INTEGRATED MARKETING COMMUNICATIONS

HARISH.R, LECTURER, DON BOSCO INSTITUTE OF TECHNOLOGY

CHAPTER 2 ORGANIZING FOR ADVERTISING AND PROMOTION: THE ROLE OF AD AGENCIES AND OTHER MARKETING COMMUNICATION ORGANIZATIONS
Chapter Overvie
The purpose of this chapter is to familiarize the student with the various ways that organizations might organize for purposes of developing and executing integrated marketing communications programs. Students often have little or no idea regarding how the role of the various participants in the advertising and promotional program and how the IMC function is organized and coordinated. The chapter begins with a presentation of the various participants involved in the promotional planning process advertisers! advertising agencies! media organizations! marketing communication specialist organizations! and collateral service organizations. This is followed by a discussion of the various organizational systems and the advantages and disadvantages of each. "n in depth discussion of the role and functions of advertising agencies is provided! as is an explanation of how agencies are compensated and evaluated. The chapter also discusses organizations that provide specialized integrated marketing communication services including direct response! sales promotion and interactive agencies as well as public relations firms. It is very important for students to understand that a variety of different organizations may play a role in the development of various aspects of a company#s integrated marketing communications program.

Chapter O!"e#tive$
$. %. &. '. To understand how companies organize for advertising and other aspects of integrated marketing communications. To examine methods for selecting! compensating! and evaluating advertising agencies. To explain the role and functions of specialized marketing communications organizations. To examine various perspectives on the use of integrated services and responsibilities of advertisers versus agencies.

Chapter a%& Le#t're O't(i%e

I. PARTICIPANTS IN THE INTEGRATED MARKETING COMMUNICATIONS PROCESS

This chapter examines the various organizations that participate in the integrated marketing communications process! their roles and responsibilities! and their relationship to one another. "s noted in the opening vignette on (M)#s use of short films on the Internet! marketers are always searching for creative ways to communicate with their customers. "gencies such as *allon )orldwide are used because of their strong creative capabilities and their ability to bring novel approaches to their clients marketing programs. Today! more marketers are looking for agencies that can offer a range of integrated marketing communication capabilities and help them compete in the rapidly changing world of advertising and promotion. The opening section provides an overview of the various participants in the integrated marketing communications process. The student should become familiar with the various players including clients! advertising agencies! media organizations! marketing communications specialist organizations and those who provide collateral services. It is particularly important to note that with the
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INTEGRATED MARKETING COMMUNICATIONS

HARISH.R, LECTURER, DON BOSCO INSTITUTE OF TECHNOLOGY

movement toward IMC! marketing communication specialist organizations such as direct response agencies! sales promotion agencies! public relations firms! and interactive agencies are playing an increasingly important role in the promotional process. II. ORGANIZING FOR ADVERTISING AND PROMOTION IN THE FIRM: THE CLIENTS ROLE

+ow a firm organizes for advertising and promotions is a function of a number of factors including ,$the size of the organization! ,%- the number of products it markets! ,&- the role that advertising and promotion assume in the product mix! ,'- the advertising and promotions budget! and ,.- the structure of the firm. Three organizational designs are discussed/ ". The Centralized System0In this design! marketing activities are organized along functional lines. " common form is to have an adverti i!" #a!a"er ,or marketing communications managerresponsible for all advertising and promotions activities including planning and budgeting! administration and execution! and coordination with other departments and outside agencies. The 1ecentralized System0In this system! individual products or brands are the responsibility of the $r%d&'t #a!a"er %r (ra!d #a!a"er. "ll advertising and promotion for the brand or product will be this person#s responsibility ,including responsibilities for working with all external agencies- and s2he will be in charge of all planning! implementation and control for that product or brand. The In +ouse "gency0Some companies develop their own internal ad agencies. The design of these agencies may vary from as small as an advertising department to as large as an external agency. In the latter case! the in house agency will operate as a separate entity and control advertising and promotional expenditures in millions of dollars. The advantages and disadvantages associated with each of these organizational designs are shown in 3xhibit & .. This exhibit can be used as an effective overhead for class discussion purposes.

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C.

Professor Notes:

III. ADVERTISING AGENCIES Many large companies employ the services of an external advertising agency. In %44& there were over $&!.44 such 5.S. and international agencies listed in the Standard Directory of Advertising Agencies! ,The 67ed (ook8 can be accessed at www.redbooks.com- ranging in size from one and two person operations to those with almost a billion dollars in worldwide income. ". The "d "gency#s 7ole0external agencies provide a variety of services to their clients! including those discussed in the previous section. Though many clients have the capabilities of performing these roles themselves! they elect to use outside agencies for the following reasons/ ,$- the skills offered ,%- ob9ectivity and ,&- experience.
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INTEGRATED MARKETING COMMUNICATIONS

