The First World War created conditions for the growth of some of the Indian consumer industries. After the war, new British investment followed. The need arose for specialized advertising services. The British India Corporation, a British firm in Kanpur, with a relatively wide range of consumer goods, set up Alliance Advertising Associates Limited. This was probably the first advertising agency in India to provide a wide variety of services. In 1922, Mr. L.A. Stronach, a senior artist of Alliance Advertising, left to start his own agency in Bombay. Thus was born a new type of business enterprise in the service sector in India. The Indian advertising industry had a slow start and got its first boost during the Second World War. With the British personnel having to join the armed forces, opportunities opened up for Indians in this new talent-intensive business. Then followed a brief interlude of uncertainty in the years immediately following Independence. The launching of the First Five-Year Plan and more so the Second Five Year Plan, with the accent on rapid industrialization, gave an impetus to the growth of advertising agency business in India. By 1952 there were 109 advertising agencies in India with a total turnover of Rs 3.5 corer. By 1967, the number of advertising agencies had increased to 279 with a total turnover of Rs 35 corer. The Indian advertising industry has really come' into its own with the growing liberalization of the economy since the mid-eighties. According to the fourth agency report of the journal Advertising and Marketing, the Indian advertising industry grew by 36.5 per cent in 1992 -93, far outpacing the growth of Indian industry. What is significant, however, is that three of the top four advertising agencies in India continue to be subsidiaries of international advertising agencies-Hindustan Thompson Associates and Lintas India being the first two, and Ogilvy & Mather being the fourth. What is more with the new interest of many national corporations in the Indian 1


ADVERTISING AGENCY OF INDIA market, a large number of international advertising agencies have entered the Indian advertising industry in collaboration with leading Indian advertising agencies. This is the process of globalization of Indian advertising agency business. This is opening up new opportunities for Indian advertising to assume greater responsibility and serve everywhere in the world and gather experience of global marketing and advertising.

Types of advertising agencies;
Following are major types of advertising agencies that are currently serving the advertising industry . Full Service Agencies A full service ad agency is one that provides a range of marketing services. A full services agency provides services that are directly related to advertising such as copywriting, artwork, production of ads, media planning etc. It also provides such services in respect of pricing, distribution, packaging, product design etc Modular agencies A modular agency is a full service agency that sells its services on a piece meal basis. Thus an advertiser may commission an agency’s creative department to develop an ad campaign while obtaining other agency services elsewhere. Or, an advertiser may hire an agencies media department to plan and execute a program for advertising that another agency has developed. Fees are charged for actual work undertaken. In House agencies Those companies, which prefer to have closer control over advertising, have their own in-house agency. This type is owned completely by the



ADVERTISING AGENCY OF INDIA advertiser. It performs almost all functions that an outside advertising agency would perform and that’s why some people refer to it as full-service advertising department of the advertiser. However, the difference between an in-house agency and an advertising department is that the in-house agency can undertake to serve several other clients, if the owner so desires, but an advertising department solely undertakes that work of its owner and not of outside clients. Secondly an advertising department may not be equipped the personnel and facilities, which an in-advertising schedule and costs, but also offers convenience for its owner, because it is just available in the same building as that of the head office of advertiser. Such in-house agency also benefits the owner as it can bring revenue through agency commission that are offered by the media and by way of fees that are collected from outside parties for undertaking their advertising work. Such revenue increases the funds and profits of the company. There is another version of in-house agency whereby advertiser handles the total agency functions by buying service unit to buy time, space and place the ads. Such an In-house agency is an administrative center (under the direction of an advertising director) that gathers and directs varying outside for its operation use agency would posses. In-house agency not only provides control over Creative Boutiques These are shop agencies that provides only creative functions and not full-service. The specialized creative functions include copy writing, artwork and production of ads, they charge a fee or percentage of full service agencies, and as such most of them convert into a full service agency or merge with other agencies to provide a wide range of services. Mega agencies A significant of 1980’s is the development of mega agency. Agencies worldwide merge with each other serve their clients in much better way. It INSTITUTE OF MANAGEMENT SCIENCES, LUCKNOW 3

ADVERTISING AGENCY OF INDIA was in 1986, Saachi & Saachi, a London based agency who started the movement and at present it is the third largest agency network in the world. The Specialists Agency There are some agencies who undertake advertising work only in certain areas. there are agencies that specialize only in financial services or only in publicity or only in point-of-purchase material etc. for instance Soubhagya advertising agency concentrate on specialized in financial advertising.

