Chapter 03 – Organizing for Advertising and Promotion: The Role of Ad Agencies and Other Marketing
Communication Organizations
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CHAPTER 3
ORGANIZING FOR ADVERTISING AND PROMOTION: THE
ROLE OF AD AGENCIES AND OTHER MARKETING
COMMUNICATION ORGANIZATIONS
Chapter Overview
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 of 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
Learning Objectives
2. To evaluate the advantages and disadvantages of the various ways companies organize for
advertising and promotion.
4. To examine methods for selecting, compensating, and evaluating advertising agencies.
6. To examine various perspectives on the use of integrated services and responsibilities of advertisers
versus agencies.
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Communication Organizations
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Chapter and Lecture Outline
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. As noted in
the opening vignette on Under Armour, some companies choose to handle advertising, media buying and
other parts of their IMC programs in-house. However, most major marketers use advertising agencies
and other types of promotional specialist organizations to handle the various areas of their IMC programs
as they do not have these capabilities internally. Marketers are always searching for creative ways to
communicate with their customers and are looking for agencies that can offer a range of integrated
II. ORGANIZING FOR ADVERTISING AND PROMOTION IN THE FIRM: THE
CLIENT’S ROLE
How a firm organizes for advertising and promotions is a function of a number of factors including (1) the
size of the organization, (2) the number of products it markets, (3) the role that advertising and promotion
assume in the product mix, (4) the advertising and promotions budget, and (5) the structure of the firm.
Three organizational designs are discussed:
B. The Decentralized System—in this system, individual products or brands are the responsibility of
the product manager or brand manager. All advertising and promotion for the brand or
product will be this person’s responsibility (including responsibilities for working with all
external agencies) and s/he will be in charge of all planning, implementation and control for that
product or brand.
Chapter 03 – Organizing for Advertising and Promotion: The Role of Ad Agencies and Other Marketing
Communication Organizations
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Professor Notes:
the large agencies have merged with or acquired other agencies to form large advertising organizations.
There are now four large agency holding companies including WPP Group, Omnicom Group, Publicis
Group and the Interpublic Group. These four holding companies own multiple advertising agencies,
media specialist companies, public relations firms, digital agencies and other types of marketing
communication organizations. Exhibit 3–5 of the text shows the holding of the world’s top four agencies
holding companies. An updated version of this is made available each year by Advertising Age and is
available on the adage.com web site.
A. Types of Advertising Agencies—all agencies are not the same of course. This section discusses
the various types of agencies including the following:
1. Full Service—these 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:
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Communication Organizations
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• Marketing services—many full-service agencies provide a variety of marketing services
to their clients and maintain departments such as research, strategy and planning and
media. In many agencies the marketing services department may include account
planners who are individuals that gather information that is relevant to the client’s
product or service and can be used in the development of the creative strategy as well as
other aspect of the IMC campaign. The research and media department provide important
services that full-service agencies need to plan and execute their client’s advertising
programs.
Attention should also be given to the two basic types or agency organization structures used
by agencies. Under the departmental system 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 group system 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.
2. Other Types of Agencies and Services
1. Creative boutiques—these types of agencies specialize in and provide only advertising
2. Media Specialist Companies—these are independent companies that specialize in media
planning and buying. Many companies use independent media buying services to plan
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Communication Organizations
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IV. AGENCY COMPENSATION
Agency agencies may be compensated in a variety of ways including:
A. Commissions from Media—the agency is compensated based on the time or space it purchases
for its client. The commission has traditionally been 15% (16 2/3% for outdoor), but now is often
negotiated downward. The commission system has been the target of criticism for a number of
B. Fee, Cost and Incentive-based Systems—in situations where billings are low, and/or 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.
1. Fee arrangements are of two types: a fixed-fee method where the agency charges a basic
monthly fee for all of its services and credits to the client any media commissions earned.
2. Cost-plus agreement—under this compensation method the client agrees to pay the agency a
3. Incentive-based compensation—while there are many variations on this system, the basic
idea is that the agency’s compensation level will depend upon how well it meets
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Communication Organizations
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C. Percentage Charges—when agencies purchase services from other outside agencies they typically
add a percentage in the form of a markup charge as their compensation. These markups usually
range from 17.65 to 20 percent.
