How To Advertise: An analysis of Contemporary Advertising (part 10)

The Advertising Agency

by

Charles Lamson

Why does a company such as Honda hire an advertising agency in the first place? Couldn't it save money by hiring its own staff and creating its own ads? How does Muse Communications win such a large account? Must an agency's accounts be that big for it to make money? This post sheds light on these issues and gives a clearer understanding of what agencies do and why so many advertisers use agencies.

The Role of the Advertising Agency

The American Association of Advertising Agencies (AAAA) defines an advertising agency as an independent organization of creative people and businesspeople who specialize in developing and preparing marketing and advertising plans, advertisements, and other professional tools. The agency also purchases advertising space and time in various media on behalf of different advertisers, or sellers (its clients), to find customers for their goods and services.

This definition offers clues to why so many advertisers hire ad agencies. First, an agency like Muse Communications is independent. The agency is not owned by the advertiser, the media, or the suppliers, so it can bring an outside, objective viewpoint to the advertiser's business---a state the advertiser can never attain.

Second, like all agencies, Muse Communications employs a combination of businesspeople and creative people, including administrators, accountants, marketing executives, researchers, market and media analysts, writers, and artists. They have day-to-day contact with outside professional suppliers who create illustrations, take photos, retouch art, shoot commercials, record sound, and print brochures.

The agency provides yet another service by researching, negotiating, arranging, and contacting for commercial space and time with the various print, electronic and digital media. Because of its media expertise, Muse Communications saves its clients time and money.

Agencies do not work for the media or the suppliers. Their moral, ethical, financial and legal obligation is to their clients. Just as a well-run business seeks professional help from attorneys, accountants, bankers, or management specialists, advertisers use agencies out of self-interest because the agencies can create more effective advertising and select more effective media than the advertisers can themselves. Today, almost all sizable advertisers rely on an ad agency for expert, objective counsel and unique, creative skills---to be the "guardian of their brands." 

Finally, a good agency serves its clients' needs because of its daily exposure to a broad spectrum of marketing situations and problems both here and abroad. As technology has enabled companies to work across borders with relative ease, the advertising business has boomed world wide. All the large agencies, for example, maintain offices in many foreign countries.

Types of Agencies

Advertising agencies are typically classified by their geographic scope, the range of services they offer, and the type of business they handle.

Local Agencies

Every community of any size has reputable small ad agencies that offer assistance to local advertisers. a competent local agency can help

• Analyze the local advertiser's business and the product or service being sold.
• Evaluate the markets for the business, including channels of distribution.
• Evaluate the advertiser's competitive position and offer strategic options.
• Evaluate media alternatives and offer rational recommendations. 
• Devise an integrated communications plan and implement it with consistency and creativity.
• Save the advertiser valuable time by taking over media interviewing, analysis, checking, billing, and bookkeeping.
• Assist in other aspects of advertising and promotion by implementing sales contests, publicity, grand openings, and other activities.

Unfortunately, local advertisers use ad agencies less extensively than national advertisers. Many advertisers simply do not spend enough money on advertising to warrant hiring an agency. And some large agencies do not accept local advertisers because their budgets are too low to support the agency's overhead.

Regional and National Agencies

Every major city has numerous agencies that can produce and place the quality of advertising suitable for national campaigns. Regional and national agencies typically participate in either the 4As (American Association of Advertising Agencies) or some similar trade group such as the Western States Adverting Agency Association (WSAAA). The Standard Directory of Advertising Agencies (the Red Book) lists these agencies geographically, so they are easy to find.

International Agencies

The largest agencies are also international agencies. That is, they have offices or affiliates in major communication centers around the world and can help their clients market internationally or globally as the case may be. Likewise, many foreign-based agencies have offices and affiliates in the United States. For example, the largest advertising organization in the world today, WPP Group, is based in London. But it owns several of the top agencies in the United States, such as Ogilvy & Mather and Grey Worldwide.

Full-Service Agencies

The modern full-service advertising agency supplies both advertising and nonadvertising services in all areas of communications and promotion. Advertising services include planning, creating and producing ads; performing research; and selecting media. Nonadvertising functions run the gamut from packaging to public relations to producing sales promotion materials, annual reports and trade show exhibits. With the trend toward IMC, many of the largest agencies today are in the forefront of the emerging interactive media.

Full-service agencies may specialize in certain kinds of clients. Most, though, can be classified as either general consumer agencies or business-to-business agencies.

General consumer agencies     A general consumer agency represents the widest variety of accounts, but it concentrates on consumer accounts---companies that make goods purchased chiefly by consumers (soaps, cereals, cars, pet foods, toiletries). Most of the ads are placed in consumer media (TV, radio, magazines, and so on) that pay a commission to the agency. General agencies often derive much of their income from these commissions.

