Chapter 6

The Advertiser’s Marketing/Advertising Operation

Chapter Objectives

After reading this chapter you will understand:

1. The marketing service system

2. Integrated marketing brand management
3. How advertising budgets are set
4. Advertising goals versus marketing goals
5. Agency-client relationships

Chapter Overview

The changing world of new technology is challenging marketers and their companies. They
are learning to navigate the nontraditional landscape where the consumer is basically in
control, not marketers. It is important that marketers today understand and adapt to these
changes. Many companies are restructuring their operations in order to communicate to the
consumer with one voice – and in many cases, to communicate with consumers one-on-one.

Lecture Outline

1. Introduction

a. Change
1) Shift in control to consumers
2) Speed of media vehicles
3) Degree of media fragmentation
b. Implications are that it will be harder to reach consumers with communication
messages.
c. Advertising is a business and it is a marketing tool
1) It has a structure, an organization, and must be managed.
2) It is a financial investment in the brand or company.

2. The Digital Revolution is Mainstream

The ways consumers perceive, retain, and engage with brands and brand messages have
changed.
1) Companies are reorganizing marketing departments as marketing communication
is reborn as a consumer-centered craft.
2) Companies need to experiment with new advertising models and integrated media
solutions and need to redefine skills and companies.
 B. Pressures of downsizing, cost cutting, mergers, and domestic and foreign
partnerships have caused companies to restructure and reorganize divisions and
departments to be efficient and competitive.
1) These same pressures have affected the marketing and advertising operations.
C. Advertising and marketing departments control the dollars spent to communicate to
consumers.
1) Decisions are made to hire an agency or multiple agencies.
2) Decisions are made to handle advertising in-house.
D. Advertising functions.
1) Budgeting.
2) Monitoring the creation and production of advertising.
3) Research.
4) Planning the media schedule.
5) Keeping expenditures in line.
E. Advertising roles.
1) The advertising manager or director:
a. Operates under the marketing director.
b. Controls the entire advertising strategy and operations.
2) The assistant advertising managers or product advertising managers:
a. Appointed to handle different brands of the company.
b. Works under supervision of advertising manager.
c. There is a large scope in brand management: Frito Lay lists 45 brands.
3) The size and structure of marketing staffs differs among organizations.

3. Marketing Services System

A. Introduction
1) The advertising department structure, the traditional system, worked well in
companies for many years.

*****NOTES: Use Exhibit 6.1 Here*****

2) Procter & Gamble (P&G) has been known as a marketing innovator in the
business world, having started in 1837 as a maker of soap and candles.
a. In 1931 P&G developed a new organizational structure, setting up marketing
teams for each brand and urging them to compete against one another.
b. This was the birth of the marketing services system, which became a model for
handling brands.
c. Under this new system, each brand manager effectively operated his or her
own corporation within the overall corporation, developing, manufacturing,
marketing, promoting, integrating, and selling each brand.
3) The marketing services system has two parts.
a. The product manager, assigned to different brands.
b. The structure of marketing services, representing the technical talent necessary
to implement a marketing plan, plus the advertising agency assigned to that
manager’s brand.
 c. The advertising department is a branch of the marketing services division,
working as an advisor and consultant for the brand managed by the product
manager.
d. Several brands are assigned to group product managers who supervise the
individual product managers.

*****NOTES: Use Exhibit 6.2 Here*****

B. The product manager.

1) Responsibilities include:
a. Planning strategy and objectives (subject to approval of group product
manager and higher management).
b. Obtaining relevant brand information.
c. Managing budget and controls.
d. Getting agency recommendations.
e. Working with the advertising agency assigned to his or her brand.
f. Combining the best thinking, internal and external. Brings together the
thinking of those in his or her department and agency personnel, together with
the several resources in the marketing services division.
g. Acts as liaison between the marketing department, the marketing services
division, and all other departments.
2) It is a particular advantage to the corporation that all brands get the full benefit of
all the company’s special marketing services and accumulated corporate wisdom.

*****NOTES: Use Exhibit 6.3 Here*****

C. The category manager.

1) Another level of management used by large companies with many categories of
products.
2) All disciplines (research, manufacturing, engineering, sales, advertising, etc.)
report to the category manager.
3) Manages the product line assigned to him or her and coordinates each brand in
that line.
4) Decides the positioning strategy of each brand in his or her line, or category.
5) In 2003 P&G restructured its 3,400 marketers, restoring a management level and
giving a broader range of experience to brand management.

