Chapter Five Chapter Five

chapter chapter five five

advertising advertising agencies agencies

the the first first advertising advertising agents agents ■ 1843 1843 volney volney palmer palmer ● ● agent agent for for media media,, not not advertisers advertisers

■ 1864 1864 -- george george p. p. rowell rowell ● ● “the “the johnny johnny appleseed appleseed of of advertising” advertising” ● ● Rowell’s Rowell’s American American Newspaper Newspaper Directory Directory ● ● space space wholesaler wholesaler ● ● shared shared his his “secret” “secret” ● ● 1888 1888 -- “Printer’s “Printer’s Ink” Ink”

the the first first advertising advertising agency agency ■ n.w. ayer & son ● ● founded founded in in 1864 1864 by by francis francis w. w. ayer, ayer, 20 20 ● “& son” son” made made the the business business ● “& seem seem more more established established ● worked for for advertiser advertiser ● worked ● slogan -- “keeping “keeping ● slogan everlastingly everlastingly at at itit brings brings success.” success.”

44 full-service full-service agency agency functions: functions: ■ ■ today, today, “full-service” “full-service” agencies agencies provide provide the the following following:: ● ● account account management management ● ● creative creative ● ● media media planning planning and and media media placement placement (media (media buying) buying) ● ● research research many adding adding “below “below the the line” line” services services -- PR, PR, sales sales ■ ■ many promotion, promotion, Interactive Interactive

U.S. U.S. agency agency business business today today ■ over over $236 $236 billion billion in in media media billings billings ((www.mccannerickson.com www.mccannerickson.com)) ■ over over 5,000 5,000 agencies agencies ■ over over 243,000 243,000 people people employed employed ■ New New York York and and Chicago Chicago dominate dominate

agency agency billing billing by by city/state city/state City Billings City Billings in in Millions Millions New $61,264.4 New York York $61,264.4 Chicago Chicago 17,739.9 17,739.9 Los 10,545.6 Los Angeles Angeles 10,545.6 Detroit 7,946.3 Detroit 7,946.3 Minneapolis 6,087.2 Minneapolis 6,087.2 San 5,101.9 San Francisco Francisco 5,101.9 Boston 3,993.7 Boston 3,993.7 Dallas 3,234.8 Dallas 3,234.8 Atlanta 2,620.9 Atlanta 2,620.9 Philadelphia 2,379.6 Philadelphia 2,379.6

(Source: (Source (Source: Ad Age, Age, 2001 2001 )) (Source Ad

major major types types of of agency: agency: ■ mega-agency mega-agency groups groups ■ independent independent agencies agencies ● national, regional, regional, and and local local ● national,

■ specialized/niche specialized/niche agencies agencies ■ agency service suppliers suppliers agency service ● media buying, buying, creative creative services services ● media

mega-agency mega-agency groups groups ■ ■ prompted prompted by by mergers mergers and and client client globalization globalization ■ ■ financial financial pressures pressures ■ accounts ■ service service multinational multinational accounts ■ “IMC” ■ subsidiaries subsidiaries provide provide “IMC” martin sorrell, (integrated (integrated marketing marketing chairman WPP communication) communication) services services

5 top mega-agency groups: OmniCom Group

$4.15 billion

WPP Group

$3.64 billion

Interpublic Group

$3.38 billion

Dentsu (Japan)

$1.98 billion

Young & Rubicam

$1.49 billion

1997

5 top mega-agency groups: WPP Group (including Y&R) Omnicom Group

$6.69 billion

Interpublic Group

$5.08 billion

Havas

$2.39 billion

Publicis (including Saatchi)

$2.17 billion

5.74 billion

1999

5 top mega-agency groups: WPP Group (including Y&R) Omnicom Group

$7.9 billion

Interpublic Group

$6.6 billion

Dentsu

$3.1 billion

Havas

$2.76 billion

$6.9 billion

2000

5 top mega-agency groups: Omnicom Group WPP Group Interpublic (IPG) Publicis

$8.62 billion 6.76 billion 5.86 billion 4.41 billion

(Including Leo Burnett)

Dentsu (Japan) Havas Advertising

2.55 billion 1.88 billion

2003

5 top mega-agency groups: ■ Together, the five international megaagencies are now 75% of worldwide billings 6% 18% 25% 16%

