Marketing Chapter 2 Advertising Advertising Content Key Objectives Describe The Practice Advertising

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Chapter 2: Advertising

Chapter 2

Advertising

CHAPTER CONTENT

KEY OBJECTIVES

1. Describe the practice of advertising.

2. Explain the evolution of the key concepts of advertising.

4. Discuss changes in the practice of advertising.

CHAPTER OVERVIEW

This chapter defines advertising, explains its basic functions and key components, defines

the role it plays in our society, and identifies eight different types of advertising that are

common today. The industry’s evolution is explored, along with the role of the

advertising agency, how they are organized and how they function. The chapter

concludes with a discussion of how the practice of advertising is changing.

CHAPTER OUTLINE

THE PRACTICE OF ADVERTISING

 The purpose of advertising has always been to sell a product, which can be goods,

services, or ideas. Although there have been major changes in recent years, the basics

of advertising remained unchanged even in the face of economic downturns and

media convulsions.

 We can summarize a modern view of advertising with the following definition:

 This definition has a number of elements and the definition is changing because of

new technology, media shifts, and cultural changes.

 Advertising is usually paid for by the advertiser who has a product to sell,

although some forms of advertising, such as public service announcements

(PSAs), use donated space and time.

 Not only is the message paid for, but the sponsor is identified. The Inside Story

feature in the text explains how the ‘paid’ characteristic affects regulation.

Chapter 2: Advertising

 Advertising began as one-way communication, from marketer to a targeted

audience. It generally reaches a broad audience of potential consumers, either as a

mass audience or smaller targeted groups. However, direct response advertising,

especially those practices that involve digital communication, has the ability to

address individual members of the audience. So, some advertising can deliver

one-to-one communication to a large group of people.

 In traditional advertising, the message is conveyed through different kinds of

mass media, which are largely non-personal messages. This non-personal

characteristic, however, is changing with the introduction of more interactive

types of media.

 Digital interactive media, such as word-of-mouth conversations on social media or

consumer-generated messages sent to a company, have opened the door to

interesting new forms of two-way and multiple-way brand-related communication.

 Most advertising has a defined strategy and seeks to inform consumers and make

them aware of a brand, company, or organization. In many cases, it also tries to

persuade or influence consumers to do something. Persuasion may also involve

emotional messages.

What are Advertising’s Basic Functions?

 Identification. Advertising identifies a product and/or the store where it’s sold. This

goes back as far as ancient times. Some of the earliest ads were simply signs with the

name or graphic image of the type of store – cobbler, grocer, or blacksmith.

 Information. Advertising provides information about a product. Advances in printing

technology at the beginning of the Renaissance spurred literacy and brought an

Chapter 2: Advertising

 Persuasion. Advertising persuades people to buy things. The Industrial Revolution

accelerated social change, as well as mass production. It brought the efficiency of

machinery not only to the production of goods, but also to their distribution. For

widespread marketing of products, it became important to have a recognizable brand

What are the Key Components of Advertising?

 Strategy: This is the logic or strategy behind the advertisement. It is stated through

objectives that may focus on areas such as sales, news, psychological appeals,

emotion, branding and brand reputation, as well as the position and differentiation of

the product from competition, and segmentation and targeting of the best prospects.

 Message: This is the concept behind a message and how that message is expressed

based on research and consumer insights, with an emphasis on creativity and artistry.

What are the Common Types of Advertising?

 Different types of advertising play different roles. We can identify eight different

types of advertising:

1. Brand Advertising, the most visible type of advertising, is also referred to as

national or consumer advertising, focuses on the development of a long-term

brand identity and image.

2. Retail Advertising or Local Advertising: This type of advertising focuses on

retailers, distributors, or dealers who sell their merchandise in a certain

geographical area. Retail advertising has information about products that are

Chapter 2: Advertising

Marketing Communication Role

 In its marketing communication role, advertising provides information about a

product. It can also transform a product into a distinctive brand by creating a brand

 Branded entertainment and brand content are similar terms used to emphasize the

recent trend in building brand relationships. These terms highlight the ability of brand

message to inspire, engage, and develop long-term brand relationships.

Economic and Societal Roles

 Advertising flourishes in societies that enjoy economic abundance, in which supply

 Most economists presume that because it reaches large groups of potential consumers,

advertising brings cost efficiencies to marketing, and thus, lowers prices to

consumers. As demand grows, as well as competition, prices begin to drop.

 Two contrasting points of view explain how advertising creates economic impact.

