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.
n.w. ayer
ayer &
& son
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
 worked for
for advertiser
advertiser
 slogan
 slogan -- “keeping
“keeping
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
 many adding
adding “below
“below the
the line”
line” services
services --
PR,
PR, sales
sales 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
City Billings
Billings in
in Millions
Millions
New
New York
York $61,264.4
$61,264.4
Chicago
Chicago 17,739.9
17,739.9
Los
Los Angeles
Angeles 10,545.6
10,545.6
Detroit
Detroit 7,946.3
7,946.3
Minneapolis
Minneapolis 6,087.2
6,087.2
San
San Francisco
Francisco 5,101.9
5,101.9
Boston
Boston 3,993.7
3,993.7
Dallas
Dallas 3,234.8
3,234.8
Atlanta
Atlanta 2,620.9
2,620.9
Philadelphia
Philadelphia 2,379.6
2,379.6
(Source:
(Source Ad
(Source
(Source: Ad Age,
Age, 2001
2001 ))
major
major types
types of
of agency:
agency:
 mega-agency
mega-agency groups
groups
 independent
independent agencies
agencies
 national,
 national, regional,
regional, and
and local
local
 specialized/niche
specialized/niche agencies
agencies
 agency
agency service
service suppliers
suppliers
 media
 media buying,
buying, creative
creative services
services
mega-agency
mega-agency groups
groups
 prompted
 prompted by by mergers
mergers and
and
client
client globalization
globalization
 financial
 financial pressures
pressures
 service
 service multinational
multinational accounts
accounts
 subsidiaries
 subsidiaries provide
provide “IMC”
“IMC”
martin sorrell,
(integrated
(integrated marketing
marketing chairman WPP
communication)
communication) services
services
55 top
top mega-agency
mega-agency groups:
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
55 top
top mega-agency
mega-agency groups:
groups:

WPP Group $6.69 billion

(including Y&R)
Omnicom Group 5.74 billion
Interpublic Group $5.08 billion
Havas $2.39 billion
Publicis $2.17 billion
(including Saatchi)
1999
55 top
top mega-agency
mega-agency groups:
groups:

WPP Group $7.9 billion

(including Y&R)
Omnicom Group $6.9 billion
Interpublic Group $6.6 billion
Dentsu $3.1 billion
Havas $2.76 billion

2000
55 top
top mega-agency
mega-agency groups:
groups:

Omnicom Group $8.62 billion

WPP Group 6.76 billion
Interpublic (IPG) 5.86 billion
Publicis 4.41 billion
(Including Leo Burnett)
Dentsu (Japan) 2.55 billion
Havas Advertising 1.88 billion
2003
55 top
top mega-agency
mega-agency groups:
groups:
 Together, the five international mega-
agencies are now 75% of worldwide
billings 6%
18%
Omnicom
25% WPP
IPG
16% Publicis
Other
Havas
17%
18%

Source: Ad Age 2004

mega-agency
mega-agency pros
pros &
& cons
cons

 positives:
positives: 
 negatives:
negatives:

 larger
larger talent
talent pool
pool 
 people
people vs.
vs. profit
profit

 negotiating
negotiating clout
clout 
 creativity
creativity vs.
vs. size
size

 financial
financial rewards
rewards

 account
account security
security

 conflict
conflict of
of

 competitive
competitive edge
edge
interests
interests

 strong
strong partnerships
partnerships  people
 people business
business

 more
more services
services

 international
international link
link
national,
national, regional
regional &
& local
local
 these
 these are
are independent
independent agencies
agencies
 there
 there are
are now
now fewer
fewer national
national agencies
agencies
which
which are
are not
not part
part of
of mega-agency
mega-agency groups
groups
 regional
 regional and
and local
local agencies
agencies work
work with
with
smaller
smaller 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
internet agencies
agencies
specialized/niche
specialized/niche agencies
agencies
 industry
industry specialists
specialists
 ethnic
ethnic agencies
agencies
 internet
internet agencies
agencies
 business-to-business
business-to-business agencies
agencies
 creative
creative boutiques
boutiques and
and
design
design houses
houses
other
other suppliers
suppliers
 provide
provide “unbundled”
“unbundled” services
services
 one
 one part
part of
of what
what an
an agency
agency does
does
 media
media buying
buying services
services
 freelancers
freelancers &
& consultants
consultants
 production
production companies
companies
 in-house
in-house or
or “house”
“house” agencies
agencies
 agencies
 agencies owned
owned by
by clients
clients
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
familiarity
 specialization
specialization
 fast
fast service
service
 cost
cost savings
savings
 confidentiality
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  objectivity
objectivity
 specialization
specialization  resources
resources
 fast
fast service
service  fresh
fresh ideas
ideas
 cost
cost savings
savings  extra
extra cost
cost and
and
 confidentiality
confidentiality overhead
overhead
22 primary
primary roles
roles of
of agencies
agencies

 idea
idea generation
generation
 brand-building
brand-building
idea
idea generation
generation
 manufacture
manufacture ideas
ideas
 ideas
ideas are
are lifeblood
lifeblood of
of the
the agency
agency
 create
create intellectual
intellectual capital
capital
 create
create and
and sell
sell different
different
kinds
kinds of
of ideas
ideas
 marketing
marketing strategies
strategies
 promotional
promotional opportunities
opportunities
 even
even new
new product
product ideas...
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 aboutabout 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 atat 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