17%

Omnicom WPP IPG Publicis Other Havas

18%

Source: Ad Age 2004

mega-agency mega-agency pros pros & & cons cons ■ ■

positives: positives:

■ ■

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

larger larger talent talent pool pool negotiating negotiating clout clout financial financial rewards rewards account account security security competitive competitive edge edge strong strong partnerships partnerships more more services services international international link link

■ ■ ■ ■ ■ ■

negatives: negatives:

people people vs. vs. profit profit creativity creativity vs. vs. size size conflict conflict of of interests interests ■ ■ people people business business

national, national, regional regional & & local local these are are independent independent agencies agencies ■ ■ these there are are now now fewer fewer national national agencies agencies which which are are ■ ■ there not not part part of of mega-agency mega-agency groups groups regional and and local local agencies agencies work work with with smaller smaller ■ ■ regional clients clients who who are are usually usually located located nearby nearby

10 10 top top U.S. U.S. ad ad agencies agencies 1. 1. J. J. Walter Walter Thompson Thompson 2. 2. Leo Leo Burnett Burnett Worldwide Worldwide 3. 3. McCann-Erickson McCann-Erickson Worldwide Worldwide 4. 4. BBDO BBDO Worldwide Worldwide 5. 5. Grey Grey Advertising Advertising 6. 6. DDB DDB Worldwide Worldwide 7. 7. Ogilvy Ogilvy & & Mather Mather Worldwide Worldwide 8. 8. FCB FCB Worldwide Worldwide 9. 9. Y&R Y&R Advertising Advertising 10. 10. Publicis Publicis Worldwide Worldwide

specialized/niche specialized/niche agencies agencies ■ industry industry specialists specialists ■ ethnic ethnic agencies agencies

specialized/niche specialized/niche agencies agencies ■ industry industry specialists specialists ■ ethnic ethnic agencies agencies ■ internet agencies

specialized/niche specialized/niche agencies agencies ■ industry industry specialists specialists ■ ethnic ethnic agencies agencies ■ internet agencies ■ business-to-business agencies ■ creative boutiques and design houses

other other suppliers suppliers provide “unbundled” “unbundled” services services ■ ■ provide

one part part of of what what an an agency agency does does ● ● one

media buying buying services services ■ ■ media freelancers & & consultants consultants ■ ■ freelancers production companies companies ■ ■ production in-house or or “house” “house” agencies agencies ■ ■ in-house agencies owned owned by by clients clients ● ● agencies

in-house in-house agencies agencies ■ advantages advantages & & disadvantages disadvantages

from from the the gap’s gap’s “house “house agency” agency”

in-house in-house agencies agencies ■ advantages advantages & & disadvantages disadvantages ● familiarity ● specialization ● fast service ● cost savings ● confidentiality from from the the gap’s gap’s “house “house agency” agency”

in-house in-house agencies agencies ■ advantages advantages & & disadvantages disadvantages ● familiarity familiarity ● specialization specialization ● fast fast service service ● cost cost savings savings ● confidentiality confidentiality

● objectivity ● resources ● fresh ideas ● extra cost and overhead

22 primary primary roles roles of of agencies agencies ■ idea idea generation generation ■ brand-building brand-building

idea idea generation generation ● ideas are lifeblood of the agency

■ create intellectual capital ■ create and sell different kinds of ideas ● marketing strategies ● promotional opportunities ● even new product ideas...

brand-building brand-building ■ ““The The agency’s agency’s purpose purpose is is to to create create and and direct direct communication communication about about aa product product or or service service so so that that the the brand brand is is perceived perceived to to have have aa unique unique value value or or brand brand personality.” personality.” ■ Let’s Let’s look look at at some some examples... examples...

