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An advertising agency is a service based business dedicated to creating, planning, and handling advertising (and sometimes other forms of promotion) for its clients. An ad agency is generally independent from the client (it may be an internal department or even an internal agency) and provides an outside point of view to the effort of selling the client's products or services. An agency can also handle overall marketing and branding strategies and sales promotions for its clients.
Typical ad agency clients include businesses and corporations, non-profit organizations and government agencies. Agencies may be hired to produce television commercials, radio commercials, Online Advertising, out of home advertising, Mobile Marketing and AR Advertising as part of an advertising campaign.
The first acknowledged advertising agency was William Taylor in 1786. Another early agency, started by James 'Jem' White in 1800 at Fleet Street, London, eventually evolved into White Bull Holmes, a recruitment advertising agency, that went out of business in the late 1980s. In 1812 George Reynell, an officer at the London Gazette, set up another of the early advertising agencies, also in London. This remained a family business until 1993, as 'Reynell & Son,' and is now part of the TMP Worldwide agency (UK and Ireland) under the brand TMP Reynell. Another early agency that traded until recently, was founded by Charles Barker, and the firm he established traded as 'Barkers' until 2009 when it went into Administration.
In 1856 Mathew Brady created the first modern advertisement when he placed an ad in the New York Herald paper offering to produce "photographs, ambrotypes and daguerreotypes." His ads were the first whose typeface and fonts were distinct from the text of the publication and from that of other advertisements. At that time all newspaper ads were set in agate and only agate. His use of larger distinctive fonts caused a sensation. Later that same year Robert E. Bonner ran the first full-page ad in a newspaper.
In 1864, William James Carlton began selling advertising space in religious magazines. In 1869, Francis Ayer, at the age of 20, created the first full service advertising agency in Philadelphia, called N.W. Ayer & Son. It is the oldest advertising agency in America. James Walter Thompson joined Carlton's firm in 1868. Thompson rapidly became their best salesman, purchasing the company in 1877 and renaming it the James Walter Thompson Company. Realizing that he could sell more space if the company provided the service of developing content for advertisers, Thompson hired writers and artists to form the first known Creative Department in an advertising agency. He is credited as the "father of modern magazine advertising" in the US.
Global Advertising Agency
Globalization of advertising originates in earlier days of the twentieth century. American advertising agencies began the process of opening overseas offices before the two World Wars and accelerated their globalization throughout the latter part of the twentieth century.
McCann Erickson, an agency established in New York City in 1902, opened its first European offices by 1927. It was followed up with offices opening in South America in 1935 and in Australia in 1959.
Companies such as J. Walter Thompson adopted a strategy to expand in order to provide the advertising services wherever clients operated.
In the 1960s and 1970s, English agencies began to realize the overseas opportunities associated with globalization. Expanding overseas gives potential to wider markets. Saatchi & Saatchi, perhaps one of the most iconic English agencies was founded in 1970 and rapidly developed a global network of offices on the back of relationships with clients such as British Airways and Toyota.
Studies show that successful advertising agencies tend to have a shared sense of purpose with their clients through collaboration. This includes a common set of client objectives where agencies feel a shared sense of ownership of the strategic process. Successful advertisements start with clients building a good relationship with the agencies and work together to figure out what their objectives are. Clients must trust the agencies to do their jobs correctly and accordingly with the resources they have provided. Breakdowns in relationships were more likely to occur when agencies felt undermined, subjugated or even feel they don’t have an equal status. Traditionally advertising agencies tend to be in a position to take the lead on projects but results are best when there is a more collaborative relationship.
Stronger collaboration happen in situations where a personal chemistry has been established between both parties. Finding out similar likes and dislikes, point of views and even hobbies and passions. Personal chemistry builds with the length of the client relationship, frequency of meetings and how far mutual respect goes between parties. This was one trait that advertising agencies were perceived to not always have. It was suggested that on occasions that media planner and researchers were more closely involved in the project because of their personal relationships with their clients. Successful strategic planning is best when both parties are involved due to the bond between sides by understanding each other’s views and mind-set.