4. Integrated Marketing Brand Management

Introduction.
1) Integrated marketing is made more difficult because agencies are often set up as
separate profit centers, which results in competition among their own units.
Research indicates that the integration of all forms of advertising communications is very
important in setting strategies.
1) All marketing messages are integrated in the mind of consumers.
2) An integrated marketing communications (IMC) study found that many corpora-
tions are taking charge of this integration process themselves, rather than looking
to ad agencies or others to provide the integration.
 3) Agencies frequently concentrate on communicating with the end consumer and
are beset by myopic thinking.
C. Integrated functions.
1) All departments must be involved in order for integrated marketing
communication to function well.
2) Some organizations refer to such total involvement as integrated brand
communication (IBC).
3) It is frequently found, however, that managers are resistant to change and
reengineering of communication functions and structure is needed.
4) The following functions are suggested:
a. Start with the customer (prospect) and work back toward the brand or
organization.
b. Specific knowledge of customers is essential to properly frame messages.
c. A database is critical to carry out IMC communication tasks.
d. An analysis of all the ways customers come into contact with a brand must be
made to assess the impact of not only advertising, but packaging, in-store
displays, product design, employees, etc.
Three forms of adaptation.
1) Marcom (marketing communications) manager. Adapting a business-to-business
organizational structure centralizes all communications activities under one person
or office.

*****NOTES: Use Exhibit 6.4 Here*****

2) Restructured brand management approach. All sales and marketing activities for
the brand, category, or organization are reduced to three groups, all reporting to
the CEO, and all on the same organizational level.
3) Communications manager. A communications manager is named who is
responsible for approving or coordinating all communications programs in the
entire organization.
a. Each brand develops its own communication program. The communications
manager coordinates, consolidates, and integrates the programs, messages, and
media for the organization.
*****NOTES: Use Exhibit 6.5 Here*****

IMC focus (strategy).

1) In order to create a unified image and support customer-relationship building, all
advertising, direct marketing, public relations, and promotion messages must be
coordinated.
2) Identify a specific target market and concentrate on one or two goals such as:
a. Building brand equity.
b. Providing information.
c. Communicating differentiation and positioning.
Another view.
1) It is also suggested that rather than communication being the focus of advertising,
it should be positioning.
2) The primary function of a marketing organization is to establish and reinforce a
position in the mind of the prospect.
3) In spite of some disagreement on structure, most marketers endorse the concept of
IMC.
 4) TBWA believes that integration is no longer enough. Goal is about how to
connect big ideas across all channels of communication.
Better advertising expenditure expectations.
1) What works best? Sustained brand advertising or targeted retail promotion?
2) Return on investment (ROI) marketing. The application of modern measurement
technologies and contemporary organization design to understand quantity, and
optimize marketing spending.
3) Briggs and Stuart study of thirty Fortune 200 companies suggests a “70/20/10
approach” to guide marketers to better manage their investment resources.
a. Seventy percent of budget should go toward marketing strategies and proven
tactics.
b. Twenty percent for sustaining innovation.
c. Ten percent is speculative.
4) Today, companies wish to become more efficient and not waste advertising
dollars.

5. Setting the Budget

A. Introduction
1) Measured results help to determine the accomplishment of advertising objectives.
2) Folks Southern Kitchen has used a product trial to introduce the store into a new
suburb and take risk out of a consumer visit, measuring the number of redeemed
coupons placed in the advertisement.

*****NOTES: Use Exhibit 6.6 Here*****

 3) What objective is an ad or campaign investment supposed to accomplish?
a. Launch a new product.
b. Increase brand awareness.
c. Neutralize the competition.
d. Educate.
e. Increase sales.
4) Other issues regarding ad expenses include:
a. How much money will it take?
b. Are we spending enough?
c. Who is responsible for spending decisions?
d. Historically the person most responsible for this portion of the budget is the
vice-president of marketing and the vice-president of advertising.
e. Two-thirds of ad budgets are submitted for approval in September and
October.
f. 80 percent are approved in the September/November time period.
g. Four approaches normally used: percentage of sales, payout plan, competitive
budgeting, and the task method.

