Advertising Agencies

Sagar Kanojia
Advertising Agencies - Meaning, its Role and Types of Agencies
“The work of a tailor is to collect the raw material, find matching threads, cut the cloth in
desired shape, finally stitch the cloth and deliver it to the customer.”
Advertising Agency is just like a tailor. It creates the ads, plans how, when and where it
should be delivered and hands it over to the client. Advertising agencies are mostly not
dependent on any organizations.
These agencies take all the efforts for selling the product of the clients. They have a group of
people expert in their particular fields, thus helping the companies or organizations to reach
their target customer in an easy and simple way.
The first Advertising Agency was William Taylor in 1786 followed by James “Jem” White
in 1800 in London and Reynell & Son in 1812.
Role of Advertising Agencies

1. Creating an advertise on the basis of information gathered about product

2. Doing research on the company and the product and reactions of the customers.
3. Planning for type of media to be used, when and where to be used, and for how much
time to be used.
4. Taking the feedbacks from the clients as well as the customers and then deciding the
further line of action

All companies can do this work by themselves. They can make ads, print or advertise them
on televisions or other media places; they can manage the accounts also. Then why do they
need advertising agencies? The reasons behind hiring the advertising agencies by the
companies are:

 The agencies are expert in this field. They have a team of different people for different
functions like copywriters, art directors, planners, etc.
 The agencies make optimum use of these people, their experience and their
knowledge.
 They work with an objective and are very professionals.
 Hiring them leads in saving the costs up to some extent.

There are basically 5 types of advertising agencies.

1. Full service Agencies
 Large size agencies.
 Deals with all stages of advertisement.
 Different expert people for different departments.
 Starts work from gathering data and analyzing and ends on payment of bills to
the media people.
2. Interactive Agencies
 Modernized modes of communication are used.
 Uses online advertisements, sending personal messages on mobile phones, etc.
  The ads produced are very interactive, having very new concepts, and very
innovative.
3. Creative Boutiques
 Very creative and innovative ads.
 No other function is performed other than creating actual ads.
 Small sized agencies with their own copywriters, directors, and creative people.
4. Media Buying Agencies
 Buys place for advertise and sells it to the advertisers.
 Sells time in which advertisement will be placed.
 Schedules slots at different television channels and radio stations.
 Finally supervises or checks whether the ad has been telecasted at opted time
and place or not.
5. In-House Agencies
 As good as the full service agencies.
 Big organization prefers these type of agencies which are in built and work only
for them.
 These agencies work as per the requirements of the organizations.

There are some specialized agencies which work for some special advertisements. These
types of agencies need people of special knowledge in that field. For example,
advertisements showing social messages, finance advertisements, medicine related ads, etc.
Advertising Agency: Evolution and Types
After reading this article you will learn about:- 1. The Evolution of Advertising Agency 2.
Advertising Department within the Organization 3. Types of Advertising Agencies 4. Client
Agency Relationship 5. Advertising Agency Compensation.

Developing and implementing an integrated marketing communications programme is

usually a complex and detailed process involving the efforts of many persons. As consumers,
we generally give little thought to the individuals or organisations that create the clever
advertisements that capture our attention or the contests we hope to win.

But for those involved in the marketing process, it is important to understand the nature of
the industry and the structure and functions of the organisations involved.

There are many different techniques and sources that companies use in developing their
advertising programme. Many companies have their own active advertising department
which develop the ad message and select the proper media for its execution.

Other there are full service advertising agencies which develop the entire advertising
programme from the conception of idea to the evaluation of the message effects, in
consultation and co- operation with the advertiser.

There are special service groups which operate as consultants and who aid either the
advertiser, the agency or the media in the development of ads.
“An ad agency is an independent company set up to render specialised services in advertising
in particular and in marketing in general.”
Previously ad agencies started as space brokers for handling of the advertisements placed in
the Newspapers. Through the years, however, the functions of agency have changed. Their
main job today is not to aid media but to serve advertisers.

When a firm has decided upon a advertising programme as part of its overall promotion mix,
it needs to have a system and an organisation to implement it for the attainment of the
desired objective.

Firms do have an advertising department to manage the advertising function. In some small
firms, there may not be a separate department in the name of advertising but the function is
either looked after by the marketing manager or the chief executive.