Professor Notes
V. EVALUATING AGENCIES
Given 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—financial audits and qualitative audits. The financial audit focuses on how the agency
A. Gaining and Losing Clients—agencies 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.
1. Reasons why agencies lose clients
• Poor performance or service
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Communication Organizations
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• Changes in size of the client or agency
• Conflicts of interest
2. How agencies gain clients
• Referrals
• Solicitations
Professor Notes
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.
A. Direct Marketing Agencies—one of the fastest growing areas in IMC is direct marketing where
companies communicate with their customers through telemarketing, direct mail and other forms
B. Sales Promotion Agencies—there are many companies specializing in the provision of sales
promotions such as contests, games, sweepstakes, and refund and rebate offers. Services provided
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Communication Organizations
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C. Public Relations Firms —many large companies use both advertising agencies and public
relations (PR) firms. Public relations firms develop and implement programs to manage an
D. Interactive Agencies—with the rapid growth of the Internet and other forms of interactive media,
a new type of specialized marketing communication organization has evolved—the interactive
agency. While many traditional agencies like have developed interactive capabilities or the major
Professor Notes
VII. COLLATERAL SERVICES
The final group of participants in the promotional process is those organizations that provide collateral
VIII. INTEGRATED MARKETING COMMUNICATION SERVICES
A significant trend in the advertising industry is to combine all of the above services under one roof.
These one-stop service agencies bring together service providers so that the client needs only to use their
firm to receive all of the marketing support s/he requires. Specific advantages and disadvantages of these
arrangements have been cited:
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A. Pros and Cons of Integrated Services—It 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.
1. Advantages of integrated services
• Greater control of the promotional process allows for more synergy among each of the
communication program elements
2. Disadvantages of integrated services
• Synergy and economies of scale are often not achieved by a single agency handling all
communication areas
B. Responsibility for IMC: Agency versus Client—A 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
Teaching Suggestions
As 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. While 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. You might note that there are some
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Communication Organizations
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Because of the rapidly changing advertising environment, it is important for the instructor to keep up to
date with events that are taking place. Good sources of information on advertising are publications and
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:
• Rosser Reeves, Reality in Advertising
• Alison Fendley, Saatchi & Saatchi, The Inside Story
• Kevin Goldman, Conflicting Accounts (The Creation and Crash of the Saatchi & Saatchi Advertising
Empire)
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:
• Bob Garfield, And Now A Few Words From Me
Answers to Discussion Questions
1. The opening vignette discusses how Under Armour has been able to grow its sales and build a strong
brand by doing all of it advertising creative and other IMC work in-house rather than using an outside
agency. Discuss why a company like Under Armour would prefer to do all of its advertising and
promotion internally rather than using an outside agency. Do you think they will continue to handle
all of their advertising and IMC work in-house? Why or why not? (L01)
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Communication Organizations
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Companies often use an in-house agency when they have the staff and talent to conduct the
advertising and promotional activities themselves; they have a very large advertising and promotional
budget and wish to save the costs of fees and commissions; and/or when they believe that the ability
2. Who are the various participants in the integrated marketing communications process? Briefly
discuss the roles and responsibilities of each. (L01)
Advertisers 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
3. Discuss the various challenges faced by companies that use the brand management system when
organizing for advertising and promotion. What are some of the things that marketers can do to
address these problems and ensure that their brand managers are keeping abreast of external changes
occurring in the market? (L02)
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Advantages of a decentralized or brand management system include the following: (1) the product or
brand receives more concentrated managerial attention; (2) problems and opportunities may be
4. Discuss the pros and cons of using an in-house agency. What are some of the reasons why companies
might change from using an in-house agency and hire an outside agency? (L02)
Some of the reasons why firms use in-house agencies include: (1) cost savings; (2) control; and (3)
increased ability to coordinate marketing and promotional activities. Negative aspects include: (1)
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replace them.
6. IMC Perspective 3-2 discusses the changing role of account representatives in advertising agencies.
Discuss how the role of account representative is changing and the developments that underlie these
changes. Do you think account representatives will become obsolete in the future? Why or why not?
