TYPES OF

ADVERTISING
AGENCY
INTRODUCTION
 On the basis of services offered, advertising agencies can be of the
following types.

(a) Full service agencies which offer all the services

(b) Specialized agencies or Limited service agencies which offer only
selected or specialized services.
FULL SERVICE AGENCIES
 These are large or medium sized advertising agencies capable of conducting a
complete advertising campaign. They may have subsidiary companies or an
association with other companies dealing with marketing research, public
relations, media buying, film production, advertising, sales promotion etc.
Thus, these agencies are able to handle all the tasks involved in an advertising
campaign be it designing of the campaign, buying media space, conducting
marketing research, undertaking sales promotion, building public relations, etc.
This means that a full service agency performs all the functions of an
advertising agency-account planning, creative function, media planning and
research. These agencies handle the advertising campaigns for the top most
advertisers.
 BOARD OF DIRECTORS

CHIEF EXECUTIVE

ACCOUNT DIRECTORS

ACCOUNT EXECUTIVES

MARKETING
RESEARCH MEDIA PLANNING CREATIVE ADMINISTRATION

SPACE BUYING MEDIA TIMING

COPY WRITING FILM PRODUCTION AUDIO PRODUCTION

SPECIALISED AGENCIES
 These agencies do not provide the entire range of advertising
agencies. Rather, they provide specialised services in a particular
area like media buying, copywriting etc. Firms which do not want
to avail to complete range of advertising services may opt for those
specialised agencies which meet their specific requirements.
Creative Boutiques and media buying agencies are some examples
of specialised agencies.
A) CREATIVE BOUTIQUE
 A Creative Boutique is a kind of specialised agency that provides only creative
services. It is usually small in size, with a few members who concentrate only
on the creative execution of the client’s marketing communications. A creative
boutique will have writers and artists as its staff. There is no staff for media,
research or strategic planning. The client may seek outside creative talent for
two reasons:

(a) Because he wants an extra creative effort

(b) May be because its own employees of the in-house agency or the agency
that he has appointed do not have sufficient skills in this regard.
 The full service agencies also sub-contract work to
creative boutiques when they are very busy or want to
avoid adding full time employees on their pay roll. These
boutiques generally perform creative functions on a fee
basis.
B) MEDIA BUYING AGENCIES
 A media buying agency is a specialised agency which buys media
time and space in bulk from various media and sells them to
different advertisers according to their needs.
 The task of purchasing advertising media has grown more complex
as specialised media proliferate, so media buying services have
found a niche by specialising in the analysis and purchase of the
advertising time and space. Agencies and clients generally develop
their own media plans and then hire the buying services to execute
them.
 Some media buying agencies do help advertisers in
planning their media strategies. Because media buying
agencies purchase such large amounts of time and space,
they receive large discounts and can save the small
agency’s or client’s money on media buying. Media buying
agencies are paid a fee or commission for their work.
 IN HOUSE ADVERTISING
AGENCIES
 An inhouse agency is an ad agency set up, owned and operated by the
advertiser. Many companies use in house agencies exclusively, others
combine in-house efforts with those of outside agencies.
 A major reason for using in-house agency is to reduce advertising and
promotional costs. Companies with very large advertising budgets pay a
substantial amount to outside agencies in the form of media commissions.
With an internal structure, these commissions go to the inhouse ad agency.
An in-house ad agency can also provide related work such as sales
presentations and sales force material, package design, and public relations
at a lower cost than the outside agencies.
 Saving money is not the only reasons explaining why the companies use in-
house ad agencies. Time savings, bad experience with outside agencies, and
the increased knowledge and understanding of the market that come from
working on the advertising and promotion for the product or service day by
day are also the reasons. Companies can maintain a tighter control over the
process and more easily coordinate promotions with the firm’s overall
marketing programmes.
 Critics of the in-house agencies say that they can give the advertiser neither
the experience nor the objectivity of the outside agency and nor the range of
services. They argue that the outside agencies have more specialised staff and
attract the best creative staff. Also, flexibility is higher since if the company
is not satisfied with the agency it can be dismissed, whereas changes in an in-
house agency could be slower and more disruptive.
ADVANTAGES
1. As in-house agency decreases the advertising cost by saving the
commission which would otherwise go to the outside agency.