The company’s advertising department usually relies on outside experts after the advertising
agency which prepares the advertisement messages, selects appropriate media, and arranges
to release them.

The advertising department of a company has only a limited creative function, primarily a
liaison point in the company for the agency, though it is responsible for the advertisement
budget and supervises the performance of the agency.

An advertising manager has to co-ordinate with the marketing and sales function, so that the
advertising efforts may be fully integrated with the firm’s marketing and sales strategy. He
has also to perform the managerial task of formulating advertising strategy and planning an
advertising programme.

The execution of such programme is managed by this department through the advertising
agency. The agency often assists the advertising manager in programme formulation.

The advertising agency is a group of specialists in the area of advertising who meet the
client’s needs for advertising services. The agency is predominantly communication
oriented, though it solves several problems of marketing and advertising as well. It is a sort
of an organisation.

There are several advertising agencies in India and abroad, which take important decisions
on advertising and marketing. They suggest suitable measures popularizing the products of
the clients. Sometimes, advertising agencies become active partners of producers.

They suggest creative boutiques, independent media buying services, research findings. The
advertiser should select an advertising agency on the basis of compatibility, agency size,
agency stability, agency team service, selling attitude, creativity and problem solving
approach. The advertising agency may be selected as a full scale agency or part scale agency.
The Evolution of Advertising Agency:
The advertising agency developed around 1840 when some individuals started to work as
sales representatives. They sold space for their client newspapers on a commission basis.
Some bought a set number of pages from the newspaper and sold the space at higher prices
to make a profit.

They were called space brokers who believed in price cutting. The space broker stage lasted
the period from 1840 to 1876. There was little emphasis on advertising planning and media
schedule during this period.

In 1875 N.W Ayer offered an open contract to advertisers, J. Walter Thompson set up shop
in Mumbai in 1929 as a part of the UK based agency for eastern operations. It was India’s
first advertising agency. E.J. Peter Fielden headed JWT India for the long 37 years, operating
out of a room in the Taj Mahal Hotel, JWT worket on Dond’s General Motors, 501 soap
(TOMCO) Horlicks, Vaseline, Brown and Poison.

It made its first ad film in 1931 for General Motors, Chevrolet, Kodak, one of its brands, was
the first to advertise on radio. The use of demonstration vans with projector units for
Horlicks was another pioneering move. Advertising commission, which ranged from 10 to
35 per cent (drool, drool), was brought down to 15 per cent by consensus among all the
agencies in the 1960s.

When JWT left a closed and overly nationalist India in the early 1970s, it did not cut off the
connection with H.T.A. Training process and information—sharing continued.

In 1993-94, Khanna convinced employers who owned majority stock in HTA to part with 49
per cent of it so JWT could come in. The remaining 51 per cent of HTA’S Rs. 4.9 lakh
equity pie is held by senior employees (who cannot sell it, and must relinquish it on leaving).

Advertising Department within the Organization:

Advertising manager and the departmental staff perform two main functions:
(a) Planning the advertising programme and

(b) Maintaining liaison with the advertising agency.

Fig. 20.1 show that the advertising is a part of the marketing function in a typical firm. The
dashed line to the advertising agency means that it is not really a part of company’s
organisational structure. Nevertheless, the agency is important to the operation of the
advertising department.
The advertising manager is responsible for the overall planning of the advertising
programme, including such decisions as which products to advertise, which markets to be
reached, and whether to employ an outside agency or not.

The manager also maintains this programme within the financial and public relations
guidelines set down by corporate management. Corporate management must be advised
about advertising policy decisions, since they may affect the corporate image and sales
potential of the company.

The over-all responsibility of the advertising manager can be summarised as follows (Fig.
20.2):

Advertising Function: Includes:

1. Making the ad strategy in collaboration.

2. Evaluation of the advertising.

3. Determining the ad efforts.

4. Coordinating with the agency.

5. New developments in advertising.

6. Making the ad budget.

Managerial Functions:
1. Making advertising understandable.

2. Representing the organisation.

3. Goal setting for advertising.

4. Administration in general.

5. Creative thinking with respect to his functions.

6. Participation with higher ups about his function.

Types of Advertising Agencies:

Since advertising agencies can range in size from one or two person operation to large
organisations with over 1,000 employees but the services offered and functions performed
will vary.

