Ch 3
Agency compensation
typical commission % and other ways to be compensated: Because the type and amount of service an agency performs can vary from one client to another, a variety of methods are used to compensate them for their services.Changes in the compensation systems have occurred as a result of many companies moving away from traditional mass media in favor of a wider array of marketing tools and an effort to make agencies more accountable for their work.
Agency Decentralized System
in large companies with multiple divisions and many different products, it is very difficult to manage all the advertising, promotional, and other functions through a centralized department. These types of companies generally have a decentralized system, with separate manufacturing, research and development, sales, and marketing departments for various divisions, product lines or businesses. Under this system the responsibilities and functions associated with advertising and promotions agency are transferred to the brand manager, who works closely with the outside advertising agency and other marketing communications specialists as the develop the promotional program. The brand manager may also work with other areas of marketing within the firm, such as sales, marketing research, and the advertising/promotion department.
ways boutique agencies are used
By client companies for creative services only. Full service agencies may subcontract for their creative services when busy or when not wanting to add permanent employees. Other functions such as advertising planning, research and media buying may be done internally within the company or contracted out.
Agency Centeralized System
Centralized System: the advertising manager controls the entire promotions operation, including budgeting, coordinating creation, and productions of ads, planning media schedules, and monitoring and administering the sales promotions programs for all the company's products or services. Large companies with a single product or service, such as Continental Airlines, often have a centralized advertising department. Having a central location facilitates communication regarding the promotions program, making it easier for top management to participate in decision making. It is also a more efficient operation, because fewer people are involved in decision making, and as their experience in making these decisions increases, the process becomes easier.From a negative standpoint, it is difficult for the advertising department to understand the overall marketing strategy for the brand, and response to specific needs or problems may be slow. As companies become larger and develop or acquire new products, brands, or divisions, a centralized system may become impractical.
Positive aspects of Decentralization
Concentrated managerial attention for a product or brand. Rapid response to problems and opportunities facing a brand. Increased flexibility, allowing for adjustments to various aspects of the advertising and promotional program.
Advantages of In-House agencies
Cost savings, because media commissions that normally go to an outside agency remain in house. More control over the advertising function, because it is handled within the company rather than by an outside agency. Better coordination of advertising and promotion with the firm's other marketing activities.
Boutique Agencies
Creative Boutiques are small agencies that provide only creative services and have long been an important part of the advertising industry. The specialized agencies have creative personnel such as writers and artists on staff but do not have media, research, or account planning capabilities. Creative boutiques developed in response to some clients' desire to use only the creative talent of an outside agency while maintaining other functions internally. Clients seek the help of creative boutiques when an extra creative effort is required, or because its own employees do not have sufficient skills.
Sales Promotion Agencies
Developing and managing sales promotion programs, such as contests, sweepstakes, refunds and rebates, premium and incentive offers, and sampling programs, is a very complex task. Most companies use a sales promotion agency to develop and administer these programs.
Negative aspects of Decentralization
Ineffective decisions, since brand managers often lack training and experience in advertising and promotion. Internal conflict as brand managers compete for top management attention and marketing resources. Lack of authority by brand managers over the functions needed to implement and control the plans they develop.
Disadvantages of in-house agencies
Less advertising experience than is available from an outside agency, which has a variety of specialists in various areas of advertising. Less objectivity, because those working for an in-house agency are part of the company. Less flexibility, as outside agencies can be changed more easily. Changes among in-house agency personnel are slower and more disruptive
Specialized Services
Many companies assign the development and implementation of their promotional programs to an advertising agency. But several other types of organizations provide specialized services that complement the efforts of ad agencies.
Gateway ads
Remember ads shown on projector that targets a specific audience, Christmas, parents, children and college students
Public Relations Firms
Many large companies use both an advertising agency and a public relations firm. The public relations firm develops and implements programs to manage the organization's publicity, image, and affairs with consumers and other relevant publics, including employees, suppliers, stockholders, government, labor groups, citizen action groups, and the general public. The PR firm analyzes the relationships between the client and the various publics, determines how the client's policies and actions relate to and affect these publics, develops PR strategies and programs, implements these programs using various public relations tools and evaluates their effectiveness.
Media buying services
Media specialist companies are companies that specialize in the buying of media, particularly radio and television time. The task of purchasing advertising media has grown more complex as specialized media proliferate. Media buying services have found a niche by specializing in the analysis and purchase of advertising time and space. Agencies and clients usually develop their own media strategies and hire independent buying services to execute them.
Direct Marketing Agencies
One of the fastest growing areas of IMC is direct marketing, where companies communicate with consumers through telemarketing, direct mail, television, the Internet, and other forms of direct-response advertising. As this industry has grown, many agencies have evolved to offer companies their specialized skills in both consumer and business markets. Direct marketing agencies provide a variety of services, including database management, direct mail, research, media services and creative and production capabilities. Direct mail is their primary weapon.
In-House Agency
Some companies in order to reduce costs and maintain greater control over agency activities, have set up their own advertising agency internally. An in house agency is an advertising agency that is set up, owned and operated by the advertiser. Many companies use in house agencies exclusively, others combine in house efforts with those of outside agencies.
Collateral Services
The final participants in the promotional process are those that provide various collateral services. These services include marketing research firms, package design firms, photographers, printers, video production houses, and event marketing services companies. Marketing research companies are widely used to help companies understand their target audiences and gather information that will be of value when designing and evaluating their advertising and promotions programs. Qualitative research includes such things as in-depth interview and focus groups. Quantitative studies include market surveys.
Characteristics of media specialist companies
They specialize in buying media time, particularly radio and television time. Because they purchase large amounts of time and space, they usually receive large discounts and can save the agency/company money on media purchases. They are paid a fee or commission for their work. The agency or client may often develop the media strategy. Media buying organizations may be used to implement the media strategy and buy broadcast time and/or space in print publications
Interactive Agency
With the rapid growth of the Internet and other forms of interactive media, a new type of specialized marketing communications organizations has evolved—the interactive agency. Interactive agencies specialize in the development and strategic use of various interactive tools, web sites, banner ads, CD-ROMs, text messages, search engine optimization, and kiosks. They also have expertise in digital technology elements, such as audio, video, special effects, and animation, as well as database marketing.
Percentage Charges
adding a markup to the various services the agency purchases from outside providers. These may include market research, artwork, printing, photography, etc., and range from 17.65 to 20 percent.
Incentive based
fee is based on how well the agency meets its performance goals such as sales or market share. There is a general movement toward the use of this method by many companies.
Direct-response ad agency
is divided into three main departments: account management, creative and media. Account managers work with clients to plan direct-marketing programs and determine the agency's role in the overall IMC process. The creative department consists of copywriters, artists, and producers. Creative develops the direct-response message, while the media department is concerned with its placement. If the agency has a database department, its function is to develop and manage databases for clients. These databases pinpoint new customers and build relationships and loyalty among existing customers.
Advertising manager
is responsible for all promotions activities except sales.
Fee arrangement
the agency charges a basic monthly fee for all of its services. Agency and client agree on work to be done and the amount to be paid. This is the primary method accounting for 68 percent of the compensation plans.
Cost plus arrangement
the client pays a fee based on the costs of its work plus some agreed-on profit margin (a percentage of total costs). This method requires careful accounting and detailed records of agency costs.
Commission method
traditional method, whereby the agency receives a specified commission (usually 15%) from the media on any advertising time or space it purchases for a client.