HARISH.R, LECTURER, DON BOSCO INSTITUTE OF TECHNOLOGY

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Types of "dvertising "gencies0all agencies are not the same of course. This section discusses the various types of agencies including the following/ $. *ull Service0these agencies offer their clients a full range of services including account services! marketing planning and research! media planning and buying! sales promotion! creative services! and interactive media. The various departments of a full service agency include/ "ccount services0the link between the advertising agency and its clients. A''%&!t e)e'&tive serve as the liaison between the agency and client and are responsible for coordinating the agency:s efforts in planning! creating and producing ads. Marketing services0many full service agencies provide a variety of marketing services to their clients and maintain departments such as research! strategy and planning and media. In a full service agency the media department is very important since many clients are consolidating their media buying to save money and improve media efficiency. Creative services0agency personnel in this department include arti t and '%$*+riter who are responsible for the creation and execution of the clients advertising messages. Creative services may also include print and broadcast production departments which are responsible for actually producing the advertising messages and putting them into final form. The tra,,i' de$art#e!t coordinates all phases of production and sees that all ads are completed on time and deadlines for submitting the ads to the media are met. Management and finance0like any other business! an advertising agency must be managed and must perform basic operating and administrative functions such as accounting! finance and human resources

"ttention should also be given to the two basic types or agency organization structures used by agencies. 5nder the de$art#e!ta- * te# each of the agency functions is set up as a separate department and is called upon to perform its specialty for all of the agency#s clients. Many agencies use the "r%&$ * te# in which individuals from each department work together as teams to service a particular account. Many clients prefer the group system because agency employees become very familiar with their business and it ensures continuity in servicing the account. ;ther Types of "gencies and Services $. Creative bouti<ues0these types of agencies specialize in and provide only advertising creative services. IMC =erspective & % provides some insights into these small agencies. %. Media buying services0these are independent companies that specialize in media planning and buying. Many companies use independent media buying to plan and purchase media and an advertising agency to handle their creative work. Professor Notes

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INTEGRATED MARKETING COMMUNICATIONS

HARISH.R, LECTURER, DON BOSCO INSTITUTE OF TECHNOLOGY

IV.

AGENC. COMPENSATION

"gency agencies may be compensated in a variety of ways including/ ". Commissions from Media0the agency is compensated based on the time or space it purchases for its client. The commission is typically $.> ,$? %2&> for outdoor-! and sometimes has been negotiated downward. The commission system has been the target of criticism for a number of years as critics argue that it ties agency compensation to media costs and encourages agencies to rely too much on expensive! commissionable media such as network television and avoid noncommissionable media. Many advertisers have moved to a !e"%tiated commission system that takes the form of reduced percentage rates! variable commission rates and minimum and maximum compensation rates. " recent survey by the "ssociation of @ational "dvertisers found that less than $4 percent of clients pay their agencies a $.> commission. +owever! most clients do use the $.> commission as a benchmark to evaluate their current agency compensation agreement. *ee! Cost and Incentive based Systems0in situations where billings are low! and2or the client does not wish to pay a direct commission! an agreement may be reached in which the agency is compensated in the way of a fee! cost plus or incentive based compensation system. $. *ee arrangements are of two types/ a ,i)ed/,ee #et0%d where the agency charges a basic monthly fee for all of its services and credits to the client any media commissions earned. 5nder a ,ee/'%##i i%! '%#(i!ati%! the media commissions received by the agency are credited against the fee. If commissions are less than the agreed on fee! client must make up the difference. %. Cost plus agreement0under this compensation method the client agrees to pay the agency a fee based on costs of its work plus some agreed on profit margin. This system re<uires the agency to keep detailed records of costs incurred in working on a client#s account. &. Incentive based compensation0while there are many variations on this system! the basic idea is that the agency#s compensation level will depend upon how well it meets predetermined performance goals for its clients such as sales or market share. Incentive based compensation. Incentive based compensation systems are becoming more prevalent as marketers are seek to make their agencies more accountable and reduce costs. C. =ercentage Charges0when agencies purchase services from other outside agencies they typically add a percentage in the form of a #ar1&$ '0ar"e as their compensation. These markups usually range from $A.?. to %4 percent.

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Professor Notes

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INTEGRATED MARKETING COMMUNICATIONS

HARISH.R, LECTURER, DON BOSCO INSTITUTE OF TECHNOLOGY

V.

EVALUATING AGENCIES

Biven the substantial amounts of money being spent on advertising by many companies! demands for accountability are increasing. The agency evaluation process generally involves two types of assessments 0,i!a!'ia- a&dit and 2&a-itative a&dit . "n increasing trend among larger firms is to formalize this process as demonstrated by the (orden example shown in 3xhibit & A of the text. ". Baining and Cosing Clients0agencies are like their clients in the sense that they must solicit business! and often gain and lose business. The text offers a variety of reasons as to why agencies gain and lose clients! as well as some of the activities they perform in seeking new business. Current issues of Advertising Age or AdWeek will be useful in providing the instructor with examples of recent account changes and some of the reasons the clients decided to change agencies. IMC =erspective & & discusses how Bateway has changed agencies five times in the past ten years and provides some insight into the reasons for the changes. $. 7easons why agencies lose clients =oor performance or service =oor communication 5nrealistic demands by the client =ersonality conflicts =ersonnel changes Changes in size of the client or agency Conflicts of interest Changes in the client#s corporate and2or marketing strategy 1eclining sales Conflicting compensation philosophies Changes in policies

%. +ow agencies gain clients 7eferrals Professor Notes Solicitations =resentations =ublic relations Image and reputation

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INTEGRATED MARKETING COMMUNICATIONS

HARISH.R, LECTURER, DON BOSCO INSTITUTE OF TECHNOLOGY

VI.