The Benefits of Using an Advertising Agency
• • • • • • • • • • Added Expertise Media Knowledge and Unbiased Advice Easier Administration Media Buying Quality Control Information Fending off the media And when things go wrong Cost Saving Time Saving




A main disadvantage of using an advertising agency would be the communication factor. If an agency does not communicate or relay it's clients goals and creative wishes properly problems can occur within a contract and lawyers may have to become involved. Depending on the communicative skill of the agency, you may be prone to being blindfolded during much of the processes of your campaign leading to a lot of guessing and speculation. Another disadvantage would be the media buying discounts you may not be able to take full advantage of due to commission barriers within an agency, however an agency may have better negotiating powers than your company and save you more money in the long run anyways. There are far more advantages to having the right advertising agency than not.

The functions of an advertising agency:
• • • To accelerate economic growth and create public awareness To provide a total, professional, experienced service which is To take the advertiser's message and convert it into an effective

very personal in its nature and memorable communication




The Working of Ad Agencies
To begin with, the agencies started as one-man agents who booked space in the Media. Even today, in our country, there are so many one-man agents who book space in the media. Soon the space booking was handed over to the contact-man, and creative wordsmiths adept at sloganising undertook the actual construction of the ad. In the course of years, the ad agency became service-oriented, and was able to offer every possible service including marketing, market research (MR), and public relations (PR). Ad agencies have evolved over a period of time. These days we have mostly studio-based agencies, some industrial and specialized agencies, and hotshops who only plan creative campaign by engaging the services of freelancers. At Madison Avenue, most of these large agencies of the world fiercely compete for new accounts, resulting in a shift of millions of dollars of billing from one agency to another. Advertising Age is an official publication of the American Association of Advertising Agencies (AAAA). In India, advertising business is worth Rs. 8,000 corers. There were only 62 advertising agencies in 1958, which increased to 168 in 1978, more than 2.5 times the numbers in 1958. There are more than 500 ad agencies today. The oldest and largest advertisement agency in India is Hindustan Thompson Associates Ltd. The second largest advertisement agency is Lintas. Mumbai is considered to be the Mecca of Indian advertising. These days agencies are also being set up at Bangalore, Madras, Hyderabad, Ahmedabad and Delhi. In India the ad agencies are sole proprietary concern, partnership or private limited companies.



ADVERTISING AGENCY OF INDIA It is better to operate agencies on professional lines, rather than as a family. It is good to install MBO (Management By Objectives). An agency must necessarily plough back at least 75 % of its profits into business. The advertising agencies are shifting from the creative mode to the marketing mode. Today the onus is on the agency to supply the client with data on his industry; the days of the clients briefing the industry are almost over. The agencies are expected to maintain database. There is a leaning towards software for optimizing media usage, and computerization of studio functions. In India, the legal structure of ad agencies is that of a small proprietary concern or a big partnership. Sometimes, they are private limited companies, either big or small. Indian advertising is a fragmented business. There are over 733 agencies accredited to INS. The top 25 account for 50% of all billings. In addition, there are many accredited agencies. It is the top 25 agencies, most of which are headquartered in Mumbai, that set the pace and define the shape of the industry. Agencies like HTA, Lintas, Clarion and O & M have shaped the entire advertising industry in the country. Many Indians firms are coming up, by importing Western ad techniques. Many agencies die a premature death. Most people do not appreciate that an agency –like any other business - must be properly managed. It is simply not enough just to have great idea. In recent years, there has been a healthy trend towards sound management practices, especially financial planning and control. This is a highly paid profession. It is a conspicuous high wage island. People operate on high profile. Their life-styles are opulent because of high expense INSTITUTE OF MANAGEMENT SCIENCES, LUCKNOW 7

ADVERTISING AGENCY OF INDIA accounts 'of entertaining clients. They got their elitist brand due to this reason. But high salaries and freedom are necessary to attract talents.

