The Scope of Advertising: From Local to Global

The Advertising Industry: From Local to Global

The Organizations in Advertising

  • Marketers (Advertisers): Companies or individuals that market products or services.

  • Agencies: Independent organizations specializing in creating and preparing advertising.

  • Suppliers: Provide specialized services (e.g., photography, printing, research).

  • Media: Channels for transmitting advertising messages (e.g., TV, radio, digital).

The People in Advertising

  • Employed by Advertisers: Individuals in corporate roles such as sales, research, management, accounting, computer science, and law.

  • Creative Talent: Artists, writers, photographers, musicians, performers, and cinematographers, often employed by agencies or as freelancers.

Advertisers (The Clients)
Local Advertising: Where the Action Is

  • Significance: Most consumer sales are made or lost at the local level.

  • Types of Local Advertisers:

    • Dealers or Local Franchisees: Businesses operating under a larger brand (e.g., Hyundai of Wesley Chapel).

    • Stores Selling Branded Merchandise: Retailers offering a variety of products (e.g., Publix).

    • Specialty Businesses and Services: Unique local businesses (e.g., florists, dry cleaners).

    • Governmental and Nonprofit Organizations: PSAs, community events, fundraising.

  • Types of Local Advertising:

    • Product Advertising: Promotes specific products or services.

      • Regular Price-Line Advertising: Emphasizes competitive prices for products.

      • Sale Advertising: Announces temporary price reductions.

      • Clearance Advertising: Used to clear out old inventory.

    • Institutional Advertising: Builds goodwill and an image for the organization rather than specific products (e.g., Publix's community involvement).

    • Classified Advertising: Used for job openings, real estate, used goods, etc.

  • Integrated Marketing Communications (IMCIMC):

    • Local advertisers were early adopters of IMCIMC, which involves joining together all communications with customers in a consistent manner.

  • Creating Local Advertising:

    • Historically limited to newspaper and radio ads.

    • Digital media has significantly expanded options.

    • Advertisers often leverage merchandising or customer insights to generate ad ideas.

    • The goal is to create a consistent and distinctive look and message.

  • Cooperative Advertising (Co-op Advertising):

    • Definition: Advertising sponsored by manufacturers or large distributors that provides money to their dealers or retailers to advertise their products.

    • Purpose: Helps to build the manufacturer’s brand image and assist distributors, dealers, or retailers in making more sales.

    • Vertical Cooperative Advertising: Manufacturer provides support to a reseller.

    • Horizontal Cooperative Advertising: Firms in the same or related businesses pool funds for a joint advertising campaign (e.g., a group of local car dealers advertising together).

Regional and National Advertisers

  • Regional Advertisers: Operate in one specific part of the country.

  • National Advertisers: Operate in several regions or throughout the entire country.

  • Leading National Advertisers (U.S. Only): Data from Ad Age shows significant spending.

    • In 20222022, Amazon was the most-advertised brand at $6.1\$6.1 billion (a +33%+33\% increase).

    • Other top advertisers in 20222022 included Walmart ($2.2\$2.2B), Geico ($1.5\$1.5B), Target ($1.4\$1.4B), Verizon ($1.4\$1.4B), Progressive ($1.3\$1.3B), Capital One ($1.3\$1.3B), Apple ($1.2\$1.2B), Disney ($1.2\$1.2B), and T-Mobile ($1.1\$1.1B).

    • In 20232023, Amazon's spending increased to $13.3\$13.3 billion.

  • Amazon Case Study: In 20212021, Amazon spent $16.9\$16.9 billion on worldwide advertising and promotion, which equates to approximately $46\$46 million a day, $1.9\$1.9 million an hour, $32,000\$32,000 a minute, or $536\$536 a second.

Differences Between Local and National Advertisers (Exhibit 4-3)

  • Focus:

    • National: Brand image, market share, long-term strategies, market-centric.

    • Local: Volume, gross sales, short-term tactics, customer-centric.

  • Time Orientation:

    • National: Long-term campaigns.