SPECIALIZED SERVICES

In addition to advertising agencies! other outside organizations may provide marketers with specialized services that are important in developing and executing integrated marketing communication programs. ". 1irect 7esponse "gencies0one of the fastest growing areas in IMC is direct marketing where companies communicate with their customers through telemarketing! direct mail and other forms of direct response advertising. 1irect response agencies provide their clients a variety of services including data base development and management! direct mail! research! media services! and creative and production capabilities. Sales =romotions "gencies0there are many companies specializing in the provision of sales promotions such as contests! games! sweepstakes! and refund and rebate offers. Services provided by large sales promotion agencies include promotional planning! creative! research! tie in coordination! fulfillment! premium design! and contest2sweepstakes management. Some time might also be spent discussing how promotional agencies are becoming important participants in the development of integrated marketing communications strategy for various companies. =ublic 7elations2=ublicity "gencies0many large companies use both advertising agencies and public relations ,=7- firms. =ublic relations firms develop and implement programs to manage an organization#s publicity! image! and affairs with consumers and other relevant publics including employers! suppliers! stockholders! government! labor and the general public. The role of =7 firms is examined in more detail in Chapter $A. Interactive "gencies0with the rapid growth of the Internet and other forms of interactive media! a new type of specialized marketing communication organization has evolved0 t0e i!tera'tive a"e!'*. )hile many traditional agencies like have established interactive capabilities! a number of marketers are turning to more specialized firms such as 1igitas and "gency.com to develop web sites! banner ads for the Internet! and other forms of interactive advertising.

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Professor Notes

VII. COLLATERAL SERVICES The final group of participants in the promotional process is those organizations that provide collateral services such as marketing research! package design! consulting! photography! event sponsorship planning and production and broadcast production services. ;ne of the more widely used collateral service organizations is marketing research firms that conduct both <ualitative research such as focus groups and <uantitative studies such as market surveys.

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INTEGRATED MARKETING COMMUNICATIONS

HARISH.R, LECTURER, DON BOSCO INSTITUTE OF TECHNOLOGY

VIII. INTEGRATED MARKETING COMMUNICATION SERVICES " significant trend in the advertising industry is to combine all of the above services under one roof. These %!e/ t%$ ervi'e a"e!'ie bring together service providers so that the client needs only to use their firm to receive all of the marketing support s2he re<uires. Specific advantages and disadvantages of these arrangements have been cited/ ". =ros and Cons of Integrated Services0It has been argued that IMC is nothing new! particularly in smaller companies and communication agencies that have coordinating promotion tools for years. The text discusses the advantages and disadvantages of the one stop shop. $. "dvantages of integrated services Breater control of the promotional process allows for more synergy among each of the communication program elements More convenient for clients to coordinate all promotional efforts with one agency "gencies with IMC capabilities can create a single image for the client

%. 1isadvantages of integrated services Synergy and economies of scale are often not achieved by a single agency handling all communication areas Internal conflicts often arise within various departments within a large agency over areas such as advertising! public relations or sales promotion Cimits client#s ability to take advantage of specialists in various IMC areas

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7esponsibility for IMC/ "gency versus Client0" final area covered in this section is a discussion of whether the client or advertising agency should have the primary responsibility for planning and coordinating the IMC process. Most marketers believe it is their responsibility to set strategy for and coordinated integrated campaigns while agency executives see this as their domain. The ma9or barrier is a lack of people in agencies with the broad perspective and skills needed to make IMC work effectively. Internal turf battles! agency egos! and fear of budget reductions are also cited as ma9or barriers to successful integrated marketing campaigns.

Professor Notes

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INTEGRATED MARKETING COMMUNICATIONS