brand-building brand-building ■ Marlboro Marlboro ● Leo Leo Burnett Burnett

brand-building brand-building ■ McDonald’s McDonald’s ● DDB DDB Needham Needham

brand-building brand-building ■ Pepsi Pepsi ● BBDO BBDO

brand-building brand-building ■ Nike Nike ● Wieden Wieden ++ Kennedy Kennedy

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brand-building brand-building ■ American American Express Express ● Ogilvy Ogilvy & & Mather Mather

brand-building brand-building ■ Apple Apple ● Chiat/Day Chiat/Day

brand-building brand-building means integration ■ more more and and more, more, agencies agencies are are being being involved involved in in all all areas areas of of marketers’ marketers’ brand-building brand-building activities activities ■ today, today, it’s it’s more more than than advertising advertising ■ it’s it’s integrated integrated marketing marketing communications communications (IMC) (IMC)

integrated integrated marketing marketing communication communication ■ is more and more, “done right, IMC is the the ■“done moreright, andIMC more,

planning and planning andare agencies agencies are implementation of implementation of becoming the becoming the the various the various integrators integrators of of the the communications communications whole of disciplines as disciplines as aa single, single, whole range range of overall communications overall communications brand-building brand-building system -making all the system -making all the activities... activities... channels channels work.” work.”

integrated integrated marketing marketing communication communication the imc promotion mix ■ advertising ■ public relations ■ direct response ■ sales promotion ■ personal selling

structure & organization what what agencies agencies do. do. and how they’re organized to do it.

77 primary primary services: services: ■ ■ complete complete aa marketing marketing analysis analysis ■ ■ develop develop an an advertising advertising plan plan ■ ■ prepare prepare aa creative creative strategy strategy ■ ■ create create advertising advertising executions executions ■ ■ develop develop and and implement implement aa media media plan plan ■ ■ handle handle billing billing and and payments payments ■ ■ integrate integrate other other marketing marketing communications communications

4 functions of full-service agencies ■ account management ■ creative ■ media planning and placement ■ research

agency agency organization organization chart chart Boardof Directors [Chairm an/CEO]

President [COO]

OtherM arketing Com munications Services [PR, etc.]

Strategy ReviewBoard [M anagm ent Com mittee]

OfficeM anagement [Personnel, Accounting, Legal, etc.]

Account M gmt. Director

Creative ExecCD

Research Director

M ediaDept. Director

M anagement Supervisor

Associate Creative Director

Project M anagers

Associate M edia Director

Creative Group:

Research Assistants

M edia Supervisor

Account Executive

Asst. Account Executive

CopySpvr. & Copywriters

Broadcast Production

Traffic

Art Supervisor &Art Directors

Print Production

M edia Planner

M edia Buyer

Analysts

account account management management ■ liaison liaison between between agency agency and and client client ■ responsible responsible for for understanding... understanding... ● the the client’s client’s business business ● the the client’s client’s marketing marketing needs needs ● strategy strategy development development

■ representing representing client client point point of of view view within within the the agency agency

account account management management Account Mgmt. Director

Management. Supervisor

Account Supervisor

Account Executive

Asst. Account Executive

Account Coordinator

Traffic

■ account management management director director ■ account ■ management supervisor supervisor ■ management ■ account supervisors supervisors ■ account ■ account executives executives ■ account ■ assistant account account execs execs ■ assistant ■ account coordinators coordinators ■ account ■ traffic ■ traffic

creative creative department department ■ responsibility responsibility ● ● the the creative creative department department is is responsible responsible for for creating creating and and producing producing the the print print and and broadcast broadcast advertising advertising

■ strategy is key ● ● good good creative creative work work is is always always guided guided by by aa creative creative strategy strategy that that sets sets forth forth goals goals to to be be accomplished accomplished and and key key message message points points to to be be relayed relayed

creative creative department department Strategy Review Board

Executive Creative Director (ECD)

Creative Director (CD)

Associate Creative Director (ACD)

Creative Group:

Copy Spvr. & Copywriters

Art Supervisor & Art Directors

Broadcast Production Traffic

Print Production

■ executive & & group group creative creative ■ executive directors directors ■ creative director director ■ creative ■ associate creative creative director director ■ associate ■ copywriters ■ copywriters ■ art directors directors ■ art ■ broadcast producers producers ■ broadcast ■ print production production managers managers ■ print ■ traffic coordinators coordinators ■ traffic

media media department department ■ The The media media department department has has two two main main functions functions -- planning planning and and buying. buying. ■ The planning group handles more strategic marketing and media issues. ■ The buying group handles media negotiations and implementation.

media media department department Media Director

■ media director director ■ media ■ associate media media directors directors ■ associate

Associate Media Director

■ media supervisors supervisors ■ media ■ media planners planners ■ media

Media Supervisor

Media Planner

Media Buyer

Analysts

■ media buyers buyers ■ media ■ media analysts analysts ■ media

Media Plan

big changes in the media department ■ mega-agency mega-agency media media departments departments have have now now become become profit profit centers centers ■ agencies agencies have have set set up up their their media media departments departments as as free-standing free-standing units units ■ many many large large clients clients now now look look at at media media as as aa separate separate service service

research department ■ ■ interpret interpret market market environment environment ● ● gather gather and and analyze analyze research research data. data.