There can be following types of advertising agencies:

(a) Full service agency,

(b) In house agency,

(c) A creative Boutique,

(d) Media buying services,

(e) The La carte agency,

(f) Special service agency (Group).

(a) Full Service Agency:

Full service agency offers its clients a full range of marketing, communications and
promotion services including planning, creating the advertisement, performing research and
selecting media. A full service agency may also offer non advertising services such as
strategic market planning, design of sales promotions, sales training and trade show
materials, package design and public relations.

The full service agency is made up of departments that provides the activities needed to
perform the various advertising functions and serve the client. (Fig. 20.3)
Functions of Full Service Advertising Agency:
The full service agency performs a complete range of services for the advertiser In addition
to offering all research, creative and media services, the full service agency often becomes
involved in the advertiser’s marketing process. For example, an agency may provide package
design, sales promotion, dealer aids, sales meeting assistance, product testing, sales
forecasting, and advice on distribution and marketing strategy.

The benefits of a full service agency include attracting and holding the very best talent,
providing numerous services which may require an interrelated approach, and providing an
objective examination of concepts from an outside perspective based on wide spread
experience.

Despite the emergence of other types of agencies, it is estimated that the major proportion of
national advertising media expenditure is spent by advertisers who use full service agencies.
The extent of services offered by an agency generally depends on its size and the way it is
organised. It also depends on the people who make up the agency.

However, most full service agencies perform the following functions:

(a) Research:
Even prior to the formulation of the plan, an agency must do some research. The scope of
research has expanded so much that, in recent years, independent specialised research
organisations have been created to meet the expanded needs of both marketing and
advertising research.

(b) Planning:
The most important function in agency operation is the development of an advertising plan,
usually prepared in conjunction with the client company. The advertising plan viewed as part
of the overall marketing plan. An essential part of planning is budgeting and the agency
usually provides alternative budget proposals to help the client determine how much should
be spent on advertising.

(c) Creative Services:

One of the earliest additions to the responsibilities of the advertising space sales person was
the writing of copy. Today copy writers frequently work in conjunction with artists in the
preparation of print advertising, and copy writers, art directors, and broadcast producers
usually combine their efforts in preparation of broadcast selling messages.

(d) Print and Broadcast Production:

Print production people are responsible for converting and copy into printing plates used to
produce finished advertisements. Proofs of advertisements are submitted for approval to
clients before final printing plates are made. Print production workers must maintain contacts
with printers, typographers, type setters, and photoengravers.

In the early days of television, broadcast productions were prepared by the advertising
agency; today, shows are more frequently purchased from networks, broadcasting, stations or
independent show producers. However, agency men and women still do the creative work on
both radio and television commercials.

They prepare the story boards and choose (and even design) Props, costumes and scenery.
The actual mechanical production of the commercial may be done by an out-side producer
under the supervision of an agency TV producer.

(e) Media Selection:

One of the areas where the expertise of an advertising agency may be a necessity is media
selection. Media choice involves a knowledge of each medium’s characteristics and its
coverage, as well as an understanding of the target market to be reached.
An agency must select what it considers to be the best medium, must contact the various
media, execute the contracts, and pay media bills. As an aid in the media selection process a
number of advertising agencies have applied computer techniques to the creation of media
models.

(f) Account Management:

Since the advertising agency is an organisational unit external to the firm, some continuing
and close contact must be established to promote communication and understanding between
the client and agency. The advertising agency establishes a contact person to maintain this
liaison.

In the small agency this function may be performed by the president; the account executive
performs as liaison in a larger agency, and, in some cases, there may be an account group
consisting of several account executives headed by an account supervisor. The contact
person must know the functions and activities of both the agency and client and must be able
to interpret these satisfactorily to both organisations.

(g) Accounting:
Although accounting is of prime importance to all business, it has added significance to an
agency. Since the agency is responsible for payment to media, it becomes particularly
important to keep accurate accounts of billing, to check the appearance of advertisements,
and to maintain records of payments.