Involved advertising account planners are seen to contribute towards successful agency client collaboration. Planners of advertising agencies tend to be capable of creating a very powerful, trusting relationship with their clients because they were seen as intellectual prowess, seniority and have empathy in the creative process.
There are types of agency who an important influence on the degree of collaboration and integration of planning the results. Research agencies felt that they were at a strategic disadvantage. They felt that their primary relationship with clients was when assisting in the development of advertising strategy. Advertising agencies and their planners were to be seen as in a position of power which was exposed to manipulation. Independent research agencies at time felt excluded from the process of advertising development and relationships with agency planners. Researchers see themselves as downstream suppliers by resentful upstream communication planning before the planning is fully developed. Research agencies want the opportunity to have a greater influence on strategic planning of advertising. They want an equal collaboration between advertising agencies and clients.
The increasing number of media in today’s society means that the strongest client agency relationships is no longer always with advertising agencies. There were several factors which leads to the conventional assumption that advertising agencies always had the relationships with clients. There have been cases where media agencies held the upper hand. Media had a way to make things work, media usually uses the tactic of telling the clients what they want to hear just to make a profit, it was solely money driven purpose. The increased in media has undoubtedly allowed such media agencies to influence clients into choosing them over advertising agencies.
Agencies believe that there is only one rule for advertising to be effective “it has to be creative”. It is not just the sense of how it is visually presented, filmed, or worded but most agencies should be very innovative in terms of how they plan to pass on the message to consumers. Success comes when agencies are able to be creative enough to break through the targets mind-set and be compelling that it will ignite a brand relationship. Advertising agencies can either play it safe and risk losing the marketing war or can try to constantly come up with fresh ideas.
Use of creativity by agencies is “unexpected” because so much advertising today is expected. This will capture the attention of audiences therefore the message is more likely to get through. There have been many advertisements that have surprised audiences because it was not normal for them to see that in an advertisement of that nature. The best use of creativity is when the agencies make consumers think about the product or brand. The type of creativity is distinctive communication which is breaking through the clutter.
People don't buy products, they buy benefits. Mere product benefits can be the same across multiple products, so then how does a consumer chose one product over the other? In an market place increasingly full of parity products, consumers buy into the advertising. The more persuasive and charmingly put forth proposition, generally wins the consumers attention and share of wallet. Agency practitioners strongly believe that when audiences are exposed to ads it causes changes in human cognition, emotions and behavior. An account manager of twenty two years of experience in the industry says that people wouldn’t want to be in the advertising business if they didn’t believe that it worked, therefore you will not find anyone in an advertising agency questioning whether or not advertising works.
First effect is making audiences stop and look at the ad generating attention. One attention is gained ads are thought next to lead to brand awareness. Establishing brand awareness is a key component of an advertisement effectiveness. Practitioners believe that advertising will lead to changes in attitudes towards a brand. It is referred to the concept of attitude by different labels such as “opinions”, “judgments”, “perception”, “persuasion”, “brand image”, “interest in the brand”. Advertising can create change in both emotional and rational based attitudes. It is believed that a good advertisement include both components.
Studies show that advertising spending has increased significantly throughout the years. In 2007, estimated at over $150 billion has been spent on advertising in the US and $385 billion globally, and by 2010 the number has exceeded $450 billion.
The main reason for the increase in spending would be due to the fact that costs on selling are lower than they used to be therefore companies are able to increase spending on advertising in search of opening new markets further their business.
Commission Rates for Advertising Agencies
The worldwide commission rate for advertising agencies is fixed at 15% of the total billing. This is the only source of income they earn from media. The 15% must cover costs such as payroll, fixed and variable costs. Agencies are demanding to increase the commission rate but clients are not even willing to give the 15% even though it’s the only source of revenue for the Agency. There are cases that agencies are forced to lower their rates to the level of 5% to 10% due to competition. So in some cases there are agencies that are not even getting the fixed 15%.
- Mackay, Adrian (2004), The Practice of Advertising, London: Butterworth-Heinemann, ISBN 0-7506-6173-9. p.70.
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1841 - Volney B. Palmer opens the first American advertising agency, in Philadelphia.
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