HARISH.R, LECTURER, DON BOSCO INSTITUTE OF TECHNOLOGY

Tea#hi%) S'))e$ti*%$
"s noted earlier! the student is usually unfamiliar with how companies organize for advertising and promotion! and the role that various organizations play in this process. )hile most students are somewhat familiar with advertising agencies! they are less likely to know anything about direct response and sales promotion agencies! public relations firms and interactive agencies. Fou might note that there are some excellent career opportunities available in these areas. Students are often interested in working for an advertising agency. This chapter will help to familiarize them with other ma9or participants in the IMC process and the important role they play. Fou might encourage students to visit the web sites of a promotion agency such as 1GC )orldwide ,www.dvc.com - or an interactive agency such as "gency.com ,www.agency.com - or 1igitas! ,www.digitas.com- both of which have very informative sites. (ecause of the rapidly changing advertising environment! it is important for the instructor to keep up to date with events that are taking place. Bood sources of information on advertising are publications such as Advertising Age, AdWeek, and BrandWeek. Fou can also access information from these publications online at www.adage.com and www.adweek.com! and. *or excellent articles and sources of information on sales promotion students should be referred to Promo magazine which can be accessed online at www.promomagazine.com . )e suggest that use of the outline provided here be supplemented by additional articles from the media listed above. )e have also found strong student interest in identifying which current advertisements have been created by various agencies. Most ma9or agencies have excellent websites which contain client rosters! examples of their advertising! information about their advertising philosophy! approaches to branding and content related to other areas IMC areas. There are some very interesting books on the advertising industry that could be suggested readings for students. Some of these provide insights into the workings of the advertising world while others discuss the various perspectives that agencies operate from. Some suggestions include/ 7osser 7eeves! Reality in Advertising "lison *endley! Saatc i ! Saatc i, " e #nside Story Hevin Boldman! $onflicting Acco%nts &" e $reation and $ras of t e Saatc i ! Saatc i Advertising 'm(ire) 1avid ;gilvy! *gilvy on Advertising, $onfessions of an Advertising +an 1avid ;gilvy! 3ric Clark! " e Want +akers Ion Steel! "r%t , ,ies ! Advertising: " e Art of Acco%nt Planning Iohn ;#Toole! " e "ro%ble Wit Advertising Martin Mayer! +adison Aven%e, -.S.A. There are also some more recent books which provide insight into changes that are impacting the traditional advertising agency business and provide interesting perspectives on the industry. These include/ (ob Barfield! And Now A .ew Words .rom +e Sergio Jyman! " e 'nd of Advertising as We /now #t "l 7ies and Caura 7ies! " e .all *f Advertising ! " e Rise of PR
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INTEGRATED MARKETING COMMUNICATIONS

HARISH.R, LECTURER, DON BOSCO INSTITUTE OF TECHNOLOGY

A%$ er$ t* Di$#'$$i*% +'e$ti*%$

$. 3valuate the decision by (M) and its advertising agency! *allon )orldwide! to develop short films that can be viewed at the (M) *ilms.com website. 1o you think more companies will be using the 6advertainment8concept to promote their productsK "s discussed in the opening vignette to the chapter! two ma9or factors drove the decision by (M) and *allon )orldwide to pursue the 6advertainment8 concept and develop short films that could be viewed at the (M)*ilms.com site on the Internet. *irst there was a concern that traditional media advertising for (M) was losing its effectiveness and it was becoming more difficult to differentiate the brand. Second was the desire to exploit the popularity of the Internet among car buyers and (M)#s target audience in particular. (M) wanted to keep its brand relevant and cool! particularly with younger customers between the ages of %. and '' who are entering the luxury car market. The short film campaign provides consumers the opportunity to discover and experience the brand on their own terms while showcasing the performance of different (M) models. It also allows (M) to show the car performing in extreme conditions and circumstances that could never be conveyed in a traditional TG spot. *or example! network censors might re9ect an ad showing a car being driven at high speeds or engaging in potentially dangerous maneuvers. The (M) films campaign has been very successful. 1uring the four month core of the promotion! the films were viewed more than $$ million times! initially drawing more visits than the site could handle. The campaign has also delivered on program ob9ectives by driving dramatic increases in brand measures such as personal relevance of the brand! purchase receptivity! dealer visits and ultimately sales. (M) sales increased by $%.. percent in %44$ without the benefit of any ma9or product launches! surpassing the %44!444 mark for the first time in history. The success of the (M)*ilms campaign is already motivating other companies to use the 6advertainment8 concept and develop short films that can be shown on their web site. "s discussed in the text! Skyy Spirits has been showing short films on the web site for Skyy vodka for several years. ;ther companies and brands such as Cevi Strauss! and "bsolut vodka have developed short films that can be viewed on their web sites and companies are developing other forms of branded content as well. %. Identify the various organizations that participate in the integrated marketing communications process and briefly discuss the roles and responsibilities. "dvertisers or clients are the key participants. It is their product or service that is being offered and that must be marketed. The advertiser is responsible for all marketing aspects! and will ultimately have the final say regarding approval of the proposed promotional programs. It is the advertiser who ultimately pays the bills. The advertising agency is an external organization specializing in the creation! production and placement of the communications messages. They may also provide additional services designed to facilitate the marketing effort. Media organizations provide the advertiser with a channel for their communications. Media may include print! broadcast! outdoor! etc.! and media organizations attempt to provide the advertiser with the proper environment for the message. Marketing communication specialist organizations provide services in specific areas of marketing communications. They include direct response agencies! sales promotion agencies! public relations firms and interactive agencies.

