using
traditOal medu such as maga-
and help execute direct response
advertising to 60-minute information
intomercials tor clients: a tive-
Also, some firms can prepare is an onlne comnnity
2nes, and newspapers. to viewers.
A d P r o d u c e r s . c o m

brand and offers direct purchase Producer.

program that promotes a Producer.com/Entertainment

world. It is part ot thhe Ad

a t lists infomercial producers around
the
Com network of advertising providers.
Deceunber 4, 2000, 4.
38 MindShare Strategy," Advetising Age,
Card
Linnet, "Unilever Win Afirnns
88
terate contests, $weepstakes, speciui i .
Sales Promotion Agencies. These speealsts design and then operA
tor adveriets, It s important to re Og17c
thee that g a special7e
Es Jploys,
e D a t e s , atd premtis
COupon cainnpangtns sanmping.
rher fhrm
on prue-of deals,
will ceupons, .

sales promotions and focns F r i o t i o n s aimed

to help advetters e
at

m trade-111arket sales promotions de

sIgned Veprograms, tra
speciali7e in
eg
CTS, etailcTs, vendors, and trade
tesellcrs These agencies
are experts sthen
1)-store merchandising, and pomt-of
pirchase
SAlcs torce contests,
hotsend Consiinmers o r the

sponsorslhip can also

he targcted
to
Securihg dates, and puttino
arke
Event-Plonning Agencies. Lvent
im finding locatios,
o r g a n i z c t s are security cxperts, ente
experis
Event-planning agencies and audio/vIstual pecOpIe. Caterers.
promotional event: i he eVent-planning
ntertainer
ore.

4t
t people to pull off a
make the event
come aDOut. tiot
to provides
verage (publho
cover

i pattiuipants, or whocver
is n e c e s a r y
event and making Siure the press manauer. ity
advertising the
of PGA golf tournament, will
often takc o v e r the task as a
entire event, stich
also
w an of several sponsors
of an event s " k
W he) an advertiser sponsors
is just
one
the event. event-planning agencies. If an advertiser
osey Wth the
then it has less control over planning.
NASCAR race, credit i n the advertisino a d
not get nearly cnough
pr
will be one of your first and
specialists do
Designers and graphics your designer mosr
Design tirms. or promotion, a r e intimately invcised
take a job n advertising
If yvou in planning,they
involved strateEY n
a firm create a logo-
otion process. a r e rarely
Even though designers most basic
sense, designers help -the
that promote an identity for
mportant partners, efort. the
In
o r IBP
the e x e c u t i o n of the advertising other visual
representations
business.Cards
identifies a company-and to the company stationery,
Taphic mark that from advertising to packaging
the materials used in support
on everything
T his mark will appear will aiso design most or
designers brochures, outdoor banners for
eom
the logo, graphic i n - s t o r e displays,
and signage. But beyond
design, coupons, irms in the world recenty mad
communications
such as the package c o n s u m e r package goods
One of the largest that design was cinic
itIcal
newsietters, and direct
mail pieces. and promotion, claiming
of its marketing
across all aspects factors in the outcome"%
c o m m i t m e n t to desigm
a larger and displays [being| major
c u s t o m e r s in
the store with packaging
to "winnming relationships with the media
firms manage an organization'a
Relations Firms. These public relations organizations. The
tools of pubic rela-
Public associations, and government
industry Most advertisers do
the local community, competitors, spokespersons, and company newsletters.
tions include press
releases, feature stories, lobby1ng, relations require highly specialized
relations tasks for two reasons. First, public
their o w n public are too cdose to public
relattons
not like to handle
within the conpany ranks. Second, managers
skillsand talent not normally
found
a negative situation, with measured pubüc
be of handling a situation, particularly
capable relations t1rms. In
problems and may not
and even advertis1ng agencies,
turn to outsude public
advertisers, there are even organz
responses.For these reasons, the Internet across all forms of promotion,
to incorporate
keeping with the firm is PR Newswire (http://www
m o v e m e n t

that wll handle putting all of a firms news releases online. One such
tions
relations
prnewswire.com).
for their brands, advertisers have been turning to publc
In a search for more and distinctive visibility talent agency and
of film and television placements." William Morris, originally a
firms to achieve a wide range Anheuser-Busch. Wilhan
with c o n s u m e r brands like
now a public relations firm, has 16 consultants working top
Morris succeeded n getting Budweiser to be the
first beer advertiser on the Academy Awards.