In the first, the rational view, advertising is seen as a vehicle for helping consumers

assess value through price cues and other information, such as quality, location, and

reputation. Advocates of the first viewpoint see the role of advertising as a means to

 Advertising mirrors fashion and design trends, thereby adding to our aesthetic sense.

It also has an educational role in that it teaches us about new products. It may also

expose social issues and help us shape an image of ourselves by setting up role

models with which we can identify. It also presents images that capture the diversity

of the world in which we live. These social roles have both negative and positive

dimensions.

EVOLUTION OF THE KEY CONCEPTS OF ADVERTISING

As illustrated in Figure 2.2 in the textbook, the advertising industry is dynamic and is

affected by changes in technology, media, and the economic and social environment.

This timeline reflects how the principles and practices of this multi-billion dollar industry

has evolved.

Chapter 2: Advertising

The Early Age of Print

 Industrialization and mechanized printing spurred literacy, which encouraged

businesses to advertise beyond just their local places of business. Ads from these

early years look like what we call classified advertising today. Their objective was to

The Early Age of Agencies

 The 19

century introduced the beginning of what we now recognize as the

advertising industry. During this era, the first ad agency was opened in 1848 in

Philadelphia and P.T. Barnum embarked on one of the first campaigns. The

commission system for placing ads was begun and the account executive position was

created.

 On the retail side, department store owner John Wanamaker hired a full-time

copywriter. Also, the newly founded McCann agency developed a philosophy that

emphasized the agency’s role in crafting the ad message, and the industry’s first trade

publication appeared in 1888.

 By the end of the 19

century advertisers began to give their goods brand names.

The purpose of advertising during this period was to create demand, as well as a

visual identity for these new brands. Inexpensive brand name products, known as

packed goods, began to fill the shelves of grocers and drug stores. The questionable

ethics of hype and puffery came to a head in 1892.

The Scientific Era

 In the early 1900s, professionalism in advertising was reflected by the beginnings of a

professional organization, which was officially named the American Association of

Advertising Agencies in 1917.

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 Targeting, the idea that messages should be directed at particular groups of

prospective buyers, evolved as media become more complex. In 1914, the Audit

Bureau of Circulation (ABC) was formed to standardize the definition of paid

circulation for magazines and newspapers. Media changes saw print being challenged

by radio advertising in 1922. Radio surpassed print in ad revenue in 1938.

 Television commercials came on the scene in the early 1950s and brought a huge new

revenue stream to the advertising industry. In 1952 the Nielsen rating system for TV

advertising became the primary way to measure the reach of TV commercials. This

period also saw marketing practices, such as product differentiation and market

segmentation, incorporated into advertising. The idea of positioning was developed

in 1969.

The Creative Revolution

 The creative power of agencies exploded in the 1960s and 1970s, a period marked by

the resurgence of art, inspiration, and intuition. Largely in response to the previous

emphasis on research and science, this revolution was inspired by three creative

geniuses: Leo Burnett, David Ogilvy, and William Bernbach.

The Era of Accountability and Integration

 Starting in the 1970s, the industry-wide focus was on effectiveness. Clients wanted

ads that produced sales, so the emphasis was on research, testing, and measurement.

To be accountable, agencies and other marketing communication agencies recognized

that their work had to prove its value. The economic downtown and dotcom crash

toward the end of the 20

century reinforced this imperative. Advertisers now

demanded proof that their advertisements accomplished its objectives as stated in the

strategy.

Chapter 2: Advertising

 This is also the era when integrated marketing communication became important.

Integrated marketing communication (IMC) is another technique that managers

began to adopt in the 1980s as a way to better coordinate their brand communication.

Integration and consistency makes marketing communication more efficient and thus

more financially accountable.

The Social Media Era

 Advertising and marketing communication practices have been turned upside down in

the years since 2008. Digital and online communication became important earlier in

the new century with brands and companies setting up websites and experimenting

THE ADVERTISING WORLD

Who Are the Key Players?

 As we discuss the organization of the industry, consider that all of the key players

also represent job opportunities you may wish to consider. The players include the

advertiser, the agency, the media, and suppliers who provide expertise.

The Organization

 Advertising begins with the organization behind the promotion message, or the

advertiser. The advertiser is the number one key player. Management of advertising

function usually lies with the organization’s marketing or advertising department.

 The list of top advertisers in the United States usually begins with Procter and

Gamble (P&G). Other leaders that appear on that list vary from year to year.

Chapter 2: Advertising

advertising budget. The client team approves the advertising or marketing

communication plan, which contains details outlining the message and media

strategies.

The Agency

 The second player is the advertising agency that creates, produces, and distributes

the messages. The working arrangement is known as the agency-client partnership.