People working in an agency:
Accounts Executive: It is a key career option in advertising agency. He
is called an Account Director when he is a member of the Board. He is a link between a client and his staff. The marketing or advertising department of the client briefs him. He communicates this to the agency people. He reaches out to different clients for seeking new business. Even clients who want an agency' to work for them contact the accounts executive. This business development work makes it virtually a marketing manager of the agency. Do right-brained people make better account directors? The faculties of logic and reason are supposed to reside in the left-brained people. While intuition and creativity are believed to be in the right. So far, accounts director was considered suitable if logical and systematic, i.e., leftbrained. But if he has to motivate a team, he should be inspiring and creative too, i.e., right-brained. Copywriters: They are the wordsmiths who do the wording of an advertisement. They are bright and talented. They have a flair for language. They contribute to the theme of an advertisement. Creation of successful copies for different clients establishes them in this field. Visualisers: These are artists who put on paper what has been thought out by the copywriter. They in fact design the ad. Creative Director: He co-ordinates the copywriting and designing. He is a INSTITUTE OF MANAGEMENT SCIENCES, LUCKNOW 8

ADVERTISING AGENCY OF INDIA senior professional who is seasoned in an existing advertising agency set-up to take on this mantle. Production Department: Persons of diverse talents like printing technology, DTP, photography, typography etc. are involved here. Media Planner: He has to allocate the advertising budget amongst media. He has to select the appropriate media. He decides about the frequency, size and position of an advertisement. He decides about its publication date. He receives the tear-off copies from the media when the ad is published. He is guided by the media research, which he undertakes, or by research undertaken by an outside agency. Media is the most professionalized department of advertising agencies. Marketing Research: Modern agencies are integrated set-ups. They provide a range of marketing services. Research data become very useful as input to the creative process. The Media : Most of the media today sustain on advertising revenue. They sell space or time. While selling space or time, they have to convince the client about the reach of their media vehicle, the composition break-up of their readers and the pricing of their space/time selling. They monitor the market, survey their readers, and highlight their readers' demographic and geographic characteristics. They also maintain relationship with the media department of advertising agencies who buy space/time on behalf of clients. Ancillary Services : These are needed to produce/create advertisement. A whole range of services like studio service, photographic service, printing service, gift item producers etc. fall into this category. Freelancers : These are professionals who work independently and have a



ADVERTISING AGENCY OF INDIA successful track record. They are copywriters, jingle singers, radio announcers, artists, visualizers, technical writers etc.

Organization Structure of Advertising Department
All major advertisers maintain an advertising department. The structure of the department however may vary from one organization to another, as each one tries to develop a form, which is most suited to one's requirements. The principal forms of organizational structure are based on • • • • • sub functions of advertising, such as copywriting or artworks communication media geographical spread product and End users.

Irrespective of the specific form, the advertising department has to perform several functions. Principal among these are setting advertising goals, plans and budget, selecting the outside ad agency, maintaining contacts, providing support to the marketing staff and monitor the functioning of the ad agency. Selecting the ad agency is one of the important tasks of the advertising department. Several criteria, including experience, size, track record and the quality of the personnel, are considered in the selection process. As you know, there are different categories of advertisers. Depending upon their functions, each organization develops its own structure, of which advertising department is a part. What is important in this connection is to analyze the functions an advertisement department is expected to perform.




Organization is a Manufacturing Unit
Manufacturing firms carries out bulk of advertising. It is therefore, necessary to understand the various principles on which the advertising department can be organized in manufacturing units. The basic principles are: (a) By Sub-functions of Advertising :Advertising as a function can be segmented into its various components, such as, Copywriting, Art Production and Media. A specialist who in turn reports to the advertising manager can handle each component.