(h) Other Services:

In order to provide a total marketing concept, agencies become more involved in
promotional activities that are not strictly advertising. The extent of services required by
clients varies, manufacturers of consumer goods tend to place greater emphasis than
industrial goods manufacturers upon the range of an agency’s service in the selection
process.

Some agencies provide merchandising for their clients; that is they create sales promotional
material, aid in dealer co-operative advertising campaigns, execute point of purchase
displays, and help develop contests.

They may also offer expertise in public relations, usually on a fee basis and as an activity
some what separate from their advertising. Some larger agencies may go beyond promotion
and provide such services as sales forecasting, new product planning, and package
development.

Reasons for using a Full Service Advertising Agency:

A full service advertising agency provides the advertiser with a full package of advertising
services.
According to John Monsattal followings are the reasons for using a full service advertising
agency:
(a) Sales oriented creative work.

(b) Synergistic experience.

(c) Centralisation of responsibility and accountability.

(d) Greater objectivity.

(e) Simplified co-ordination and administration.

(f) Simplifies corrective changes.

(g) Professional strength in marketing area.

(h) Better working environment.

(i) May be less expensive in the long run.

(j) Stronger pool of talent.

(a) Sales Oriented Creative Work: बिक्री उन्मख

ु रचनात्मक कार्य
The agency, because of its specialization, is continuously concerned with creating such
advertisements and ad campaigns that would be sales – oriented, since improving sales is the
ultimate goal.

(b) Synergistic Experience: अनभ

ु वजन्र् अनभ
ु व:
The agency can use the knowledge obtained by working with various and different kinds of
clients in supporting any given client thus using the cumulative knowledge and experience in
a synergistic way.

(c) Centralization of Responsibility and Accountability: जजम्मेदारी और जवािदे ही का

केंद्रीकरण।
The agency is responsible for the success and failure of a specific advertisement and the total
campaign.

(d) Greater Objectivity: वह

ृ त्तर ननष्पक्षता
Since the agency becomes closely involved with the organisation, and since it involves
studying the characteristics and attributes of a product, the agency is able to assist the client
with various product problems.

(e) Simplified Co-Ordination and Administration: सरलीकृत समन्वर् और प्रशासन।

It is easier to develop a close working relationship and Co-ordinate promotional activities
with one agency rather than distributing the advertising responsibility to many agencies.

(f) Simplifies Corrective Changes: सध

ु ारात्मक पररवतयन को सरल करता है
Since all the advertising activities are centralized within one agency, necessary changes to
promotional messages and campaigns can be incorporated quickly.

(g) Professional Strength in Marketing Area: ववपणन क्षेत्र में व्र्ावसानर्क शजतत
A full service advertising agency is a complex organisation in itself, with all the professional
functions and processes. Hence the advertising personnel are professionals in the area of
marketing, sales promotion etc. and this gives stability and credibility to the advertising
profession.

(h) Better Working Environment: िेहतर काम करने का माहौल

Advertising is very creative and offers challenging opportunities. Accordingly a reliable
advertising agency attracts conscientious workers who take pride in doing a first rate job.
This creates a better working environment which is always necessary for productive out puts.

(i) May be Less Expensive in the Long Run: लंिे समर् में कम खचीला हो सकता है ।
Since the advertising people are specialists and have the expertise in getting the job done,
and their survival and credibility depends on the success of their advertising campaigns, they
may be less expensive in the long urn rather than doing it one-self in a piecemeal dis-
organised manner.

(j) Stronger Pool of Talents: प्रनतभा का मजित

ू पल
ू
A full service agency has many specialists dealing in different areas of advertising process
working at one location, so that it can react the problems quickly in any of the various
aspects of the process.

(b) In-House Agency:

Even though most companies use full service advertising agencies, an organisation may
decide to establish its own operation for all services of an advertising agency within its own
structure. The in-house agency as its name implies is owned out right by and operated under
the direct supervision of the advertiser.

It perform all the creative and media services provided by the traditional full service agency.
A major goal in adopting this approach is to reduce the total cost of the advertising.

Merits:
1. It reduces the cost of advertising since the in-house agency is also entitled to the
commission from the media, which normally the out side agency would get & which the
advertiser himself does not get.
2. It ensures tighter control over the agency operations both in terms of cost as well as
creativity.