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INTEGRATED MARKETING COMMUNICATIONS

HARISH.R, LECTURER, DON BOSCO INSTITUTE OF TECHNOLOGY

Collateral services participants are those who provide a wide range of support services including marketing research! package design firms! consultants! photographers! event sponsorship firms! and the like. Their function will vary in accordance with the needs of the promotional program. &. )hat are some of the specific responsibilities and duties of the advertising manager under a centralized advertising department structureK )hy is an advertising manager needed if a company uses an outside agencyK The specific duties of the advertising or marketing communications manager will vary depending upon the size! organization and makeup of the firm. In a centralized system the manager may have responsibilities for all promotional functions except sales. These responsibilities may include planning and budgeting! administration and execution of the promotional program! coordination with other departments and outside agencies! and program evaluation. "n advertising or marketing communication manager may still be needed if an outside agency is used! as the agency may not perform all of the marketing tasks re<uired. There is also still a need for someone to plan and coordinate the IMC program internally as well as to serve as the liaison between the agency and the firm. In addition! the ad manager will be responsible for evaluating the external agency#s performance. '. 1iscuss the pros and cons of using an in house agency. )hat are some of the reasons why companies might change from using an in house agency and hire an outside agencyK Some of the reasons why firms use in house agencies include/ ,$- cost savingsL ,%- controlL and ,&increased ability to coordinate marketing and promotional activities. @egative aspects include/ ,$internal employees may have less experience and inferior skills than their external counterpartsL ,%they may be less ob9ective about the product and its capabilitiesL and! ,&- they may be less flexible with respect to what they are willing and able to do with the product and2or brands programs. Companies often use an in house agency when they have sufficient and capable staff to conduct the advertising and promotional activities themselvesL they have a very large advertising and promotional budget and wish to save the costs of fees and commissionsL and2or when they believe that the ability to coordinate and control the promotional activities is more feasible with this design. Companies such as Calvin Hlein and (enetton! which have often used controversial 6shock8 type ads! do their advertising in house to retain total control over the creative process. @o *ear is another example of a company that does its advertising in house. The company likes to have control over its advertising function and maintain somewhat of a mysterious image and positioning for the brand. They also feel they have the creative capabilities to design and implement creative and effective advertising messages. In some cases @o *ear will have some of its creative work done outside by a creative specialist or bouti<ue. Companies change from using an in house agency and hire an outside agency for various reasons. Many marketers feel that the use of an outside agency provides greater ob9ectivity with respect to the advertising. )hen an in house agency is used! management may get too close to the advertising process and product and lose its ob9ectivity when evaluating the ads. ;utside agencies can provide a more ob9ective perspective on the market and business that is not sub9ect to internal biases and politics. Companies often move from in house to outside agencies as they become larger and their advertising and other marketing communication needs become greater. 7ather than continuing to expand the in house agency! many companies will move to using an outside agency that has the various services and expertise needed by the company. It should be noted that perhaps the ma9or reason why outside agencies are used is that they provide the client with the services of highly skilled individuals who are specialists in the advertising area. ;utside agencies also offer more flexibility to an advertiser as they can always switch agencies and hire a new one if they are dissatisfied with the
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HARISH.R, LECTURER, DON BOSCO INSTITUTE OF TECHNOLOGY

work being done. It is much more difficult to terminate an in house agency and hire new personnel to replace them. .. 1iscuss some of the reasons why traditional advertising agencies have been developing more integrated marketing communications capabilities. )hat changes might traditional agencies have to make to improve their IMC capabilitiesK "s discussed in IMC =erspective & $! traditional advertising agencies have been developing more IMC capabilities because their clients are shifting more and more of their promotional dollars away from mass media advertising to other areas of marketing communication such as direct marketing! public relations! sales promotion! the Internet and event marketing and sponsorships. (y expanding their capabilities! traditional agencies can offer a full range of IMC services and provide a total communications solution to their clients. (y expanding their IMC capabilities and services! traditional agencies can also make money from other areas of their clients promotional spending such as direct marketing! interactive! sales promotion and public relations. The greatest change that traditional agencies have to make to improve their IMC capabilities is to develop or ac<uire expertise in these other areas. Traditionally agencies have been experts in areas related to advertising including creative and media. To expand their IMC capabilities agencies have to offer a broader range of services and develop expertise in areas such as direct marketing! event marketing! sales promotion! interactive and public relations. Many agencies have been ac<uiring these capabilities by purchasing companies such as interactive agencies! public relations and direct marketing firms or promotional agencies. ;thers have been working to develop these IMC skills internally through their hiring and training processes. ?. )hy might a company choose to use a creative bouti<ue rather than a larger! full service agencyK *ind an example of a company that uses a creative bouti<ue and discuss why the decision to use a smaller agency may be appropriate for this firm. Creative bouti<ues are agencies the provide only creative services and have developed in response to some companies# desires to use only the creative talent of agency. There are a number of reasons why marketers use creative bouti<ues. These smaller agencies often turn out excellent creative work and do not have the bureaucracy and politics of larger agencies. Many companies also feel that by working with a smaller creative bouti<ue they can get more attention and better access to creative talent than they would at a larger agency. Many creative bouti<ues are formed when creative people leave large agencies and form their own agencies. ;ften they take with them a client with whom they have worked closely and developed a strong relationship. "nother reason why a company might use a creative bouti<ue is that there are companies available to handle other parts of the advertising and promotional program. Independent media buying companies can be used to develop and implement the media strategy and plan while other types of companies can provide specialized services in other areas such as direct response! sales promotion! and interactive agencies as well as =7 firms. A. 1iscuss the various methods by which advertising agencies are compensated. )hat factors will determine the type of compensation system a company uses with an agencyK "gencies are typically compensated in three ways/ through commissions from the media! some type of fee arrangement or percentage charges. The traditional method of compensating agencies has been through media commissions whereby the agency receives a specified commission from the media on any advertising time or space it purchases for the client. There are two basic types of fee arrangements systems. 5nder the fixed fee method the agency charges a basic fee for all of its services and credits to the client and credits any media commissions earned. Sometimes agencies are compensated through a fee commission combination! whereby the media commissions received by the agency are credited against the fee. "nother type of fee based compensation arrangement is the