Copywriting Manager (b) By Media

Art Manager

Production Manager

Media Manager

Advertising Manager






Direct mailing

© By Product Advertising Manager

Product A (d) By Geography

Product B

Product C

Product D

Advertising Manager

Zonal Manager A


ZM (C)

(e) By End User Advertising Manager

Consumer Market Manager

Institutional Market Manager

Government Market Manager




Reporting Structure: The advertising manager has to report to somebody who is higher up in the organizational structure. To whom the advertising manager would depend upon how much importance advertising is given to the total operations of the firm. There are several alternatives. These are: • Report to the Chief Executive (Chairman/MD.) • Report to the Director (Marketing) • Report to the divisional head if the firm is a multi-division firm and responsibility is delegated at the division level. Centralization or Decentralization Should advertising be done on a centralized basis or should the responsibility be delegated to lower levels - say product or geographical divisions? , Centralized Advertising Activity has been defined as that which - is located at or directed by headquarters, reporting to corporate sales or marketing head or in top management. In operation it gets the necessary product, market, and budget information from the divisions and then controls the execution of the various programmes by: 1. Providing the needed information and guidance to the advertising agency and other Services; 2. Then reviewing and approving the completed work before getting division approval INSTITUTE OF MANAGEMENT SCIENCES, LUCKNOW 13

ADVERTISING AGENCY OF INDIA A Decentralized Advertising Activity is operated and controlled by individual units located in each major division, usually reporting to a division head or to a division marketing or sales head. The division advertising, sales and marketing people and control both the 'what' and 'how' of the advertising job, getting only advice and counsel plus miscellaneous services from a central advertising function. In practice, however, it has been found that most companies follow the centralized pattern of advertising organization. There are at least two important reasons for it. 1. It is difficult to transfer the tasks of preparation and execution of creative advertising from to the many without loss of efficiency to a great extent. 2. Most companies entrust their advertising work to outside agencies and it is more convenient with them in a centralized way.



ADVERTISING AGENCY OF INDIA Interface with other Departments Advertising and, therefore the people, manning the advertising department, do not function in a vacuum. Advertising is a tool of marketing. It is done to achieve a specified short-term or long term goal. The advertising staff, therefore, must actively interact with other departments most importantly, marketing and sales. The interaction has to be intensive to draw up a coordinated plan, of which advertising is a part. In fact, not only the advertising department, but also the outside advertising agency it may have employed, would have to be actively associated with the formulation of the marketing plan. In companies, which realize the importance of advertising in its proper perspective, the advertising department gets useful inputs from sales, product and brand managers; from Marketing heads, General managers and top management and also from many others in the engineering and manufacturing departments who provide valuable advice in respect of appeals to be focused and also other advertising matters.




Functions of the Advertising Department
Just as the organizational structure of an advertising department varies, the activity profile also is subject to change from one organization to another. Kleppner has identified14 activities, which include all the major functions an advertising department in a manufacturing organization is supposed to carry out. These are: 1. Determine in consultation with top management the advertising goals, the advertising budget, and the advertising plan. 2. Help select the advertising agency. 3. Set up a plan of activity, allocating which work is to be done by the agency and which by the advertiser. Establish with top management the internal division of such non-commissionable duties as sales promotion, research and public relations 4. Transmit the policy and problems of management to the agency; keep it informed of changes in marketing strategies and other related areas. 5. Decide upon the proportion of the appropriation to be assigned to different tasks in the advertising programme depending upon the importance of these tasks. 6. Approve the plans for advertisements by the agency and by others who work on the advertising problems. 7. Prepare, purchase and issue sales material - point-of-purchase displays and direct mail, including receipts, dealer advertising service, premiums (unless company has separate premium departments). 8. Prepare, issue and control billing of corporate advertising. 9. Keep the sales force informed of forthcoming advertising. 10. Prepare portfolios of advertising for the salesman's use in showing advertising to the trade and to other distributors. 11. Work with the sales department in preparing special programmes. INSTITUTE OF MANAGEMENT SCIENCES, LUCKNOW 16

ADVERTISING AGENCY OF INDIA 12. Prepare instruction manuals for those who will sell and use the product; all in all, do everything possible to make the most effective use of the advertising investment. 13. See that all mail enquiries are answered with mailings as required. 14. See that all bills are properly checked; keep an account of funds and prepare proper reports for management. The ad manager in charge of an advertising department has both managerial and operational functions. He is responsible for interacting with agencies and the media. He pays attention to outdoor aids. He takes part in campaign planning and media planning. He frames an ad budget, and allocates it. He is responsible for broadcast media. He gets POP prepared. He is the man behind SP and merchandising. He maintains press relations, and PR functions. He brings out a housejournal. He is appointed on the basis of his knowledge of advertising and journalism, his knowledge of the industry, his management background, and his marketing background. He maintains a good client agency relationship so essential for the success for the campaigns.