QuickTime™ and a
Sorenson Video 3 decompressor
are needed to see this picture.
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
means integration
integration
 more
more andand 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
 ““more
 more
done and
andIMC
done right,
right, more,
more,
IMC is
is the
the
agencies
planning
agenciesand
planning are
are
and
implementation
implementation
becoming the of
of
becoming
the various
the
the various of the
integrators
integrators of the
communications
communications
whole
whole range
disciplinesrangeas
disciplines as a of
ofsingle,
a single,
brand-building
brand-building
overall
overall communications
communications
activities...
system --
-- making
activities...
system making allall
the
the channels
channels work.”
work.”
integrated
integrated marketing
marketing communication
communication
the
the imc
imc promotion
promotion mix
mix
 advertising
advertising
 public
public relations
relations
 direct
direct response
response
 sales
sales promotion
promotion
 personal
personal selling
selling
structure
structure &
& organization
organization

what
what agencies
agencies do.do.
and
and how
how they’re
they’re organized
organized
to
to do
do it.
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
Board of
Directors
[Chairman/CEO]

President
[COO]

Other Marketing Strategy Office Management

Communications Review Board [Personnel,
Services [Managment Accounting,
[PR, etc.] Committee] Legal, etc.]

Account Mgmt. Creative Research Media Dept.

Director Exec CD Director Director

Management Associate Project Associate

Supervisor Creative Managers Media
Director Director

Account Creative Research Media

Executive Group: Assistants Supervisor

Asst. Account Copy Spvr. & Art Supervisor Media Media

Executive Copywriters & Art Directors Planner Buyer

Broadcast Print Analysts

Production Production

Traffic
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

 account
account management
management director
director

 management
management supervisor
supervisor
Management.
Supervisor 
 account
account supervisors
supervisors
Account

 account
account executives
executives
Supervisor

 assistant
assistant account
account execs
execs
Account
Executive 
 account
account coordinators
coordinators
Asst. Account Account

 traffic
traffic
Executive Coordinator

Traffic
creative
creative department
department
 responsibility
responsibility
 the
 the creative
creative department
department isis responsible
responsible
for
for creating
creating and
and producing
producing the
the print
print and
and
broadcast
broadcast advertising
advertising
 strategy
strategy is
is key
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  executive
 executive & & group
group creative
creative
directors
Board
directors
Executive
Creative
Director (ECD)
 creative
 creative director
director
Creative
 associate
 associate creative
creative director
director
Director (CD)
 copywriters
 copywriters
Associate
Creative
Director (ACD)  art
 art directors
directors
Creative  broadcast
 broadcast producers
producers
Group:

 print
 print production
production managers
managers
Copy Spvr. & Art Supervisor
Copywriters & Art Directors
 traffic
 traffic coordinators
coordinators
Broadcast Print
Production Production

Traffic
media
media department
department
 The
The media
media department
department hashas two
two main
main
functions
functions -- planning
planning and
and buying.
buying.
 The
The planning
planning group
group handles
handles more
more
strategic
strategic marketing
marketing and
and media
media issues.
issues.
 The
The buying
buying group
group handles
handles media
media
negotiations
negotiations and
and implementation.
implementation.
 media
media department
department
Media  media
 media director
director
Director

 associate
 associate media
media directors
directors
Associate
Media  media
 media supervisors
supervisors
Director
 media
 media planners
planners
Media
Supervisor  media
 media buyers
buyers

Media Media
 media
 media analysts
analysts Media
Planner Buyer Plan

Analysts
big
big changes
changes in
in the
the
media
media department
department
 mega-agency
mega-agency mediamedia 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
research department
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
 help
 help find
find solutions
solutions Research
Report
 research
research department
department
Research
Director  research
research director
director
 research
research project
project managers
managers
Project
Managers
 research
research assistants
assistants
 outside
outside research
research specialists
specialists
Research
Assistants

Outside Research
Research Report
Suppliers
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 onon 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
markups-production &
& service
service
 add
 add aa percentage
percentage markup
markup to
to costs
costs
 17.65%
 17.65% ofof 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 feefee
 hybrid
hybrid fee
fee &
&
commission
commission
incentives
incentives

 in
in theory,
theory, aa good
good wayway to
to work
work

 get
get paid
paid based
based on on how
how well
well you
you do,
do, not
not
how
how muchmuch 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 bebe responsible
responsible
for
for final
final results?
results?
 results
 results based
based onon 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
““The
The critical
critical
build
build objective
objective
existing
existing client’s and
and role
role
client’s business
business
of
ofanyaddad
any
addad agency
and
andagency
sell is
sell new
new gaining
isIMC
gaining
IMC new
services
servicesnew
 solicit business.”
business.”
solicit new
new accounts
accounts
 two
two ongoing
ongoing problems
problems
 ““spec”
spec” work
work
 teams
teams “walking”
“walking” with
with accounts
accounts
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
in conclusion...
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 toto need
need
advertising
advertising agencies
agencies
 questions
questions &
& discussion
discussion
 why
why might
might youyou be
be interested
interested in
in
going
going into
into the
the agency
agency business?
business?
 what
what might
might keepkeep you
you from
from choosing
choosing
aa career
career in
in the
the agency
agency business?
business?