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INTEGRATED MARKETING COMMUNICATIONS

HARISH.R, LECTURER, DON BOSCO INSTITUTE OF TECHNOLOGY

cost plus system whereby the client agrees to pay the agency a fee based on the cost of its work plus some agreed on profit margin. The type of compensation system a company uses with an agency will depend upon a number of factors including the size of the advertising budget the role of advertising and their reliance on traditional media advertising versus other forms of integrated marketing communications. Most small companies do not have large enough advertising budgets to warrant the use of the traditional commission system. Thus some type of fee arrangement or cost plus system is likely to be used. Many large advertisers are moving away from the traditional commission system and using incentive based systems where agency compensation is tied to performance. The performance measures may include ob9ective measures such as sales and2or market share as more sub9ective measures such as evaluations of the agency#s creative work. "s more marketers adopt an integrated marketing communication perspective and move away from traditional mass media! changes in compensation systems are taking place. This may include a combination of compensation systems such as a negotiated set fee or media commission rate as well as incentives. D. )hy are many companies moving away from the traditional commission system and using incentive based compensation for their advertising agencies. )hy might an agency be reluctant to accept an incentive based compensation systemK There are several reasons why many companies are moving away from the traditional $. percent commission system and using an incentive based method of compensating their agencies. ;ne of the ma9or reasons for this change is that companies are demanding greater accountability from their agencies and feel that an incentive based compensation system is one way of achieving this. Companies feel that if agencies really want to be true partners! they will be willing to share in the sales performance of the product or service with them. *or many companies! advertising plays a ma9or role in determining the sales success of their product or service. Incentive based compensation systems also encourage agencies to look beyond traditional mass media advertising and to consider how other IMC tools that might be more effective in driving sales. *or example! the text notes that Beneral Motors and =rocter M Bamble are now using performance based systems and encouraging their agencies to look beyond traditional media advertising to reach consumers. There are a number of reasons why an agency might be reluctant to accept an incentive based compensation systemK " system in which the agency is compensated based on the brand#s performance in the marketplace has the potential to be a fair system! but may be fraught with problems as well. If the basis for evaluation is tied to communications ob9ectives ,as will be discussed later in this text- the system has may be acceptable to the agency. ;n the other hand! tying the compensation to market performance measures such as brand share and2or sales could be unfair. "s the student will learn later in this text! it is very difficult0if not impossible0to tie market share and sales figures directly to advertising. *or example! while the advertising may be working very well! other marketing variables may hinder sales and2or market share performance. 3xcellent advertising will not compensate for poor product <uality! over pricing or a poor distribution system. Thus! if one were to see poor performance of the brand in the marketplace! the advertising agency might be punished for problems beyond their control. In many instances! the agency is let go when sales are down! and often this is not the proper place to lay the blame. ;n the other hand! many agencies see incentive based compensation methods as a way of differentiating themselves and proving to clients that they are confident in their ability to develop advertising that will have a favorable impact on sales. Since clients are expecting more accountability from their advertising and promotional programs! and agencies may feel that their willingness to work under a incentive based compensation system will increase their likelihood of getting a company#s advertising business.

