Advertising communication and Agency

Advertising Advertising

and and

Managing the client-agency Managing the client-agency relationshiprelationship

Welcome to Advertising communication Welcome to Advertising communication learning session .learning session .

We will discuss Advertising communication and We will discuss Advertising communication and the components of advertisingthe components of advertising..

Thanks for keeping your Thanks for keeping your mobile phones in silent mode.mobile phones in silent mode.

ObjectivesObjectives

Understand the relationship Understand the relationship between an advertiser and the between an advertiser and the agencyagency

What happens after a client What happens after a client chooses an agencychooses an agency

Agency compensation – Agency compensation – different methods of paying the different methods of paying the agencyagency

ObjectivesObjectives

Running the relationship – the Running the relationship – the meetingsmeetings

Looking at the advertising Looking at the advertising budgetbudget

Advertising Agency OrganizationAdvertising Agency Organization

Link the agency with Link the agency with the clientthe client

Act as liaisons so that Act as liaisons so that the client does not the client does not need to interact need to interact directly with several directly with several different service different service departments and departments and specialistsspecialists

Creative Services

Account Management

Media Services

Research Services

Ad-InvestmentAd-Investment

Consistent investment spending Consistent investment spending is the key factor underlying is the key factor underlying successful advertising.successful advertising.

Arguments for Investing in AdvertisingArguments for Investing in Advertising

Investment in advertising Investment in advertising requires that incremental requires that incremental revenue > advertising revenue > advertising expenseexpense

Arguments for Disinvesting in Arguments for Disinvesting in AdvertisingAdvertising

Decreased expenses in Decreased expenses in advertising mean increased advertising mean increased profits (everything else held profits (everything else held equal)equal)

Investment Investment in the Brand Equity Bank in the Brand Equity Bank

““SStrongtrong advertising represents advertising represents a deposit in the brand equity a deposit in the brand equity bank.”bank.”

StrongStrong- that is, different, - that is, different, unique, clever, memorable unique, clever, memorable

Advertising FunctionsAdvertising Functions

Informing

Persuading

Reminding

Adding Value

Assisting Other Company Efforts


Informing

Makes consumers Makes consumers awareaware, , educateseducates them them about the features and benefits, and about the features and benefits, and facilitates the create the creation of positive facilitates the create the creation of positive brand imagesbrand images

Facilitates the introduction of new brands and Facilitates the introduction of new brands and increases demand for existing brandsincreases demand for existing brands

Performs another information role by teaching Performs another information role by teaching new uses for existing brands (Usage new uses for existing brands (Usage expansion advertising)expansion advertising)


Persuading

Persuades customers to try advertised Persuades customers to try advertised products and servicesproducts and services

Primary demand- creating demand for Primary demand- creating demand for an entire product categoryan entire product category

Secondary demand- the demand for a Secondary demand- the demand for a specific company’s brandspecific company’s brand


Reminding

Keeps a company’s brand fresh in the Keeps a company’s brand fresh in the consumer’s memoryconsumer’s memory

Influences Influences brand switchingbrand switching by reminding by reminding consumers who have not recently consumers who have not recently purchased a brand that the brand is purchased a brand that the brand is available and that it possesses favorable available and that it possesses favorable attributesattributes


Adding Value

Three basic ways by which companies Three basic ways by which companies can add value can add value innovatinginnovating improving qualityimproving quality altering consumer perceptionsaltering consumer perceptions

Advertising adds value to brands by Advertising adds value to brands by influencing consumers’ perceptionsinfluencing consumers’ perceptions

Setting The TermsSetting The Terms

After choosing an agencyAfter choosing an agency

- Need to define what the clients Need to define what the clients objectives are in detail.objectives are in detail.

- Need to look at method of Need to look at method of paymentpayment


Agency and client need clear Agency and client need clear understanding on many issuesunderstanding on many issues

Draw up a contractDraw up a contract

See Box 3.1 on page 27See Box 3.1 on page 27 Note that contract is usually of Note that contract is usually of

most importance when things go most importance when things go wrong.wrong.