● ● primary primary and and secondary secondary techniques techniques ■ ■ determine determine consumer consumer needs/perceptions needs/perceptions ● ● understand understand problems problems ■ ■ advise advise how how ads ads can can meet meet strategic strategic goals goals Research ● find solutions ● help help find solutions

Report

research department Research Director

Project Managers

Research Assistants Outside Research Suppliers

research director director ■ ■ research research project project managers managers ■ ■ research research assistants assistants ■ ■ research specialists outside research research specialists ■ ■ outside

Research Report

auxiliary auxiliary agency agency functions functions ■ account account planning planning ■ strategy/creative strategy/creative review review board board ■ office office management management ● human human resources resources ● legal legal services services ● accounting accounting ● recruitment recruitment

33 ways ways agencies agencies make make money money ■ commissions commissions ● ● usually usually 15% 15% of of gross gross costs costs

■ fees fees ● ● usually usually based based on on negotiated negotiated hourly hourly rate rate

■ incentives incentives ● ● still still relatively relatively new new and and problematic problematic ● ● usually usually based based on on performance performance goals goals

agency agency commissions commissions ■ media media commission commission system system ● ● 15% 15% media media commission commission

■ adjustable adjustable commission commission rates rates ● ● negotiate negotiate to to match match client client budget budget ● ● sliding sliding scale scale

■ markups-production service markups-production & & service ● ● add add aa percentage percentage markup markup to to costs costs ● ● 17.65% 17.65% of of net net == 15% 15% of of gross gross

44 types types of of fee fee systems systems ■ fixed fixed fee fee (retainer) (retainer) ■ cost-plus cost-plus fee fee ■ performance performance fee fee ■ hybrid hybrid fee fee & & commission commission

incentives incentives in in theory, theory, aa good good way way to to work work get get paid paid based based on on how how well well you you do, do, not not how how much much you you bill bill ■ ■ in in practice, practice, difficult difficult to to implement implement ■ ■ ifif client client makes makes final final decision decision (instead (instead of of agency), agency), how how can can agency agency be be responsible responsible for for final final results? results? ■ ■ results results based based on on many many factors, factors, such such as as competitive competitive efforts, efforts, not not just just advertising advertising ■ ■ ■ ■

new new business business ■ three three primary primary sources sources

build existing client’s build existingobjective client’s business business “●●The critical and The critical objective and role role

add and sell services ● add ad andagency sell new new IMC IMC services new ●any of is gaining of any ad agency is gaining new accounts ● solicit new newbusiness.” accounts ● solicit business.”

■ two two ongoing ongoing problems problems

● spec” work work ● ““spec” ● teams “walking” “walking” with with accounts accounts ● teams

beyond beyond 2000 2000

advertising advertising agency agency trends trends

agency agency trends trends ■ ■clutter, clutter, overload overload,, “overchoice” “overchoice” ● ● increased increased media media options options ● ● increasing increasing audience audience fragmentation fragmentation ● ● more more messages messages everywhere everywhere

■ ■ doing doing more more with with less less ● ● economic economic pressures, pressures, “downsizing” “downsizing” ● ● ongoing ongoing client client budget budget pressures pressures

■ ■ managing managing size size

● ● more more mergers mergers and and mega-agencies mega-agencies

agency agency trends trends ■ managing managing technology technology ● ● interactive interactive marketing marketing ● ● e-mail, e-mail, web web sites sites

■ improving improving internal internal systems systems ● ● account account planning planning ● ● re-engineering re-engineering agency agency organization organization ● ● improving improving delivery delivery of of imc imc services services

in conclusion... as as long long as as marketers marketers need need ideas ideas to to build build their their brands, brands, they’re they’re going going to to need need

advertising agencies

questions questions & & discussion discussion ■ why why might might you you be be interested interested in in going going into into the the agency agency business? business? ■ what what might might keep keep you you from from choosing choosing aa career career in in the the agency agency business? business?