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INTEGRATED MARKETING COMMUNICATIONS

HARISH.R, LECTURER, DON BOSCO INSTITUTE OF TECHNOLOGY

E. IMC =erspective & % discusses how Bateway has changed advertising agencies five times in the past ten years. 1iscuss the various reasons why Bateway has changed agencies so often and how the changes may have impacted its advertising. There are a number of reasons why Bateway has changed agencies so many times over the past ten years. The company initially relied solely on print advertising used an in house agency. +owever! as the company grew rapidly television was added to the media mix and an outside agency! Carmichael Cynch! was retained to work with the company#s in house advertising department. +owever! as Bateway grew and its international sales increased! the company decided that it needed a global agency so it moved its account to the larger 1#"rcy Masius (enton M (owles. (oth agency changes occurred because of c anges in t e si0e of t e client ,Bateway-. +owever! Bateway#s founder and C3; Ted )ait! was dissatisfied with the traditional campaigns developed by 1M(M( and decided to move the advertising to a small creative bouti<ue. +e also brought back +enry Corra! the director and filmmaker! who had worked on Bateway commercials when the account was at Carmichael Cynch. the agency to direct the commercials. Bateway changed agencies once again when Ieff )eitzen was hired as the new C3; of the company and he moved the account to McCann 3rickson. )hen )eitzen left the company after three years and )aitt once again took control of the company! McCann 3rickson was dismissed and the advertising was moved to another creative bouti<ue! Siltanen2Heehn. These changes show that the (references of to( management often play an important role in the decision to change agencies and that (ersonal relations i(s are an important factor in agency selection and retention decisions. +owever! Bateway retained Siltanen2Hehn for less than a year and then moved its advertising to another agency! the "rnell Broup. This change was part of Bateway#s decision to reposition itself as more cool and hip company and to put more emphasis on selling products through its Bateway Country stores. This shows that decisions to switch agencies often occur as result of c anges in t e client1s cor(orate and2or marketing strategy . " problem that can arise from Bateway#s fre<uent changes in agencies is a lack of consistency in its advertising and branding message. If Bateway continues to change agencies fre<uently! the company will have difficulty establishing a clear position and image in the mind of consumers. "gency changes usually result in a change in advertising campaign themes and approaches. Thus it is important that the company settle on an agency and stay with a consistent advertising campaign and branding message. Fou may want to pay attention to Bateway#s advertising as well as advertising industry publications to see if the company stays with the "rnell Broup and the 6Bateway. " (etter )ay8 campaign theme that began in late %44%. $4. 1iscuss the role of agencies that perform specialized marketing communication services such as public relations firms! direct response! sales promotion and interactive agencies. )hy might a company choose to use these specialized services rather than using a full service agency for all of its integrated marketing communication functionsK *irms that specialized in specific areas of integrated marketing communications such as sales promotion! public relations! direct marketing and interactive media play an important role in the IMC process. These agencies are important because they are specialists in planning! developing and implementing these various IMC functions and can provide a great deal of expertise to these areas. *or example! an interactive agency is an organization that specializes in the development and strategic use of various interactive marketing tools such as websites for the Internet! banner ads! C1 7;MS! kiosks and other forms of interactive media. Many marketers are using interactive agencies because they are specialists in field of interactive media and have capabilities beyond what might be found in a full service advertising agency. Companies that are making the Internet a ma9or part of their IMC programs may use an interactive agency that has strategy! creative and technology capabilities and can help these companies integrate the Internet into various aspects of their business such as brand building! communications! transactions! and customer service.
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INTEGRATED MARKETING COMMUNICATIONS

HARISH.R, LECTURER, DON BOSCO INSTITUTE OF TECHNOLOGY

Companies may choose to use these specialized agencies rather than a full service agency because they feel they offer more expertise in the particular area in which they specialize. These specialized agencies are often smaller and companies may feel that their account is getting more attention or is being handled by more talented individuals. The specialized agencies may also cost less since they may be smaller and thus have less overhead and other costs to cover. +owever! some marketers prefer to have all of their IMC activities performed by one agency rather than using multiple agencies that specialize in various areas such as direct marketing! sales promotion! interactive marketing! and public relations. These companies feel that by having all of the IMC functions performed by one agency makes it easier to develop and implement a consistent and uniform program where everyone is working with the same information and toward the same goals and ob9ectives. They also feel that giving one agency control of entire IMC program achieves greater synergy among each of the communication elements. It also makes it easier for the client when all of the promotional elements such as advertising! direct mail! event marketing! sales promotion! interactive marketing and public relations are handled by one large agency.

Additi%!a- Di '& i%! 3&e ti%! 4!%t i! te)t5

$$. )hat are the advantages of a company using a decentralized system to organize for advertising and promotionK 1iscuss the responsibilities of a product manager with respect to advertising and promotions. "dvantages of a decentralized system include the following/ ,$- the product or brand receives more concentrated managerial attentionL ,%- problems and opportunities may be responded to more <uicklyL ,&- the product or brand has an advocateL and ,'- the system offers increased flexibility. In a decentralized system! the product manager has the primary responsibility for the planning! implementation and control of marketing programs for a specific product. S2he will also be responsible for sales pro9ections! budgeting and profit performances. "n important part of the product manager#s responsibility is to work with the advertising agency and other marketing communication organizations in developing promotional plans and programs for the brand. =roduct managers may have input into the advertising campaign including the creative strategy! media plan and evaluation of effectiveness. $%. 1iscuss the various functions a full service agency performs for its clients. Might any one of these functions be more important than the otherK *ull service agencies provide their clients with a broad range of integrated marketing communications services including planning! creating and producing the advertising! account planning! marketing research! developing media strategies and selecting and purchasing media. Some full service agencies also provide non advertising related services including strategic market planning! direct marketing! promotional programs! interactive marketing and web site design! and public relations. The importance of the various function provided by a full service agency will depend upon the client. Some companies want agencies that are very strong in the creative area and can develop ads that strike a responsive chord with consumers. Companies that are competing in markets where brand image and identity is very important may put a ma9or emphasis on creative capabilities in selecting and agency. Some companies want agencies that are very strong in media strategy and buying and can maximize their media expenditures. "s more companies adopt the IMC approach! full service agencies may be called upon to provide clients with services in areas such as sales promotion! direct marketing and interactive marketing.