Agency Services.
advertiser nay need a large. glo
Advertising and promotion agences ofter a wide range of services. The
Service advertising agency to plan, prepare, and execute ns advertising and lBP campaigns. On the otnct
rly
Creative bOutique or d1gital/interactive agency may offer the right cobination of specal1zed serviceS.
a large promotion frm might be needed to manage events and retail promotions while a des1gn tiru to

and tuc
for else. The most important issue, however, is for the advertiser
design work, but nothing

ack NeftP&G Bosts Deugn Rolein Marketing4derisne Aee February 9, 2004,1,52

40 Besy Strdisabd Why GreatAmerican BratudsAre Doing Lunch, Business 20,Septernber 2003. 146-150
 The Structure of the Advertising and Promotion Industry 89
ncgotiate and reaclh an agreement on the services bemg provided before any agency is h1red. Exhibit 2.11 shows
the tvpical organi7ational structure of a full service advertising agency that also provides a sign1ficant number of
I1BP scrvicCs.

esteeuceneralMatge

Account Services Account Supervisor Accournt Executive

Assistant Account Executive

Research Pubic Reiations Event Sponsorship

Marketing Services Drect Marketing Sales Promotion
Interactwe

Creative Superviso Art Director

Creative Services Drecto
*www.388BRS** Associate Director Copywrters

wwwwoo Senior Producers-N Producers-TV

Production Services
SeniorProducersPrint oducers Ptint

MediaSupervisor
Media Services w*w%BAAGADSR ww*
Media Buyer
www*

Administrative Services
Biing
Traffic
ExABIT 2.11 This is a ypical structure for a fullservice advertising agency. Note that this structure includes significant
brand that many ogencies, in response to
integrated promotion (1BP) services as well advertising
as services.
reduced spending by clients, may have altered their individual structures significantly.
Be aware

But, a word of caution needs to be issued here. Many agencies, large and snmall, have been tlattened-literally
and corporate revenues, advertisers have cut
and figuratively. In response to downturns in consumer spending
have seen large, lucratve accounts shrink or disap-
advertis1ng and promotion budgets. In turn, many agencies
and prestige global firm with 287 ottices m 79 countries, had to
pear completely. BBDO Worldwide, large
a

othice m the United States. Durmg a short, two-year period, the

completely shut down its Detroit, Mich1gan, to zero. The reason? The agency could not negotiate a new
Detroit agency went from more than 700 employees entire
itselt on the verge ot bankruptcy." Although shuttering an
Contract with the office's single cient, Chrysler, have occurred
to economic downturns, other radical changes
office is a dramatic example of agencies' response
under one manager. Where there used to
have consolidated all forms of production
as well.Many big agencies radio production, and retail advertising, now
there is just "produc
De print production, film/video production, Omuicom group's TBWA has created a new position:
Other structural changes have occurred as well.
On. stated the creation of the new pos1tion
was in reaction to
niet Compensation Oficer. Executives in the firm

Noveuber l6. 2009, 3, 40.

Jean
Halliday."Detroit Indusry Faces Future Without BBDO," Ahetising Age,
 90

at a t financial discussions betveen chents and agencies have deteriora either side
1s satisfied." More on this shortly. the serviCes discussed are

The word of caution above is follows. Altliough

prelude to the discsston that
representative, any
agency structure and
one
relevant and the organizational structure in ixhibt 2,11 is still
advertising
a d promotion
commonly
ottercd by agen-
oCiesservices many be quite different.The types of servnes
are discussed in the following sections.
have titles Stich
as account
e xecutive,
Ccount
Account manager, and whO work with clients to determine
who how the brand Can bencfit most frs,its
Services. 11hese services are offered by
managers

the benetits a brand offe

services entail
identitying
promotion. Account Complcte plan,
In somc cases, acc
Count
uvTEISIng and ntegrated brand then developing
a
in general the client shr
d l u the best competitive
positioning, and behavior
research, b i t
the brand's valte
basic marketing and
consuner

services 1n an
agcincy can provide
prov Knowing the target segment,
cy the chapter. o n this in Chapters
5 and 6)
mformation to the table as
noted earlier in advertiser (more
responsilbility of the values into advert.
s