*****NOTES: Use Exhibit 6.7 Here*****

B. Percentage of sales.
1) The advertising budget is based on a percentage of company sales.
2) Cause and effect relationship. This approach essentially says sales are causing the
advertising rather than advertising causing the sales.
3) A Gallagher Report gives a survey breakdown of practices.
a. 9 percent use a percentage based on last year’s sales.
b. 35 percent use a percentage based on anticipated sales.
c. 30 percent combine needed tasks with anticipated sales.
d. 13 percent outline needed tasks and fund them.
e. 13 percent spent arbitrary amounts based on general financial conditions.
f. 9 percent calculate an average between last year’s actual sales and anticipated
sales for the coming year.
4) BusinessWeek study of start-up businesses’ marketing budgets found that most
follow percentage-of-sales approach, with amounts varying by industry.
C. Payout plan.
1) Advertising expenses are looked upon as an investment, which may take several
years before the costs can be recovered and profits realized.
2) Payout plans of fast-food and package goods operations for 36 month periods
illustrate the growing relationship between advertising expenditures and
profitability.
3) There is risk involved in this approach over future profits and long-term survival.

*****NOTES: Use Exhibits 6.8 and 6.9 Here*****

 D. Competitive budgeting.
1) The level of advertising spending relates to the percentage of sales and other
factors.
a. Is the advertiser in an offensive or defensive position?
b. Media strategy; a desire to dominate?
c. Is this a new or existing brand?
2) Duplicating a competitor’s level of spending is risky because the competitor’s
marketing objectives might be different.
E. The task method.
1) Most difficult to implement, but the most logical.
2) The advertiser determines the task to be accomplished and the budget required to
complete that task.
3) A specific sales target is set for a specific time period.
4) Is called the “let’s spend all we can afford” approach.
5) Important considerations:
a. Brand loyalty.
b. Geographic factors.
c. Product penetration.
6) Accurate and reliable research is required for this approach.
7) Task method is the most widely used in highly competitive environments.
8) Budgets are under constant scrutiny and reviewed quarterly.

6. The Changing Marketing Environment

A. Introduction.
1) The retail universe has consolidated and the media universe has shattered, causing
marketers to restructure the way they do business.
2) It is now harder to reach mass markets of consumers due to fragmentation of the
broadcast media.
a. In 1995 it took three television spots to reach 80 percent of women.
b. Five years later, it took 97 spots to reach the same group.
3) Some companies have led the way in thinking about marketing in a radically new
way.
a. The Coca-Cola Company’s new CMO Mary Minnick indicated that growth
means more than simply boosting sales of Coca-Cola Classic and innovation
involves more than repackaging existing beverages in slightly different
flavors. Minnick is exploring new products in categories such as beauty and
health care. She also fired Coca-Cola Classic’s advertising agency.
b. Companies, often using their advertising agencies, are creating their own
movies, television shows, Internet sites, and online games to endear viewers to
their brands. Content is created in addition to traditional advertising in an
effort to find new marketing and communication formulas.
c. Winning brand marketers are learning to reconfigure their efforts in several
ways.
1. More and more effective use of digital media.
2. Interactive formats.
3. New research approaches and metrics that measure outcomes.
4. Combine advertising and marketing in new two-way integrated campaigns.
 5. Create branded entertainment.
6. “In-source” new skills and capabilities.

7. Managing Brands

A. Retailer control.
1) The mass channel, not the mass media, demands most of the marketing dollars
today, controlling shelf space and entry into stores.
2) Radio frequency identification (RFID) may shift power back to the manufacturer.
3) Category managers must understand the needs of retailers as well as they do the
needs of consumers.
a. Manufacturers’ promotions must be integrated in retailers’ total marketing
programs.
B. Slotting allowances.
1) With only finite shelf space available, supermarkets seek quick inventory turnover
to help offset operational costs and the revenue shortfalls of slow- moving
products or new products.
2) To guarantee shelf space for a period of 3–6 months, manufacturers are charged
an admission fee, called a slotting allowance, paid for through marketers’ trade
promotion funds.
3) Slotting allowances offset the following costs:
a. Slow-moving and new products.
b. Warehouse space.
c. Computer input.
d. Communication to individual stores about product availability.
e. Redesign of shelf space.
C. Message Experimentation
1) Marketers are spending 10 to 20 percent of their advertising budgets on new
technologies and creativity.
a. In-game advertising.
b. Really Simple Syndication (RSS) feeds.
c. Podcast advertising.
D. Consumer Control: The Need to Manage Viral Technology
1) New communication tools and how they are used offer implications to brands and
the management of these tools.