    • Local: Short-term ads.

  • Resources:

    • National: Budgets often $5−$10\$5-\$10 million or more, employing many specialists.

    • Local: Budgets typically less than $1\$1 million, employing a few generalists.

How Large Companies Manage Their Advertising

  • Centralized Organization (Exhibit 4-4):

    • Common in companies like General Mills.

    • Advertising is managed by a central advertising department.

    • Organized by product, subfunction, end-user, media, or geography.

    • A Vice President/Marketing Director oversees Marketing Services (Market Research, Media, Graphic Production, Copywriting) and Brand Managers, who interact with the ad agency.

  • Decentralized Organization (Exhibit 4-5):

    • Used by companies with multiple divisions or subsidiaries.

    • Each division, subsidiary, region, or brand group is responsible for its own advertising.

    • Each division (e.g., Consumer Products, Industrial Products, International) operates almost like a separate company regarding marketing.

    • Features brand managers with significant authority over advertising for their specific brands.

Transnational Advertisers

  • Challenges: Companies marketing abroad face diverse value systems, environments, languages, and varying customer purchasing abilities, habits, and motivations.

  • Decentralized International Structure:

    • Each overseas division is often set up almost like a separate company, with local brand managers having considerable autonomy to adapt products and advertising to local tastes (e.g., unique McDonald's menu items like "Flavours of India" burgers or regional teriyaki burgers in Japan).

  • Multinational Corporations:

    • Maintain strong centralized control over marketing activities globally.

    • Global Marketers: Adopt a consistent global approach for products and advertising.

    • Global Brands: Brands that are recognized and marketed similarly worldwide.

    • Requires extensive research to ensure global messaging resonates locally without losing its core identity.

The Advertising Agency
The Role of the Advertising Agency

  • Definition: An independent organization of creative people and businesspeople who specialize in developing and preparing marketing and advertising plans, advertisements, and other promotional tools.

  • Key Functions/Benefits:

    • Specialize in producing effective ad campaigns.

    • Offer an independent, objective view of the client's business.

    • Employ a diverse range of business and creative professionals.

    • Possess specialized media expertise to reach target audiences efficiently.

    • Clients use agencies based on self-interest, recognizing their ability to offer specialized skills and efficiency.

Types of Agencies

  • By Geographic Scope:

    • Local Agencies: Serve local businesses.

    • Regional and National Agencies: Serve clients across regions or nationwide.

    • International Agencies: Have offices in multiple countries to serve global clients.

  • By Service:

    • Full-Service Agencies: Offer a complete range of advertising and marketing services.

      • General Consumer Agencies: Focus on consumer products and services for national brands (B2C).

      • Business-to-Business (B2B) Agencies: Specialize in advertising for companies that market products or services to other businesses.

    • Specialized Service Agencies: Focus on a particular area.

      • Creative Boutiques: Provide only creative services (copywriting, art direction).

      • Media-Buying Services: Specialize in planning and purchasing media time and space.

      • Interactive Agencies: Focus on digital media, web development, online advertising, and social media.

What People in an Agency Do

  • Account Management:

    • Account Executives: Act as liaisons between the agency and the client.

    • Their role is to formulate and execute advertising plans and represent the client's viewpoint to the agency.

  • Research and Account Planning:

    • Account Planning: Uses research to bridge the gap between account managers and creative teams.

    • Defends the consumer viewpoint within the agency.

    • Helps the creative team translate research findings into compelling campaigns.

  • Creative Concepts:

    • Copywriters: Prepare the verbal content of advertisements.

    • Art Directors, Graphic Designers, Production Artists: Responsible for the visual elements.

    • Creative Director: Oversees all creative work, ensuring consistency and quality.

  • Advertising Production: Print, Audio, and Video:

    • Responsible for developing print elements, video, and audio for ads.

    • Managed by a print production manager or video producer.

    • Also create collateral materials such as dealer kits and direct mail pieces.

  • Media Planning and Buying:

    • The fragmentation of audiences (due to numerous media channels) makes this job challenging.