Demerits:
1. Top agency talents are less likely to be attracted into an in-house agency.

2. An in-house agency may be influenced by built in political forces that might turn bias
while an outside agency is more objective in its analysis and evaluation and is less biased.

(c) A Creative Boutique:

It is an agency that provides only creative services. The client may seek outside creative
talent because it believes that an extra creative effort is required or because its own
employees do not have sufficient skill in this regard. Full service agency often subcontract
work to creative boutiques when they are very busy or want to avoid adding full time
employees to their payroll.

Creative boutiques are usually founded by members of the creative departments of full
service agencies who leave the firm and take with them clients who want to retain their
creative talent. These boutiques usually perform the creative function on a free basis.

(d) Media Buying Service:

There are independent companies specialize in the buying of media, particularly radio and
TV time. Media buying is a niche service and these agencies are specialized in the analysis
and purchase of advertising time & space.

Both agencies and clients utilize their services, usually developing their own media strategies
and using the buying service to execute them. Because media buying services purchase such
large amounts of time and space, they receive large discounts and can save the small agency
or client money or media purchases. Media buying services are paid a fee or commission for
their work.

(e) The La Carte Agency:

Some advertisers prefer to order a la carte rather than using all of an agency’s services. A la
carte services can be purchased from a full service agency or from an individual firm that
specializes only in creative work, media, production, research, or new product development.
The two requirements most frequently obtained by a la carte are creative and media services.

A boutique is typically a service agency used as a creative consultant, specialising in

concepts, strategy development, and execution. Some advertisers employ a boutique to
revitalize a tired advertising campaign or to provide services in specialised media and
product categories.

A media buying service works with an advertiser to provide a media plan, offer counseling in
the development of the advertiser’s plan, or provide specialised knowledge of media and
usage rates. Firms that prepare their own advertising frequently find the complexities of
media purchase require the services of a professional.

A la carte services may provide the advertiser with faster response, more objectivity, and
more direct communication which may lead to better results. However, the responsibility for
planning and managing the advertising remains with the advertiser.

(f) Special Service Agency (Group):

Some agencies focus their efforts only in some selected areas and then become specialists in
those areas. There is great multiplicity of firms whose objective is to provide advertisers,
advertising agencies and the advertising media with a host of specialized services.

These firms collectively are called special service groups and they are by far the least known
component of the advertising industry. For example, if an agency is specialising in direct
response advertising either in media or direct mail, knowledge of their availability and
function is vital if the structure of the advertising business is to be fully understood.

Client Agency Relationship:

Even though much of the responsibility of maintaining a congenial liaison between the
agency and the advertiser falls on the accounts executive, there are certain ground rules
pertaining to the efficient handling of issues.

A leading advertiser, George Weissman, vice chairman, Philip Morris, incorporated speaking
as a client outlined 10 requirements that a company expects from its advertising agency:
1. We expect your people to be with the consumers, the retailers, the wholesalers and in the
front lines, where the business is done and the battle is fought.

2. We expect your people to say on your account and not be taken away by competitors. We
as you, have investment in them and, if they are good, we want them.

3. We expect total involvement at all levels of agency management.

4. We expect you to have the same corporate affirmative action policy on personnel on our
accounts as we do.

5. We expect your people to give us every crazy idea they might have, even though the rate
of rejection is high and the work load heavy.

6. We expect your people to know the industry as well as we do.

7. We expect excellence in everything you do. We have built a corporate reputation and a
corporate success based on outstanding quality of product, advertising, merchandising and
most important of all – people.

8. We expect to be presented with options—good advertising dependent on mutual creativity.

9. We expect your people to be honest with us and not ‘yes’ us.

10. We expect that your people will know out business almost as well as we do, and that
goes from the technical to the marketing, so that if there are potential for interesting
advertising, it will be created.

Advertising Agency Compensation:

All business need operating revenues to service. Advertising agency revenues come from
two sources:
1. Commission from advertising media.

2. Client fees.

The billing based compensation system, frequently labeled as the “commission

system”, provides the agency with money from the advertising medium. The commission is a
percentage based on the medium’s charge for the advertising space or time used by the
advertiser.
With the cost based compensation system, often called the “fee system”, the agency receives
fixed fees for services given to the clients with media commissions offset against those fees.
The typical agency today receives about two third of its revenue from media commissions.
An advertising agency can be compensated in the following manner:
(a) Commission basis

(b) Cost basis or fee system.