Of importance to the client is Of importance to the client is meeting the objectives they meeting the objectives they have set for the campaignhave set for the campaign

Setting Advertising ObjectivesSetting Advertising Objectives

Expression of management consensusExpression of management consensus Guides the budgeting, message, and media Guides the budgeting, message, and media

aspects of advertising strategyaspects of advertising strategy Provide standards against with results can Provide standards against with results can

be measuredbe measured

Setting Good Advertising ObjectivesSetting Good Advertising Objectives

Include a precise statement of who, what, Include a precise statement of who, what, and whenand when

Be quantitative and measurableBe quantitative and measurable Specify the amount of changeSpecify the amount of change Be realisticBe realistic Be internally consistentBe internally consistent Be clear and put it in writingBe clear and put it in writing

Sales Volume as Sales Volume as an Advertising Objectivean Advertising Objective

Traditional View

• Sales volume is the consequence of a host factors in addition to advertising

• Effect of advertising is delayed

Sales Volume as Sales Volume as an Advertising Objectivean Advertising Objective

Heretical View

• Advertising’s purpose is to generate sales

• Sales measures are “vaguely right”

The Logic of Vaguely Right Vs. The Logic of Vaguely Right Vs. Precisely Wrong ThinkingPrecisely Wrong Thinking

VersusMeasurement

Accuracy

Issue

Vaguely

Precisely

Choice of

Objective

Issue

Right

Wrong


Of most import to the agency is Of most import to the agency is how they will get paid.how they will get paid.

Client wants to get the most Client wants to get the most bang for its buckbang for its buck

Agency must ensure that their Agency must ensure that their responsibilities are clearly laid responsibilities are clearly laid out in the contractout in the contract

Agency CompensationAgency Compensation

•Commissions from media (15%)•Reduced commission system(<15%)

•Labor-based fee system

•Outcome-based

Three Sources

Commission IssuesCommission Issues

Its absolute levelIts absolute level Whether it should vary with Whether it should vary with

different media, levels of different media, levels of spendingspending

How to apply non-media items How to apply non-media items

- eg. Production costs- eg. Production costs

Commission IssuesCommission Issues

Key problemsKey problems- Distorts an agency’s adviceDistorts an agency’s advice- - using TV campaigns – can - using TV campaigns – can

reduce the creative work reduce the creative work needed per commercialneeded per commercial

- Very profitable for the agencyVery profitable for the agency

FeesFees

Time-based fee systemsTime-based fee systems- Agency is paid for work done on Agency is paid for work done on

clients behalf.clients behalf.- Every option is given equal Every option is given equal

weight in recommendations.weight in recommendations.

Fee problemsFee problems

Requires effective and efficient Requires effective and efficient time-sheet systemtime-sheet system

Agency and client need to agree Agency and client need to agree on rate of each member of on rate of each member of team.team.

The creative teams time is most The creative teams time is most valuable.valuable.

Menu System/work-unit Menu System/work-unit pricingpricing

Cost-per-task basisCost-per-task basis Main virtue is transparent price Main virtue is transparent price

structurestructure Tight cost controlsTight cost controls Meshes well with cost Meshes well with cost

accountingaccounting

Menu System/work-unit Menu System/work-unit pricing problemspricing problems

Does not allow for the synergyDoes not allow for the synergy Client can shop around for best Client can shop around for best

priceprice Does not deal with qualityDoes not deal with quality

Result Based PaymentResult Based Payment

Usually combined with other Usually combined with other approachapproach

Allows agency to earn a bonus Allows agency to earn a bonus for above target performance.for above target performance.

Result Based Payment Result Based Payment ProblemsProblems

Developing attainable targetsDeveloping attainable targets Measuring progressMeasuring progress

Will discuss in chapter 8Will discuss in chapter 8

The creative feeThe creative fee

Two part charging systemTwo part charging system

1) Monthly fee1) Monthly fee

- based on proportion of work of - based on proportion of work of individual assigned to accountindividual assigned to account

2) Determined value for the 2) Determined value for the creative ideacreative idea

Running the relationshipRunning the relationship

Agency will need to learn Agency will need to learn everythingeverything

- Visits to offices/factoriesVisits to offices/factories- ConversationsConversations- Review available market Review available market

researchresearch- Getting to know each other’s Getting to know each other’s

teamsteams

Structuring contactStructuring contact

Primary contact is the account Primary contact is the account managermanager

- Responsible for smooth running Responsible for smooth running of accountof account

- Effective use of agency Effective use of agency resources on behalf of clientresources on behalf of client

*large agencies can be 2 or 3 *large agencies can be 2 or 3 levelslevels

Structuring contactStructuring contact

Client side is the marketing Client side is the marketing directordirector

- Responsible for the advertisingResponsible for the advertising- Marketing mixMarketing mix

*large companies may have *large companies may have specialist advertising or specialist advertising or communications directorscommunications directors

Formalizing contactsFormalizing contacts

Day-to-day contactDay-to-day contact- Meetings could be weekly, biweekly, Meetings could be weekly, biweekly,

monthlymonthly- Discuss new work or progress etc…Discuss new work or progress etc… Major meetingsMajor meetings- New briefs for major campaignsNew briefs for major campaigns- Presentation of new campaign Presentation of new campaign

proposals,proposals,- Research debriefs…..Research debriefs…..