are really the cultural and

consumer
rtis-
OSIToning strategy client in translating with media servic
A also work with the
Finally, they work 1Ces
n t s e r v i c e s managers services in the agency. the best vehicles for reachin
the creative
through determining ing
and promotional messages media strategy for teams' Creatit
a n effective the v a r i O u s agency ative,
to develop keep
oth internal and external) of the primary tasks in a c c o u n t
to
services
1s
One
e
targeted audiences. schedule and withn budget.
production, and media
on

usually cons1sts of the agenc

by an agency for a chent
Services. Research conducted
that have b aring o n a client's market ar
Marketing Research commercial research
organizations)
the research and communicate
e
by
locating studies (conducted The research group will help the client interpret
studies are not
sutticient, research mav be
advertising and IBP objectives.
creative and media people.
If ex1sting
the
to discussion, agencies can assemble
some
these interpretations mentioned in the
account services
determine whether
conducted by the agency itself. As versions of proposed advertising and
to evaluate different
consumers from the target audience
c o m m u n i c a t e d effectively.
coord1nate the research account effort. An
messages being are
of account planner to
established the position T he account planner is assigned to
Many agencies have on par with an
account e x e c u t i v e .
the organization is materials. Some
planners stature in is included at each stage
of development of campaign
clients that research input been the best n e w business tool ever
think that account planning has
to ensure

like Jay Chiat of Chiat/Day, at Goody

agency leaders,
measured in their assessment. Jon
Steel, director of account planning
are a bit more
invented. Others
planning, when used properly, is the
described account planning this way: "|Account|
Silverstein and Partners,
that research, signaled by the appointment
Ether way, agencies understand
best old business tool ever invented."**
successtul promotional campaigns.
of an account planner, is key to
the concepts
Creative and Production Services. The creative
services group in agency comes up with an

and memorable ways. In simple terms, the creative

that express the value of a company's brand in interesting
direct marketing.
services group develops the message that
will be del1vered though advertisng, sales promotion,
social networks, mobile marketing, event sponsorship, or public relations.
to represent the brana.
Clients will push their agencies hard to come up with mteresting and expressive ways
of consumer communications for Motorola's Personal Comnmunications Sector,
Geoffrey Frost, vice president
expressed his company's approach to demanding creative excellence by saying."What we've challenged the agencies
5
to do was to help us to figurer out how to position Motorola as thecompany that has eally figured out the future.
That statement beautifully captures the kind of creative services advertisers seek from their agencies. The creatve
group in an agency will typcally include a creative director, art director, illustrators or desigmers, and copywrer
In specialized promotion agencies, event planners, contest experts, and interactive nmedia specialists will jon the corc

group. Exhibit 2.12 shows how a small advertising agency, FJandN, promoted its own creative services.

42. Rupal Parekh, "TBWAs Answer to Chent Squeere. Anoint a Chief Coupeisauonu Otlicer." hetising tge. February 8, 2010. 1, 21.
43. Jon Stel, Tuth, Lies Advernising: The An of Acont Plannng (New York:John Wiley & Sons. 1998). 42.
44.Jon Steel. Truth, Lies & Adbvetising: The Ait of Acounn Phmmng (New York: Jolbn Wiley & Sons. 1908), 43.
45. Tobi Elkin. "Motorola Tenders Brand Challenge." Adrenising 4ge, August 14, 20OO. 14.
 The Structure of the Advertising and Promotion Industry 9

ExHIBIT 2.12 Advertising agencies, from regional shops, provide a wide range aof
large global agencies to smallertheir
contribution to the process is, perhaps,
creative Here, FJCandN,
prowess.
services tor clients. Their greatest to tout the agency's creative talents.
implored advertisers to "aim higher." A nice bit of creativity
regional agency, once

sometimes directors) who take creative ideas

and turn them into
Production services include producers (and and oversee the endless
mail and other IBP materials. Producers generally manage
advertisements, direct pieces, maintain
of the finished advertisement or other promotion material. Advertisng agencies
details of production
creative and production staffs.
the largest and most sophisticated