(a) Commission Basis:

The traditional method of compensating agencies is through a commission system.
Commission is a percentage based on the medium’s charge for the advertising space or time
used by the advertiser. A agency receives a specified commission usually 15% from the
media on any advertising time or space it purchases for its clients. Some trade publications
allow as much as 20%.

There must be a clear understanding between the agency and the advertiser as to what
services this commission covers. It is quite common for the agencies to provide media
planning and media buying and some related creative work for the 15% commission that
they charge and bill the advertiser separately for other services such as market research,
public relations etc.

For many years there has been a criticism of the commission system of payment of
advertising agencies. For example, why should an agency receive a 15% commission from
the media rather than being paid by the client? For example, the two agencies may require
the some amount of effort to create and produce an advertisement.
However, one client may spend Rs, 2,00,000 in media which result Rs. 30,000 as the agency
income while other spends Rs. 20,00,000 generating Rs. 3,00,000 as commission. Critics
argue that the commission system encourages agencies to recommend high media
expenditures to increase their commission level.

Other criticism is that there is no established rule for what services are included in the 15%
commission.

Another criticism of this system is that it ties agency compensation to media costs. In periods
of media cost inflation, the agency is (according to client) disproportionately rewarded. This
system is also being criticized for encouraging agencies to ignore cost accounting system to
justify the expenses attributable to work on a particular account.

(b) Cost Based or Fee System:

The system is based upon the cost of performing the services which includes direct and
indirect costs of servicing the account plus a percentage mark up for profit.

Agency executives sometimes feel that the 15% commission yield an insufficient return to
the agency in the light of its many services to the client. This is true when the agency is
working with small accounts. On the other hand advertiser may argue that the commission
rate going to the agency is too high.

According to David Ogilvy, the fee approach to agency compensation has five edges over
the commission system:
1. The agency can be more objective in its recommendations as so many clients believe.

2. The agency has adequate incentive to provide non-commissionable services if needed.

3. The agency’s income is stabilized. Unforeseen cuts in advertising expenditure do not

result in red figures or temporary personnel layoffs.

4. The fee enables the agency to make a fair profit on services rendered. The advertiser, in
turn, pays for what he gets—no more, no less.

5. Every fee account pays its own way. Unprofitable accounts do not ride on the coattails of
profitable accounts.

Types of Agencies in Advertising

The types of agencies in advertising are explained below
Full Service Agencies
These agencies provide service in all areas of marketing. They plan, create and produce the
advertisement. They also perform marketing research for the company. They can help the
company in making Integrated Marketing Communication (IMC) programs. These include,
sales promotion, personal selling, packing, design, publicity along with advertising. The IM
Chas been discussed in the chapter on Marketing Communication. The full service agencies
have a bigger staff and can have various departments dealing in different functional areas.
The diagram for the full service agency is given under:

full-service organisation chart

The full service agencies may have various departments which specialize in their own fields.

Account Service Department: The other major department in ad agencies is account

services or account management. Account service employees work directly with clients and
potential clients,soliciting business for the ad agency and determining what clients need and
want the agency to do for them. They are also charged with understanding the client’s
business situation and representing those needs within the agency, so that ads can be brought
to bear on the correct problem.
Marketing Services: Under this heading we have a lot of services and accordingly
departments are formed.
Research Department: It gathers, analyses, tabulates and interprets information. All this is
done by primary and secondary sources of information and also by information available
through independent research firms. The research staff interprets this information and passes
these reports to other departments. The research department also conducts researches to
pretest the messages created and also to see how these messages will be interpreted by the
audience.
Typical agency work cycle