Advertising Agency's Role
Suppose you are a company with a product. It may be a totally new product. As a company with a product or service to sell, designing and making that item is only part of the battle. People are not going to beat a path to your door. You have to seek communication. Ad agency need to consider, for example: • • • • • • • • • • For whom is the product or service designed? Who would use it? Who is the "target group"? What's special about the product? In what way is it distinct? Unique? Different? What's its "position" in relation to other similar products? What do you want to convey to the public about your product? How should your company contact the public? What medium should it use? Radio? TV? Newspapers? Magazines? Billboards? Bus/subway ads? Direct mail? etc. How extensive a region should your company try to cover? How often? and marketing decisions involve specialized a channel of


expertise. Many companies that design and produce products or offer services lack these specific capabilities. This is where advertising agencies fit in. Advertising agencies exist to help companies to communicate with the public, Market the company's product. Company with a product or service Ad Agency Media Public




The process of advertising involves considerable specialized knowledge and expertise • • • About people - Their interests, preferences, needs, wants, lifestyles, expectations About media - Their reach, their effectiveness, their specific appeal About the company and its product – And about competing companies and their products

Services offered by ad agency ;-Total Advertising Services :Strategic planning, creative

development and media services for advertising, particularly in television, newspapers, magazines and radio; providing the best creative designed to capture the imagination of consumers Marketing Services: Provision of a number of advertising related services, including sales promotion, market research, PR and event marketing. E-Solution Services : e-solution services, including system

integration services, e-business consulting and customer relationship management (CRM), Search Engine Marketing (SEM) and Search Engine Optimization (SEO) and e-promotions using the Internet and mobile.



ADVERTISING AGENCY OF INDIA Content Business: Sales of sponsorship, broadcasting and other rights, and the production and marketing of such media / content as sporting events, films, TV programs, animated content, music and other forms of entertainment. Integrated Media Services : Bringing value to both clients and media-related companies by offering a wide range of media solution services Sales Promotion : Providing comprehensive sales promotion planning designed to complement mass media and other activities Event Marketing : Assisting clients by providing dynamic vehicles for their messages in the form of on-the-spot interactive communications Integrated Branding Services : Assuring clients the highest quality of branding services for their communication needs

• • • • • • • • • Adbur Pvt Ltd Akshara Advertising Mudra communication ltd Chaitra Leo Burnett Pvt Ltd Contract Advertising (India) Ltd Crayons Advertising and Marketing Pvt Ltd Creative Advertising Enterprise Nexus Communications Pvt. Ltd Euro RSCG Advertising Pvt Ltd



ADVERTISING AGENCY OF INDIA • Everest Integrated Communications Limited

The source of an advertising agency’s income:
A manufacturer who operates out of a small and unpretentious office is often impressed (sometimes unfavorably!) by the obviously furnishings in the offices of some advertising agencies. Paying for part of the agency’s overhead, rent, payroll, etc. is naturally going to use up some of the money he spends for advertising. Should he spend his money through an agency, or should he spend that money direct and thus save the cost of the agency’s services? Questions like these are good questions, but the answer to them is often not as clear or simple as it seems. In order to answer them, attention must be focused not on the total costs of advertising agency service but on the additional costs, if any which the use of an advertising agency will involve as against the expenditure of the same number of advertising dollars on a direct basis without agency participation in the expenditure. The difference is a vital one, because of the nature of historically established advertising agency compensation methods. An advertising agency traditionally derives its basic income from “agency commissions”. Those commissions, for the most part, are paid to the advertising agency by various advertising media (e.g., newspapers, magazines, radio or televisions stations or networks, etc). Agency commissions is usually established at or near the level of 15 per cent of the “card” or “list” price of the space, time or other facility INSTITUTE OF MANAGEMENT SCIENCES, LUCKNOW 21