An advertiser uses an outside agency because it believes the agency will be more

efficient in creating advertising messages than the advertiser would be on its own.

The Media

 The third player in the advertising world is the media. The emergence of mass media

has been a central factor in the development of advertising because mass media offers

a way to reach a widespread audience. In traditional advertising, the term media

refers to all of the channels of communication that carry the message from the

advertiser to the audience and from consumers back to the company.

 We refer to these media as channels because they deliver messages, but they are also

companies, such as your local newspaper or radio station. Some of those media

conglomerates are huge, such as Time Warner and Viacom. Media vehicles are the

specific programs, such as 60 Minutes or The Simpsons, or magazines such as

Advertising Age or Woman’s Day.

 Also, note that media is plural when it refers to various channels, but singular—

medium—when it refers to only one form, such as a newspaper.

Chapter 2: Advertising

Professional Suppliers and Consultants

 The fourth player in the world of advertising includes artists, writers, photographers,

directors, producers, and printers as well as self-employed freelancers and

consultants. In addition, there are freelance copywriters and graphic artists,

songwriters, printers, market researchers, direct-mail production houses,

telemarketers, and public relations consultants. The Inside Story feature in this

chapter highlights the career of a freelance creative director.

Types of Agencies

 We are primarily concerned with advertising agencies in this chapter, but other areas

such as public relations, direct marketing, sales promotion, and internet marketing

have agencies that provide specialized promotional help, as well.

 The A-List awards by Advertising Age recognize cutting-edge agencies that rank high

in three areas – they are creative, fast growing, and their work is effective. A brief

description of the top ten agencies on the A-List can be found in the textbook.

Full-Service Agencies

 A full-service agency includes four major staff functions — account management,

creative services, media planning, and account planning, which includes research.

A full-service advertising agency also has its own finance and accounting

department, a traffic department to handle internal tracking on completion of

projects, a department for broadcast and print production, and a human resources

department.

In-House Agencies

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Specialized Agencies

 Many agencies do not follow the traditional full agency approach. Instead they

specialize in certain functions, audiences, industries, or markets. In addition, some

agencies specialize in other marketing communication areas, such as branding, direct

marketing, sales promotion, public relations, events and sports marketing, packaging,

and point-of-sale promotions.

 Creative boutiques. These are ad agencies, usually small, that concentrate entirely

on preparing the creative execution of ideas, or the creative product. A creative

boutique has one or more writers or artists on staff, but generally no staff for

media, research, or strategic planning. They usually serve companies directly, but

are sometimes retained by full-service agencies that are overloaded with work.

Agency Networks and Holding Companies

 Agency networks are large conglomerations of agencies under central ownership that

operate under one agency name. Examples include DDB Worldwide and BBDO

Worldwide. Holding companies include one or more advertising agency networks, as

well as other types of marketing communication agencies and marketing services

consulting firms.

How Are Agencies Paid?

 Advertising agencies are big business. Agencies derive their revenues and profits

from three main sources: commissions, fees, retainers, and performance incentives.

For years, a 15 percent commission was the traditional form of compensation. For

those few accounts still using a commission approach, the rate is rarely 15%. It is

more likely lower and subject to negotiation between agency and client.

Chapter 2: Advertising

 A more recent trend in agency compensation is for advertisers to pay agencies on the

basis of performance. One approach to this performance incentive is to pay the

agency either a percentage of the client’s sales or a percentage of the client’s

marketing budget. Another approach is that agencies share in the profits of their client

when they create a successful campaign, but that also means a greater financial risk if

the advertising does not create the intended impact.

 Another performance-related compensation innovation is value billing, which means

that the agency is paid for its creative and strategic ideas, rather than for executions

and media placements.

Key Players and Jobs Within Agencies

Account Management

 The account management function acts as a liaison between the client and the

agency. The account team summarizes the client’s communication needs and

develops the basic “charge to the agency.” Once the agency and client together

establish the general guidelines for the campaign, the account management team

supervises the day-to-day development of the strategy.

 Account management in a major agency typically has three levels: the management

supervisor, who provides leadership on strategic issues and looks for new business

Account Planning and Research

 Full-service agencies usually have a separate department specifically devoted to

planning and sometimes to research as well. Today, the emphasis in agency research

is on gaining insights into consumer thinking and behaviors in order to develop

messages that focus on the consumer’s perspective and relationship with the brand.

Creative Development and Production

 A creative group includes people who write (copywriters), people who design ideas

for print ads or television commercials (art directors), and people who convert these

ideas into television or radio commercials (producers).