General agencies include the international super agency groups headquartered in communications capitals such as New York, Chicago, Los Angeles, Minneapolis, Montreal and Toronto. A few of the better known names in North America are McCann-Erickson; Ogilvy & Mather, Foote, Cone & Belding; BBDO; DDB Worldwide; Y&R; and Cossette Communications Marketing (Canada). But general agencies also include the thousands of smaller entrepreneurial agencies located in every major city across the country (Crispin Porter + Bogusky, Miami; Rubin/Postaer, Los Angeles; Fallon Worldwide, Minneapolis; Wieden & Kennedy, Portland, OR).

Profit margins in entrepreneurial agencies are often slimmer, but these shops are typically more responsive to the smaller clients they serve. They offer the hands-on involvement of the firm's principals, and their work is frequently startling in its creativity. For these very reasons many large agencies are spinning off smaller subsidiaries. Gotham, Inc., for example, is a hot creative shop in New York that was spun off by the Interpublic Group of Companies to do work for a variety of clients its bigger sister agencies could not serve. Some entrepreneurial agencies, such as Muse Communications, carve a niche for themselves by serving particular market segments.

Business-to-business agencies     A business-to-business (or high-tech) agency represents clients that market products to other businesses. Examples are electronic components for computer manufacturers, equipment used in oil and gas refineries, and MRI equipment for radiology. High-tech advertising requires some technical knowledge and the ability to translate that knowledge into precise, as well as persuasive, communications.

Most business-to-business advertising is placed in trade magazines or other business publications. These media are commissionable, but their circulation is smaller, so their rates are far lower than those of consumer media. Because commissions usually do not cover the cost of the agency's services, business agencies typically charge their clients service fees. They can be expensive, especially for small advertisers, but failure to obtain a business agency's expertise may carry an even higher price in lost marketing opportunities.

Business and industrial agencies may be large international firms such as McLaren/Lintas in Toronto or HCM/New York, or smaller films experienced in areas of recruitment, biomedical, or electronic advertising.


Specialized Service Agencies

Many agencies assist their clients with a variety of limited services. In the early 1990s the trend toward specialization blossomed, giving impetus to many of the agency-type groups called creative boutiques and other specialty businesses such as media-buying services and interactive agencies.

Creative boutiques     Some talented artists---such as graphic designers and copywriters---set up their own creative services or creative boutiques. They work for advertisers and occasionally subcontract to ad agencies. Their mission is to develop exciting creative concepts and produce fresh, distinctive advertising messages. In the 1990s Creative Artists Agency (CAA). A Hollywood talent agency caused a stir on Madison Avenue (the collective term for New york agencies) by taking on the role of a creative boutique, using its pool of actors, directors, and cinematographers to create a series of commercials for Coca-Cola. McCann-Erickson Worldwide remained Coke's agency of record, but the majority of the creative work came from CAA. Since that time, Coke has allowed numerous other smaller shops to work on its account. At one point, Coke employed more than 20 different agencies, and the company continues to use the multiagency approach.

Advertising effectiveness depends on originality in concept, design, and writing. However, while boutiques may be economical, they usually do not provide the research, marketing, sales expertise, or deep customer service that full-service agencies offer. Thus, boutiques tend to be limited to the role of creative suppliers.

Media-buying services     Some years ago, a few experienced agency media people started setting up organizations to purchase and package radio and TV time. The largest media-buying service (or media agency) is Initiative Media. Based in New York, it is owned by the Interpublic Group, has offices around the world, and places more than $21 billion worth of advertising annually for a wide variety of clients from Samsonite and Home Depot to Victoria's Secret(2007).

Media time and space are perishable. A 60-second radio spot at 8 P.M. cannot be sold later. So radio and TV stations presell as much time as possible and discount their rates for large buys. The media-buying service negotiates a special discount with the media and then sells the time or space to agencies or advertisers.

Media-buying firms provide customers (both clients and agencies) with a detailed analysis of the media buy. Once the media package is sold, the buying service orders spots, and even pays the media bills. Compensation methods vary. Some services charge a set fee; others get a percentage of what they save the client.

Media agencies have experienced so much growth in the last decade that they have become major players on the advertising stage.

Interactive agencies     With the stunning growth of the Internet and the hightened interest in integrated marketing communications has come a new breed of specialist---the interactive agency. Agency.com and Tribal DDB are just two of the many firms that have sprung up within the last few years with specialized experience in designing Web pages and creating fun, involving, information-rich, online advertising.

Other specialists, such as direct-response and sales promotion agencies, are also growing in response to client demands for greater expertise and accountability.

*SOURCE: CONTEMPORARY ADVERTISING 11TH ED., 2008, WILLIAM F. ARENS, MICHAEL F. WEIGOLD, CHRISTIAN ARENS, PGS.109-113* 

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