ADVERTISING AGENCY OF INDIA purchased. To be sure you understand how the commission is derived, let’s use a specific example is previously mentioned, a full-page four-colour advertisement in LIFE cost $39,500. if you as an advertiser brought a one-page four-colour single insertion in LIFE direct from the publisher you would be billed the full published rate of $39,000. However, if you had the ad prepared for you by an advertising agency which placed the ad with the publisher of LIFE, the agency would be billed for the rate of $39,000 less 15% agency commission. That commission of $5,925 would represent the agency’s gross income on the creation and placement of that single ad. From your viewpoint as an advertiser, the effect of this compensation method is clear. It would cost you no more dollars out of your total advertising budget (or appropriation, as it is called), for advertising space if you used an advertising agency that would if you did not. You may well ask: Why should advertising media pay my advertising agency for services performed by the agency for me, the advertiser? The answer is buried in the historical development of the advertising agency, and would require more space here than its relevance to the subject of this report warrants. What you should remember is that, illogical or not, that is the basis of most advertising agency compensation generally. For a more complete picture of the compensation question, we might note a few exceptions, which introduce added costs to the use of an agency. Some advertising media (the large direct-mail house, for example), do not grant advertising-agency commission. If your places some of your advertising through non-commissionable media, the invoice which you receive from your agency for such advertising is INSTITUTE OF MANAGEMENT SCIENCES, LUCKNOW 22

ADVERTISING AGENCY OF INDIA likely to consist of two items, each identified. The first is the base cost which represent the sum, which the agency paid out of its corporate pocket to the media. The second is an additional figure, representing agency commission. In that way the agency receives the same relative gross income from the advertising it places, as it would have received if the media granted commissions to agencies. It is customary also to add agency commission to various other non-commissionable expenditures made by the agency for its advertiser-client, such as the cost of the engravings used in advertisements (purchased by the agency from a photo-engraving house), and the cost of the finished artwork from which those engravings were made. Some advertisers tend to resist and resent the practice of agencies’ adding an agency commission to non-commissionable items. For example, the agency may buy artwork, engravings or typographic composition, or prepare a portfolio for the use of your salesman. Any activity of that type costs the agency money, in terms of the time and overhead associated with the activities of skilled and experienced people in performing such specialized tasks. Agencies pass along the costs involved by adding an agency commission to the cost incurred, or by charging a special fee for the service. You should be alert to the possibility that the fee or commission may be out of the line with the agency’s costs. You should not, however, expect the agency to provide such service – on which there is no commission from a media, nor any other income for the agency to use to offset its costs – without charge. Such charges are an established trade practice. Not the vital importance of paying agency commission on all noncommissionable media. If such expenditures were not commissionable, the agency would often be in the position of having to choose between two or more media, with significant difference in the agency’s own INSTITUTE OF MANAGEMENT SCIENCES, LUCKNOW 23

ADVERTISING AGENCY OF INDIA income as one influence on the decision. Since all media expenditure carry the same commission, whether it is the policy of the media to pay an agency commission or not, the agency’s decision is influenced only by its judgment as to what contributes the soundest media approach to achieving the planned objectives sought by its client.

Agency commission represents gross income, within which a profit-provision must be made:
It is important to remember that the agency commission, whether paid to the agency by a media or whether added to the client’s invoice and paid by the client in the case of non-commissionable media or nonmedia advertising expenses, constitutes the gross income and not the net income of the advertising agency. Out of that gross income, all of the expenses of operating an agency is typically its payroll account. In addition to salaries, which often represent as much as half of total agency expenses, such other items as rent, heat, light, telephone and telegraph, postage, and travel and entertainment costs must be paid. There is, in addition, a further “cost” which should be recognized. An advertising agency, like a manufacturing organization, is in business to make a profit. An agency can realize a profit only if the total of all its gross income. The management of an advertisement agency typically plans for achievement of a planned-for profit margin by the process of reserving a portion of anticipated income from a given client (on account) for profit, and budgeting the remainder over various expense items involved in serving the account. This tendency, to take a “slice off the top” of total income from an account as profit, differs from the profit-planning approach of some manufacturing organization. It is rather general in advertising-agency management. 24