Media Department: It decides a media or a media mix what will be useful and effective for
the advertised products. It also chooses the media vehicles. As all firms are working with the
constraints of budget available for promotion, the media selected must communicate to the
right audience and be effective. The actual time to be purchased on T.V. and radio media.
The space is purchased in news papers, magazines, hoardings,painting on the walls and
others. The media department is becoming very important as most of the cost promotion is
taken up by the media. Full service agencies also perform functions besides advertising.
They give additional services in promotional areas and perform Integrated Marketing
Function (IMC).
Creative Services (Copy writing) Department: It is responsible for creating and execution
of the advertisement. First the idea is conceived by individuals, then heading and sub
headings are made and the body copy (message) is written down. This is known as copy
writing. They also determine the basic theme and the appeal for the Ad and prepare a rough
layout of the message with visual commercials. The art department gives it the form and the
artistic touch for the T.V. commercial. The art director gives comments and approval for the
improvement and acceptance of the Ad. The Ad is then sent to the production department
where stories and commercials are produced. This is done by choosing people, celebrities,
sportsmen or other prominent persons to appear in the commercial. Creating is a long and
lengthy process. A traffic department coordinates all aspects of products and sees that it is
released in time.
Management and Finance: Like all other organizations, management and administration is
a part of the Advertising Agency. All functions of planning, organizing, staffing, directing
and control and the functional areas of accounting, H.R. and finance are looked after in a
proper manner. The payment to the personnel is very important to keep them motivated and
to ensure that they give off their best. Organization chart of the organization has been shown
in the figure given earlier.
Agency compensation: This can be done through a commission system which has been
usually 15% of the media expenses. Payment can also be paid by percentage charges. If the
agency books an Ad of Rs. 100,000/- for a back cover page, it also agrees to a 2%cash
discount to them. The billing will be done as shown below:

Agency compensation

There is a criticism of the above system and many customers feel that they have to pay more
to the agency as the media cost keeps increasing. This system also ignores the cost
accounting system. It tempts the agencies to do undesirable things, like continuing the mass
media advertising when other forms like promotion and publicity could be equally effective.
Association of Natural Advertisers (ANA) have conducted researches and found that many
firms do not want to pay the traditional 15% commission. Some clients prefer a negotiated
commission system to compensate the agency. In this method, the commission is reduced to
%age rates, variable commission rates and commission with minimum and maximum profit
rate. Some resort to sliding rates that become lower as the expenditure increases. By doing
this they end up with 8 to 10% commission for agencies when following the Integrated
Marketing. Commission of expenditure gets divided into other promotional methods other
than advertising. When the income from Media commission is reducing, then other methods
are adopted.

Fee Arrangement: In this we have a fixed fee method and charges a basic monthly for its
services and the agency commissions paid to the client.
Fee Commission Combination: In this the Media Commission received is adjusted against
the fees. If the commission renewed is less then the client makes up the difference, if the
agency works more in non-commission able media, the fee is charged over and above the
commission from the client.
Cost plus Agreement: In this method the client pays all the costs incurred and some money
agreed on profits (often a %age of total cost). The agency keeps the details of all expenses.
Free agreements and cost plus system are generally preferred by the clients and they get to
know the break-up and the detailed accounts.
Incentive-based Compensation System: For demanding accountability some clients want
to tie agency compensation to performance through some incentive-based system. The idea
is to see whether agency meets the predetermined goals. The objectives could be the sales or
market share and also the creative work of the agency. The other parameters could be brand
awareness, copy test results, performance review etc.
Percentage Charges: This method adds a mark up on various services purchased from outside
providers. It includes market research work, art work, printing, photograph and other
services or materials used. The mark up are usually up to 20% and are added to the client’s
bill.
The agencies lose clients because of

 Poor performance of service

 Poor communication
 Unrealistic demand by client
 Personality conflicts
 Frequent changes
 Changes in size of the client or agency
 Conflict of interest—Corporate strategy/Market strategy
 Declining sales
 Changes in policies
Top Advertising Agencies in India 10 Years Back
 Hindustan Thomson Associate, Bombay.
 Ogilvy Benson and Mather, Bombay.
 Sobhagya Adv. Services, Bombay.
 Clarion Adv. and Marketing, Calcutta.
 Pressman Adv. and Marketing, Calcutta.
 Lintas India, Bombay.
 Rediffusion Adv., Bombay.
 Ulka Adv., Bombay.
 R.K. Swamy Adv. Ass., Madras.
 Everest Adv., Bombay.
 Chaitra Adv., Bombay.
 Sistas Adv., Bombay.
 Mudra Comm., Ahmedabad.