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INTEGRATED MARKETING COMMUNICATIONS

HARISH.R, LECTURER, DON BOSCO INSTITUTE OF TECHNOLOGY

$&. 1iscuss the reasons companies use outside agencies. "nalyze the importance of the various services provided by a full service agency. " number of reasons may be cited as to why companies use outside agencies. =erhaps the main reason outside agencies are used is that they provide the client with the services of highly skilled individuals who are specialists in their chosen fields. This offers the firm expertise not available in house. " second reason is that an outside agency can provide a more ob9ective viewpoint of the market and business that is not sub9ect to internal politics! policies! etc. (ecause some agencies specialize in specific areas ,for example! recruiting! travel! etc.-! they may bring additional experiences to the task! as well as different perspectives. *inally! the fact that the agency may have worked with a company#s competitors may also add a dimension of attractiveness. The various services that the outside agency offers the firm are important as well. *or example! copywriting! art! and media planning and buying are not skills that most businesses or non profit organizations have readily available. (ecause the agency has skilled persons in these areas! they offer the organization opportunities that are not available internally. $'. 1iscuss the pros and cons of the commission system method of agency compensation. 1o you think this system is outdated and needs to be replacedK 1efend your position. The commission system method of compensation pays the agency a percentage ,usually $.>- based on size of the amount of money spent on advertising media.. )hile this system is simple and easy to understand! it has received its share of criticism. Some critics argue that this form of compensation does not reward agencies e<ually! in that the amount of effort expended in the creation and production of an ad may be the same! yet one agency will be compensated more should the media expenditures be higher. "ccording to some! this would encourage the agency to recommend higher media budgets to increase their own compensation. Fet another criticism is that media costs have increased more rapidly than has inflation! which results in higher payment than is necessary. ;ther arguments against the commission system are that it removes any incentive on the part of the agency to control costs and that agencies may choose not to use media for which they are not commissioned ,for example! direct mail! specialties and2or sales promotions- even though it may be in the best interest of the marketer to use these media. The commission system will likely survive if for no other reason than the fact that it has been around for so long! and it is simple. +owever! as noted in the text! a number of large firms have altered this system or abandoned it completely. $.. 1iscuss the various reasons why marketers often choose to switch advertising agencies. *ind an example of a company that has recently changed advertising agencies and analyze the reasons given for the change. The relationship between a client and an agency is influenced by a variety of factors. These include perspectives on compensation policies! the demands clients place on agencies! the level of service the agency provides! the personalities of agency and client personnel! the performance of the client#s product or service! the perceived <uality of the agency work in various areas ,including account planning and management! creative! media! use of non traditional media-! and changes in the competitive situation. Changes in top management of a client may also affect the agency client relationship. @ew management may prefer a particular agency or certain approach to advertising and promotion which can affect the client#s relationship with the agency. "n advertiser may decide to switch agencies for a number of reasons. Some of the most common reasons why clients switch agencies are discussed on pages E4 and E% of the text. These reasons can apply to long term clients as well. )hen marketers are having problems such as stagnant or declining sales or losses in market share they will often look to advertising. ;ften the problems are blamed on advertising agencies. In the competitive world or advertising! agencies are always looking for new

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INTEGRATED MARKETING COMMUNICATIONS

HARISH.R, LECTURER, DON BOSCO INSTITUTE OF TECHNOLOGY

business and ma9or advertisers know they can attract a great deal of interest and attention when they put their accounts up for review. Student should be encouraged to find an example of a company that has recently switched advertising agencies and research the reasons given for the change. "dvertising industry publications such as Advertising Age and AdWeek as well as the Wall Street 3o%rnal often have articles about ma9or agency account switches.

IMC E,er#i$e
*ind several examples of companies who have switched advertising agencies recently. This can be done through research using sources such as Advertising Age, AdWeek and " e Wall Street 3o%rnal. Four research should focus on determining the reasons the company decided to change agencies and their rationale for choosing their new agency. 1iscuss the implications of your findings with respect to client agency relationships. *ind examples of advertising and other promotional programs that were developed by the old agency and examples of ads developed by the new agency. 1o you think the advertising campaign and messages being developed by the new agency are better and2or more appropriate for the company than those of the prior agencyK )hy or why notK

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