    • Under the trend toward IMCIMC, this task has become even more significant.

    • The success of many products is often attributed more to clever media buying than to clever ad creative (e.g., American Medical Association).

  • Traffic Management:

    • Coordinates all phases of production to ensure deadlines are met.

    • Often the first stop for entry-level college graduates entering an ad agency.

  • Additional Services:

    • Many agencies offer integrated marketing services, including sales promotion, public relations, direct marketing specialists, web page designers, home economics experts, and package designers.

  • Agency Administration: Handles internal operations such as finance, human resources, and facilities.

How Agencies Are Structured

  • Structure is based on the type of accounts it serves, its size, and geographic scope.

  • Departmental System: The agency is organized into departments (e.g., creative, media, account management), with each department serving all clients.

  • Group System: The agency is divided into small, multidisciplinary groups, with each group working on multiple assigned accounts.

  • Typical Agency Organization (Exhibit 4-6): Includes roles like Chair, Senior Finance Manager, Senior Operations Manager, Account Planner, Creative Director, ICMCC Director, Media Supervisor, and Senior Account Director, with various specialized roles reporting to them.

How Agencies Are Compensated

  • Media Commissions:

    • Traditionally, agencies received a 15%15\% commission on the space or time purchased on behalf of the client.

  • Markups:

    • Agencies typically add a markup (e.g., 17.65%17.65\%) to the cost of outsourced services (e.g., printing, research, photography).

    • This 17.65%17.65\% markup on the cost base allows the agency to earn a 15%15\% gross profit on the client's total billings.

  • Fees:

    • Fee-Commission Combination: The agency charges a basic monthly fee for its services and retains any media commissions earned.

    • Straight-Fee or Retainer Method: The agency charges the client an hourly rate or a monthly retainer for its services, and the client pays all media and production costs.

The In-House Agency

  • Definition: An advertising agency wholly owned by an advertiser and set up as a separate department or division within the company.

  • Advantages:

    • Can save the company money on agency commissions and fees.

    • Provides tighter control over the company's advertising efforts.

    • Management can be more directly involved in the advertising process.

  • Disadvantages:

    • Biggest Problem: Loss of objectivity, as the agency may be less critical or innovative due to its direct employment by the client.

    • May lack the diverse talent and external perspective of an independent agency.

The Client–Agency Relationship
How Agencies Get Clients

  • Referrals: The most common method, often from existing clients or other professionals.

  • Presentations: Agencies present their capabilities and ideas to prospective clients. This can include speculative presentations, where the agency develops initial campaign concepts without prior commitment.

  • Networking and Community Relations: Building professional connections and participating in community activities to gain visibility.

  • Soliciting and Advertising for New Business: Actively pursuing new clients through direct outreach or self-promotion.

Stages in the Client–Agency Relationship

  • The relationship typically progresses through four distinct stages:

    • Inception: The initial phase where the client and agency evaluate each other.

    • Development: The period when the agency and client work together to establish strategy and campaigns.

    • Maintenance: The ongoing, stable period of the relationship, where campaigns are executed and refined.

    • Dissolution: The ending of the relationship, which can occur for various reasons.

Factors Affecting the Client–Agency Relationship (The Four Cs)

  • Chemistry: The personal rapport and compatibility between client and agency personnel.

  • Communication: Open and honest exchange of information, feedback, and expectations.

  • Conduct: The professionalism, performance, and ethical behavior exhibited by both parties.

  • Changes: External or internal shifts that can impact the relationship, such as personnel changes, market shifts, or strategic realignments.

The Suppliers in Advertising

  • Service Providers:

    • Art Studios and Web Designers: Create artwork, illustrations, layouts, and digital interfaces.

    • Printers and Related Specialists: Handle printing, typesetting, and finishing services for print ads and collateral.

    • Production Companies: Produce television commercials, radio spots, online videos, and other audiovisual content.

    • Research Companies: Conduct market research, consumer insights studies, and ad effectiveness evaluations.