2. It allows greater control over advertising activities

3. It also allows increased coordination between the advertiser and

the agency personnel.
DISADVANTAGES
1. In-house agency faces the problem of dearth of talent as it
cannot attract the best talents considering its narrow range
of work.

2. There is too much management control to give free reign

to creativity.

3. It lacks the experience that an outside agency gains by

handling a lot of clients.
 It is due to these disadvantages that more and more organisations
now believe in outsourcing their advertising work to the outside
agencies. They may use either full-service agencies or specialised
agencies depending on their advertising requirements. These
organisations believe that the outside agencies have more talented
people, experience and knowledge to understand and solve each
client’s unique advertising problem and can help them to achieve
their advertising objectives.

 In-house agencies may later evolve into multi-client full fledged

agencies. For example, Lintas and Mudra evolved beyond the
founding client Unilever and Reliance, respectively.
AGENCY COMPENSATION
 Advertising agencies get paid for their services in the following
ways:

1. Commission
2. Fee
3. Percentage Charges
4. Incentive based system
1. COMMISSION
 The commission system of compensating the advertising agencies for the
services rendered by them is the most traditional method. The agency is
paid a fixed commission, which is usually 15% from the media, on any
advertising space or time purchased for the advertiser/client.

 For instance, the agency places an order to purchase a full page ad in a

newspaper costing Rs. 50000. The newspaper (i.e. the media) will bill the
agency for Rs. 50000 less 15% (i.e. less commission). The media also
offers a 2% (Rs 1000) cash discount for early cash payment, which the
agency passes over to the client. Thus, agency will bill the client for Rs.
50000 less 2% cash discount. Thus, the client will pay Rs. 49000 and
15% commission of Rs 7500 is kept by the agency.
2. FEE
 Agency executives might feel that 15% commission is inadequate
for the services rendered to the client. Thus, in addition to the
commission, the agency charges a fixed fee based on the work
done. For instance, the agency may charge a fixed fee for a TV
commercial created by it which will be used over a long period of
time.
 Sometimes, the agency is paid through a combination of fees and
commission method. The media commissions received by the
agency are adjusted against the agreed fee. If the received
commissions are less than the negotiated figure, the client has to
make up for the difference.
 Another variant of this method is the cost-plus method under which
the client agrees to pay a fee based on the cost of the work the
agency performs, plus some mutually agreed margin of profit for
the agency. Thus, under this method, the agency is required to keep
detailed records of the costs incurred in performing the desired
services for the client.
3. PERCENTAGE CHARGES
 Sometimes the agency buys some services like market research,
artwork, printing etc. from the outside for the client. While billing
the client, it adds some percentage of these charges as a markup.
These charges are known as percentage charges. For instance, if an
agency pays Rs. 100000 for research conducted for its client, it may
add 17.65% of these charges Rs. 17650 and the bill the client for
Rs. 1,17,650 (note that with these percentage charges, the agency
will also earn a commission of 155 at 17.65% of Rs 100000 = 15%
of Rs. 117650).
4. INCENTIVE BASED SYSTEM
 Some companies use incentives based system to compensate
agencies for their performance. The basic idea is to compensate the
agency on the basis of how well the agency has been able to
achieve the predetermined goals identified jointly by the client and
the agency. Performance criteria may relate to market share, sales,
or the quality of agency’s creative work. The incentive based
system is a good way to work in theory but in practice, it is very
difficult to implement. The results achieved by the client are not
only dependant on the agency’s creative work but also on
competitive advertising over which the client and the agency has no
control. In such a situation, holding the agency responsible for the
results may not be fair.