This service was discussed earlier agency effort through

as a specialized
Media Planning and Buying Ser vices. agencies themselves provide
media
media buying and planning. Advertising
which advertisers can contract for The central challenge is to deter-
services similar to those of the speCal1zed agencies.
planning and buying and etficCiently reach the target
audience. Media planners and
can most etfectively
mine how a cients message media plan within the client's bud-
of to put together a ettective
number options
buyers examine an e n o r m o u s inuch more than simply buy1ng
ad space, tumng a coupon distribution,
and buying is
get. But media planning an event. A wide range
ot meda strategies can be implemented
effort, or schedul1ng
launching a mobile media as Omnicom, Chiat/Day.
most large agencies, suuch
As mentioned earler,
to enhance the impact of the message. to client demands
meda groups years ago in response
their own dig1tal/nteractive found
and Fallon McEll1gott, set up IBP plan. The three positions typically
media option be included in nearly every
where most of the client's money
nat Internet and mobile media buyer, and media rescarcher. This is
n the media arca are media planner,
IS
spent; it's very mportant. have
business affairs. Agencies
have to manage their
agencies
Administrative Services. Like other businesses, sales stafs that go out
and sell the agency to
departments, and
and billing of monitoring projects to
PersOnnel departments, accounting the traffic department, which has the respons1bility
CES. Most important to clients is
 92
be sure that deadlines are met. lraffic managers make sure the creatve grotp and media are
servICes
met. Tare
he COordina.
job requires
ated
and media orga euts
sO that dcadlines torgetting romoti0nal mateT ials to prTinters other services
to cients
tremendous organ17ational skills and 1s ct1tical to dellverimg the
"

Agency Compensation. orgAnI7Ations

ns are compensate
often base
other
professional
advertising agencies
the ay
The way agences gct paid is somewhat different from asis,
w o r k o n a Commission
e
basi
often work
while accountants, doctors, lawyers,and consultants
oCcAsionally

agencies ition is becomin compensatio

Promotion
agency
COnpensation on a commission or markup system. atmosphere iding "procuremer
surrounding
includ:
Clients are
The
but more often work on a fee or contract | lower cost.
cial executives
o w n financia
services at their
bringing
1more and more tense. lients are demanding more
agencies
are
to push back on clhents
and in response, are starting the
offcers in plannmg mectings with agenc CIes
discussed earlier).Agencies
services. the
Such was

Compensation Officer by TBWA lower than cost

to produce
account
b e c a u s e the demanded
e t that arc million
for services UPS'% 8200
aing a fee
structure
for shipping
giant
ca o u t ofpitch markup charges,fee
u
agency JWT pulled methods:
c o m m i s s i o n s ,

fee structure was simply unprofitable." a r e up tor nego-

compensation compensation

prevalent agcncy client-agency

the four most
all aspects
of
N i n e Realize that
a1nd newer pay-for-results plans.
s which is basei
tiation. however. commission system,
the
compensation is of the total amounr
of agency method, 15 percent
traditional method media. Under
this tor all costs
The as c o m p e n s a t i o n
ommisSIOns. advertiser spends on
agency
on
the amount of money the is retained
or
by the advertising v a r i a t 1 o n
promotion
is that the rate typically
changes to 16%
a media organization advertiser. The only
works.
billed by for the the system
commission

in creatng
advertising/promotion
Exhibit 2.13
shows a simple example of how
for outdoor media.
percent
television airtime
Agency bills client $1,000,000 for

television airtime
www.0888008

for
television media o
Agency pays *****

15% commission
Agency earns $ 150,000
traditional commission-based
compensation system.
ExHBIT 2.13 Calculation of agency compensation usinga
media use, the
with the change in consumer

and particularly in the past 5 years themselves. As the

During the past 20 years, both advertisers and agencies
Wisdom of the commission system has been questioned by to recommend
it long ago, "lts inncenting vus to do the wrong thing,
chairman of a large full-service agency put or
and radio when other forms of communication hke direct marketing
network TV and national magazines a comms
better.""About half of all advertisers compensate their agencies usung
public relations might do the job still usSe
But about 14 percent of advertisers responding to a recent survey
sion system based on media cost. only commussion, otte
are using other percentage levels of
the traditional 15 percent conmission. More advertisers
even the use of media-based
commissIons is unuet
levels, as the basis for agency compensation. But
negotiated foundation for change several years a
fire JunheStengel. global marketing officer for Procter & Gamble, laid themembers at a media conference that
When told American Association of Advertising Agencies (AAAA)
media-basecd model dependent on the 30-second TV spot is "broken" and that the industry needs to understan
whole
the
C COnpiexity of media use by contemporary consunmers." This message indirectly calls into question wi
1SSLIe ot
bas1ng compensation on media billings at all.