The advertising BudgetThe advertising Budget

How do you decide how much to How do you decide how much to spend ? What do you spend it spend ? What do you spend it on?on?

Establishing budgets is difficultEstablishing budgets is difficult Practice lags behind theoryPractice lags behind theory

Advertising Budgeting in Advertising Budgeting in TheoryTheory

The best(optimal) level of any investment is the The best(optimal) level of any investment is the level that maximizes profits(MR=MC)level that maximizes profits(MR=MC)

Advertisers should continue to increase their Advertisers should continue to increase their advertising investment as long as it is profitable advertising investment as long as it is profitable to do soto do so

MC

= (Change in total cost) (Change in quantity)

= TC/Q

MR

= (Change in total Revenue) (Change in quantity)

= TR/Q

Budgeting ConsiderationsBudgeting Considerations in Practice in Practice

What is the Ad objective?What is the Ad objective? How much are competitors spending?How much are competitors spending? How much money is available?How much money is available?

Budgeting MethodsBudgeting Methods

Percent-of-Sales BudgetingPercent-of-Sales Budgeting Objective-and-Task MethodObjective-and-Task Method Competitive Parity Method Competitive Parity Method

(match competitors method)(match competitors method) Affordability MethodAffordability Method

Percentage-of-Sales Percentage-of-Sales BudgetingBudgeting

A company sets a brand’s advertising A company sets a brand’s advertising budget by simply establishing the budget by simply establishing the budget as a fixed percentage of past or budget as a fixed percentage of past or anticipated sales volumeanticipated sales volume

Criticized as being illogicalCriticized as being illogical

Sales=Sales=ff(Advertising) (o)(Advertising) (o)

Advertising=Advertising=ff(Sales) (x)(Sales) (x)

Objective-and-Task MethodObjective-and-Task Method

The most sensible and defendable The most sensible and defendable advertising budgeting methodadvertising budgeting method

Specify what role they expect advertising Specify what role they expect advertising to play for a brand and then set the to play for a brand and then set the budget accordinglybudget accordingly

The Competitive Parity The Competitive Parity MethodMethod

Sets the ad budget by basically following Sets the ad budget by basically following what competitors are doingwhat competitors are doing

Affordability MethodAffordability Method

Only the funds that remain after Only the funds that remain after budgeting for everything else are spent budgeting for everything else are spent on advertisingon advertising

Only the most unsophisticated and Only the most unsophisticated and impoverished firmsimpoverished firms

However, affordability and competitive However, affordability and competitive considerations influence the budgeting considerations influence the budgeting decisions of all companiesdecisions of all companies

SummarySummary

Working with an agency should be a Working with an agency should be a professional business relationship professional business relationship and structured accordingly.and structured accordingly.

This requires a formal contract, with This requires a formal contract, with especial attention paid to the thorny especial attention paid to the thorny question of how the agency will be question of how the agency will be remunerated for its efforts. The remunerated for its efforts. The contract should also cover a range of contract should also cover a range of other details.other details.

SummarySummary

The agency will aim to tailor its The agency will aim to tailor its account team to fit with the account team to fit with the client’s structure, with the main client’s structure, with the main contacts going through the contacts going through the account management team and account management team and the client marketing the client marketing departments of the agency.departments of the agency.

SummarySummary

The relationship will – inevitably – The relationship will – inevitably – revolve around a series of meetings, revolve around a series of meetings, which need to be call reported to which need to be call reported to provide a record of the decisions provide a record of the decisions taken. taken.

The budget will be central to the The budget will be central to the relationship. Setting a budget is relationship. Setting a budget is difficult, but the difficulties are often difficult, but the difficulties are often avoided by using simple rules of avoided by using simple rules of thumb.thumb.

Business

Advertising communication and Agency