*****NOTES: Use Exhibit

2) Companies 6.10
are using Here*****
a variety of nontraditional communication techniques.
a. Business blogs.
b. Moblogs.
c. Podcasting.
d. Really Simple Syndication.
e. Streaming video.
f. vBlog.
g. Wiki.
3) Marketers are forced to find the right formula and right innovative approach to
attract consumers.
4) In this day of advertising clutter, the only risk is not to take risks.
a. Agencies, however, face the problem of clients who are not willing to join the
agency in taking the risk. Some companies, such as Pepsi-Cola, realize that
 not every hit will be a home run and display the courage to risk cutting-edge
advertising.
b. Doing a strong ad that is different and stands out may be risky, but it gets
consumer talking.
c. The average tenure of brand managers is 18 months; some value job security
and take what they feel is the safe route. Some companies, however, are
extending the length of brand manager assignments.
d. Forward thinking marketing managers feel that the most effective way to cope
with change is to help create it—take the risk.
5) Some advertisers are integrating technology into their strategy in nontraditional
ways.
a. TBWA\Chiat\Day and TEQUILA used an old road-trip concept to align the
redesigned Nissan Sentra with you urbanites and their 24-7 lifestyles by using
Marc Horowitz’s Road Trip, which created 168 hours of raw footage for the
Web and other media vehicles.

8. Agency-Client Relationships

A. Introduction.
1) The relationship between agencies and clients should be based upon trust and
friendship.
a. Agencies should add value, not expenses to clients.
2) Some complaints have surfaced that the quality of agency services is not what it
what it was five years ago, pointing to inexperienced account managers and
understaffing.
a. Recently, other measures point to higher ratings of agencies by advertisers.
This change in attitude is a result of the changing environment. Advertisers
and agencies are in this together, facing a common challenge that neither has a
history with.
3) The real task of agencies should be to become a creative, persuasive partner.
4) Delays of several months occur with competitive bidding for accounts.
5) Some advertisers like to have long-standing relationships, working over a long
period of time with those people who deliver great results.
6) Clients are seeking marketing advice outside the parameters of agency consulting
to get good ideas and some agencies find it hard to find a place at the management
table.
B. Agency search consultants.
1) Clients hire consultants to help them seek out the best agency for their accounts
because they don’t feel totally qualified to do it themselves.
2) Consultant duties.
a. Initial screening.
b. Manage the search process.
c. Sometimes negotiate compensation agreements.
3) As a by-product of corporate restructuring, some companies start from scratch
with staffing and changing agencies, sending out a request for proposal (RFP).
4) The pressure is on marketing departments to sell more units and improve quarterly
financial results.
 a. This causes businesses to be problem oriented and to seek agencies for a quick
fix.
5) Long-standing relationships are de-emphasized with this approach and places
pressure on both clients and their agencies.
C. Selecting an agency (evaluations guidelines).
1) Determine the type of agency needed and prioritize needs.
a. Strategic marketing planning and expertise.
b. Creative performance in the media.
c. Media knowledge and clout.
d. Sales/trade promotion help.
e. Public relations and image building ability.
f. Market research strength.
g. Fashion/beauty sense.
h. Agency size.
i. Location relative to your office.
j. Special needs peculiar to your organization.
2) Establish a five-point scale for agency’s attributes.
a. Typical scale is: (1) outstanding; (2) very good; (3) good; (4) satisfactory; and
(5) unsatisfactory.
3) Check published sources for prospective agencies that match your needs.
4) Check if you may face conflicts with accounts already at the agency.
5) Start preliminary evaluation through personal discussions and rate agencies.
6) Reduce the number of candidates to about three.
7) Rate these three agencies again, but be more specific and weight each factor.
a. Cover personnel and staffing.
b. Determine who the creative and media people are and how they will work.
c. What is the agency’s track record in holding on to clients?
d. What is the agency’s record with media and with payments?
8) Discuss financial arrangements.
9) Do you feel comfortable with the agency(ies)?
10) Can the agency(ies) handle global operations, if necessary?
D. Client requirements.
1) Agency workload varies significantly for each client, from creating only a few
advertisements to creating thousands for a client during a year.