(L03)
Account representatives or executives are individuals who work in an advertising agency and serve as
the liaison between the agency and the client. They are responsible for understanding the client’s
marketing strategy as well as its advertising and promotion needs and interpreting and explaining
them to agency personnel such as the creative department. Traditionally, their positions have involved
7. Discuss the role of media specialist companies. Why are marketers likely to use a media specialist
company to handle their media buying versus the media department of an agency? (L03)
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Communication Organizations
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Media specialist companies specialize in media planning and the buying of media, particularly radio
television and magazines. The task of purchasing media has grown increasingly complex as more
media options emerge. Media specialist companies provide an important service by specializing in
8. Discuss the challenges advertising agencies face in negotiating compensations structures with their
clients when the procurement department becomes involved in the process. How might an agency
respond to clients who demand to see their labor costs overhead and profit margins as part of the
negotiation process? (L04)
As more marketers adopt an integrated marketing communication perspective and move away from
traditional mass media, changes in compensation systems are taking place. These changes are taking
9. Discuss the various criteria that might be used by an automobile company such as Ford or Honda in
evaluating its advertising agencies. Which of these criteria do you think would receive the most
weight and why? (L04)
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The agency evaluation process usually involves two types of assessments, one which is more
financial and operations focused and the other which is more creative and qualitative in nature. The
financial audit focuses on how the agency conducts its business in working for the client and is
designed to verify costs and expenses such as the number of personnel hours charged to and accounts,
10. Discuss the reasons why advertising agencies lose accounts. Find an example of a company that
changed advertising agencies and identify the factors that led them to switch to another agency.
(L04)
The relationship between a client and an agency is influenced by a variety of factors. An 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 95–97 of the text. These include perspectives on
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Communication Organizations
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11. Discuss the pros and cons for a marketer having one company handle all of its marketing
communication needs versus using specialized marketing communication firms to handle the various
components of the program. (L05, 6)
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
may be smaller and thus have less overhead and other costs to cover.
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Additional Discussion Questions (not in text)
12. The text discusses how the advertising agency business is heavily concentrated in New York City and
the surrounding area. Why do New York-based agencies dominate the industry? How might agencies
outside of New York compete for companies’ advertising and marketing communications business?
(L03)
New York City is clearly the center of the advertising agency business for several reasons. First of
all, the Big Apple been the center of the advertising business for decades and thus nearly all of the
major agencies originated in New York or opened offices there. Many of the major companies with
While New York City dominates the agency business, there are a number of other cities that also have
a number of excellent agencies including Chicago, Minneapolis, Los Angeles and Detroit. Many of
the agencies in these cities serve companies headquartered in there although many work for
companies located in other areas as well. Excellent agencies can also be found in smaller cities such
13. Discuss the responsibilities and duties of an advertising or marketing communications manager in a
company that uses a centralized organizational system versus a company that uses a decentralized
system. (L01)
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
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Communication Organizations
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14. Discuss some of the reasons why traditional advertising agencies have been developing more
integrated marketing communications capabilities. What changes might traditional agencies have to
make to improve their IMC capabilities? (L06)
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
15. Why might a company choose to use a creative boutique rather than a larger, full-service agency?
Find an example of a company that uses a creative boutique and discuss why the decision to use a
smaller agency may be appropriate for this firm. (L03)
Creative boutiques are agencies that 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 boutiques. 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 boutique they can get more attention and better access to creative
Chapter 03 – Organizing for Advertising and Promotion: The Role of Ad Agencies and Other Marketing
Communication Organizations
IMC Exercise
Find several examples of companies who have switched advertising agencies recently. This can be done
through research using sources such as Advertising Age, AdWeek, BrandWeek and The Wall Street
Journal. Your research should focus on determining the reasons the company decided to change agencies
AdForum Exercise: “Evaluating the work of an In-house Agency”
(See Advertising and Promotion Playlist, Chapter 3)
IMC Perspective 3-3 discusses the decision made by Hyundai Motors of America to move all of its
advertising for its Hyundai brand to an in-house agency. Innocean is the United States arm of its Seoul–
based agency for the same name which is a subsidiary of the Korean parent company Hyundai Motor
group. Watch four of the commercials created by Innocean for Hyundai that are provided in the
Advertising and Promotion playlist for Chapter 3 and answer the following questions.
1. How would you evaluate the quality of the commercials created by Innocean for Hyundai Motors
of America? How do they compare to the quality of the ads that you see for other brands of
automobiles?