46. Rupal Parekh, "Fed-Up Shops Pitch a Fit at Procurement," Advertising Age, October 26, 2009, 1, 55.
47. Patricia Sellers, "Do You Need
48. Jeff Neff and Lisa Sanders,"It's
Your Ad Agency?" Fortune, November 15, 1993, 148.
Broken," Adverising Age, February 16, 2004, 1, 30.
 The Structure of the Advertising and Promotion Industry 993

Markup Charges. Another nethod of agce y compensation is to add a percentage markup charge (sometimes
referred to as cON-pnis) to a Variety of services the agen«y purchases from outsicde supplhers. n many cases, an
gency will r n to outsute conttactors for art, illustration. photography. printing, research, and production. The

ageney then, n agreenieit wth the chient, adds a markup charge to these services.The reason markup charges
became prevalent n the mdustry 8 that nmany promotion agencies began pfovid1ng services that dd not use
radtonal ne dna. Since the tracdtional commission method was based on media charges, there was no way for
these ageneies to receve payment for their work.This beng the case, the markup system was developed.A typical
markup on outside sCrvices is 17.65 to 20 percent.

Fee 5ystems. A fee system is much ike that used by consultants or attorneys, whereby the advertiser and the
agency agree on an hourly rate for different services provided. The hourly rate can be based on average salaries
withm departments or on some agreed-on hourly rate across all services. This is the most common basis for
promotion agency compensation.
Another version of the fee system is a fixed fee, or contract, set for a project between the client and the agency. lt
s imperatve that the agency and the advertiser agree on precisey what services will be provided, by what depart-
ments in the agency, Over what specified period of time. In addition, the partics must agree on which suppies, mate-
rials, travel costs, and other expenses will be reimbursed beyond the fixed fee. Fixed-fee systems have the potential
for causing serious ritts in the client-agency relationship because out-of-scope work can eas1ly spiral out ot control
when so many variables are at play, as the earlier example of JWT pulling out of the UPS pitch illustrated. When
such controversies arise, the client-agency relationship is damaged and trust suffers, as discussed in the Erhics box.

ETHICS5
Of CourseI Trust You-Meet My Auditor
It used to be that advertisers and their agencies had long histories together, and a handshake was the primary way deals

got sealed. Well, times have changed. As you saw earlier in the chapter, agencies with 20- or evern 30-year histories with a
client are being dumped-usually with little ceremony. The days when the agency-advertiser relationship was buit purely on
trust seem to be gone forever. When advertisers like General Motors refer to their agencies as "fabby organizations." you
can be pretty sure that the atmosphere in the industry is changed for good. t doesn't help that recently a federal grand jury
indicted two agency executives on charges of defrauding the U.S. government with excess labor charges on a campaign

developed for the Office of Natiornal Drug Control.

So what has replaced the handshake and the toast at dinner as the basis for the client-agency relationshio? Guess
who's coming to dinner-the auditor. Today, clients are using outside firms to scrutinize all aspects of agency work, from
Creative services to billing practices. One such scrutinizer is called Fim Decisions. It is an international ad-agency auciting
An example of the work done by Firm Decisions: On
firm that acts as intermediary between advertisers and agencies.
an
staffer had billed an average of 17 hours a day including weekends for
one agency project invoice, it found that an agency
an entire month. On one day, she even logged
26 hOurs. David Brocklehurst, founder of Firm Decisions, commented on
"Even it it was true, how productive could she be?"
this particular audit with the deadpan observation,
and the auditor seems to be showing up more and more often. This is not to
So the friendly partnership days are over, it
and clients arent happy wItn
the
agencies work. But it really isn't as much fun as
say that agencies are not productive
used to be.
June 30, 2003, 1, 20, Ern White, "Making Sure the Work Fits the Bll." The

Ources: Claire Atkinson, "GM Ad Boss Takes Agencies

to lask, Advertisng Age,
Wall Street Journal, February 5, 2004, BB.

that creative mpact cannot

to the tee system approach. They argue
ngencies are generally vigorously opposed "the value ot the materials the agency
1s creating
rather be measured in
measured in "work hours" but
muust

for the client"49

27, 2007.
the Clock," Advntising Age. January
49.1
anders and Alice Z. Cuneo, "Fed-Up Agencies Quit Punching