*****NOTES: Use Exhibit 6.11 Here*****

E. Using multiple agencies.

1) Not a full-time partner relationship, changing agency-client relationships by
treating agencies as vendors.
2) Different agencies are hired, for different assignments for the same product or
different brands.
3) In the 1950s, clients had to get agency permission to engage a second agency.
4) Coca-Cola’s strategy in taking this approach was that Coca-Cola knows and
understands their strategy better than agencies and leaves the execution to them.
a. Many companies use a major global agency plus a number of smaller creative
shops, putting the onus on the company to make sure all messages are
coordinated and represent one consistent voice.
5) Advertisers using multiple agencies are looking for the best custom-made
solutions to their marketing problems.
 F. The creative digital library.
1) Major advertising agencies host creative digital libraries worldwide that can only
be accessed with a password to keep its contents confidential.
2) Typical content includes:
a. Still graphics.
b. Logos.
c. Product shots.
d. Text custom ads.
e. Point-of-purchase displays.
f. Miscellaneous print materials.
3) These libraries allow for integration of visuals to all agencies around the world,
which are working on the same account.

9. Appraising National Advertising

A. Big questions regarding national advertising effectiveness.

1) How well is our advertising working?
2) Is our ad investment paying off?
3) How can we measure effectiveness of advertising (not direct-response or some
Interactive advertising)?
B. Advertising goals versus marketing goals.
1) An Association of National Advertisers study:
a. Thesis of study: it is virtually impossible to measure advertising results
without specifically defining expected results.
b. Goals: increasing sales or market share is a marketing goal, not an advertising
goal.

*****NOTES: Use Exhibit 6.12 Here*****

c. Goals: accomplishing a specific communications task among a defined

audience to a given degree in a given period time is an advertising goal.
d. The report identifies a marketing-communication spectrum ranging from
unawareness of a product, to comprehension, to conviction, to action.
2) Briggs and Stuart’s research says only 37 percent of advertising is wasted. The
blame for this is because marketers fail to define success for campaigns as well as
measure it properly.
3) Researchers disagree on whether national advertising effectiveness should be
judged by a communication yardstick rather than by sales.

10. Changes in Marketing

A. Introduction.
1) Society is in the midst of a revolution of a scope comparable to the French and
Russian revolutions.
2) The current revolution directly affects business structure and is reflected in:
 a. Globalization.
b. Technology.
c. Management.
d. Uncertain economy.
e. Consumers’ controlling messages.
B. The traditional five Ps of marketing: traditional planning guide in a stable economy.
1) Product.
2) Price.
3) Place.
4) Packaging.
5) Promotion (including advertising, PR, and sales promotion).
C. The new five Ps of marketing: planning guides (abstract) in a chaotic world, where
the fast-growing economy has slowed, and where global competition is making more
demands for effectiveness and efficiency.
1) Paradox.
a. A proposition that, on the face of it, seems self-contradictory.
b. A paradox can contain a marketing opportunity.
c. Miller Lite’s position “Tastes Great, Less Filling” illustrates the benefits.
d. An effective technique if the marketer can be the first to create a unique
identity in a product and then exploit it.
2) Perspective.
a. The ability to see things in relationship to each other.
b. Advertisers must look at every issue in light of the consumer perspective.
c. Question: What consumer need does my product/service satisfy?
d. Question: How is my product uniquely different from the competition?
e. Question: Are we in the advertising, or the persuasion business?
f. Persuasion should be our focus.
3) Paradigm.
a. Looking at our business in a new way.
b. Saturn, for instance, set aside the old idea that consumers placed value on
product and price first; and turned their attention to consumers’ experiences of
buying and owning a car.
c. The traditional model advertising paradigm calls for showing the product and
communicating its features and benefits.
d. The brand advertising paradigm calls for communicating who and what you
are
4) Persuasion.
a. The advertising agency’s role is to help the client persuade potential consumer
audiences to either do or think something.
b. Persuasion is based upon three essential components:
1. Credibility of the speaker.
2. Content of the message.
3. Involvement of the audience.
c. Credibility and trust are emotional, not rational, and earned over time.
d. Brands with less credibility.
1. More content (position of the brand) is needed to persuade.
2. More information is needed to persuade.
e. Consumers buy solutions to problems; buy the hole, not the drill.
f. Marketers must understand consumer motivations to create an emotional
connection with them.
5) Passion.
a. Marketers must pursue their aim of promoting brands and products with zeal
or enthusiasm—passion.
b. Advertising must be created that is exciting, stimulating, and builds
relationships with consumers.