The amount and quality of advertising service which you as an advertiser can expect from an agency depends directly on the size of your total expenditure ;Now to arrive at accurate perspective on what you as an advertiser can expect, in the way of service, from an advertising agency you hire, let’s mentally transpose ourselves to the agency’s side of the desk. Assume that you are the president of an advertisement agency, considering an account-present or perspective – in terms of how important that account is to you or would be if you had it, and of how much service you could afford to give the account if it wore “in the shop”. What criteria do you use? A very simple one – a rough estimate of the potential gross and net profit the account would provide. Suppose that the account in question has a total appropriation, you estimate, of $100,000. That represents gross income of $15,000. What would it represent to you in real profit – that is, in net income? Assume that your agency does its profit – that is, in net income? Assume that your agency does its profit – planning in the expectation that it will retain as profit after taxes, 2 per cent of its expenditure. In order to have 2 per cent after taxes, however, you need about 4 per cent before taxes. Note that is 4 per cent out of the total of 15 per cent you



ADVERTISING AGENCY OF INDIA receive as commission in other words a little more than on –quarter of the total amount you receive as commissions you plan (or hope!) to retain as before-tax profits in order to have about one-eighths of that income as your after-tax profits. (There are two wide variations in the earnings ratios of different types of advertising agencies and of different sizes of advertising agencies. The 4 per cent before taxes – per cent after taxes figures used are reasonable figures for any agency in the moderate size range – that is, with total billings in an area from 5 million to 9 million, and with gross income at about 15 per cent of total billings.). The purpose of this relatively long example is to make an extremely vital point. You as an advertiser approach an agency, and discuss with the principals of that agency the possibility that they may be appointed to handle your account, which you estimate will total $100,000 a year. If you appoint them, you will be creating for yourself, in effect, a “service bank account” in the amount of $11,000 a year. (The $11,000 represents gross income of $15,000 reduced by profit provision of a $4,000 before-tax sum.) You are entitled to know just how much in the way of what kind of service you will receive for that $11,000. the agency will (or should) tell you. You should be on guard against being “over sold” – against being promised $20,000 or $30,000 in service. You know from the above figures that the only way an agency can deliver that much service on an account your size, is for the agency to lose a substantial sum of money in serving you. As a minor exception to the above comment, we might note that some agencies – perhaps most agencies – realize little or not profit in the first year or two that they handle an account. There are substantial INSTITUTE OF MANAGEMENT SCIENCES, LUCKNOW 26

ADVERTISING AGENCY OF INDIA non-recurring costs involved in acquainting the agency team with the particular problems of the advertiser and his industry. Particularly on an account, which is estimated to have substantial growth potential, a deliberate policy of “investment spending” (i.e., spending in service and in direct costs a sum in excess of commission income) is not unusual. But mark this well: it is a very different thing for an agency to have a planned policy of investing in new accounts in the first year or two of serving them, and for an agency to promise continually to provide more service than the commissions and/or fees involved can pay for. While commission income represents the major source of agency compensation, there is an additional method of working out the agency’s income from an account, which warrants mention. In some cases, the cost of preparing a client’s advertising would be far in excess of the commission income involved. Such a pattern is not usual in the case of advertisers with multiple product-lines, using a variety of different specialized business publications. Such publications reach selective audiences. The circulation of each is far smaller than the multimillion copy circulation of some consumer publications. The cost of a page of space (and, therefore, the commission on a page of space) is correspondingly small. On that type of operation, it is not unusual for the advertiser and the agency to agree upon a service for handling the account. Often commissions earned on advertising placed by the agency are credited against and hence reduce the net fee the advertiser must pay. The point to note here is that the advertising agency, like the advertiser, is in business to make profit and is entitled to do so when soundly managed. If the amount of expense involved in handling a particular advertiser’s account (including time salaried personnel, overhead items, etc.) is in excess of the commissions which would be generated by the amount of advertising in question, the INSTITUTE OF MANAGEMENT SCIENCES, LUCKNOW 27

ADVERTISING AGENCY OF INDIA agency is enlisted to and will typically insist upon a fee in addition to commission sufficient to reimburse it for its costs and leave a profit for the agency’s management. Against the background of these general comments about the nature of the advertising agency, it would be logical now to move into a consideration of specific agency types and of factors involved in the selection of an agency. Before you as an advertiser can discuss intelligently with an advertising agency whether you are or are not interested in their services or whether they are or should be interested in handling your account, it is necessary for you to have in mind at least an approximate dollar figure which represents a preliminary estimate of the size of your advertising account.



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