1. Introduction

The first advertising agencies had no copywriters. They had no art directors, and no account executives either. In fact, a career in advertising during the late 1800’s required virtually no experience with advertisements and no particular insight into the product being sold.

The first advertising agencies were simply brokers of media space, buying pages in newspapers and periodicals and selling them to advertisers. Agencies were rarely staffed by more than a couple of people and their motivation was not to help companies attract customers or sell more goods, but to maximize profit on their own transactions.

Over the years, the business environment facing agency clients has become incredibly complex. Simple products have become multifaceted brands. Manufacturing companies have given way to marketing-driven corporations. And communications have become increasingly vital to their existence.

Simultaneously, the outlets for communications have also grown more complex. Consumers have access to hundreds of channels on broadcast TV, cable, and satellite. There are thousands of newspapers and magazines for people to read and millions of web sites to access. Advertising is everywhere and companies more than ever need help identifying the right opportunities.

As a result, advertising agencies have grown incredibly. Today, the largest agencies employ thousands of professionals across the globe and manage billions of dollars in business every year. And advertising agencies offer more diverse services than ever, serving as strategic partners with their clients and helping them increase the value of their business.

Essentially an agency’s task is to evaluate a client’s product or service and then develop an effective advertising strategy to assist their clients to maximize their marketing efforts.

To do this an agency will go through a process along the lines of the following:

What are we selling?

An analysis of the product or service in relation to competition.  This includes not only tangibles, such as price, size, etc, but also intangibles such as the attitudes and feelings engendered  in the consumer from exposure to the product/service.

To whom are we selling it?

Development of a consumer profile – age, sex, socio-economic group, geographical location, etc.

Why are we selling it?

What particular need or want does the product address.

Where are we selling it?

What media will be most appropriate – TV, newspapers, magazines, radio, etc.

When are we selling it?

Are there certain times of the day, days of the week, months of the year when it is more effective to advertise.

2. Agency Structure

While advertising agencies are fairly adept at tailoring their structure to the needs of specific clients, a  full-service advertising agency involves four main departments.

Account Service

Creative Services

Media Planning and Buying

Account Planning and Research

Account Service

The Account Service team works closely with the client to map out their communications needs and define the role the agency can play in helping meet their business objectives. They engage agency resources as appropriate and ensure all the work done for the client is suitable for their business and that projects run smoothly.

On a day-to-day basis, this means creating agency teams to work on specific projects, communicating the agency opinion in formal points of view, presenting work, and setting timelines and budgets. Account Service is ultimately responsible for ensuring that all agency work is effective and projects are completed on time within budget.

There are a number of levels within Account Service. Depending upon the size and requirements of the agency, common positions (starting from the more senior) are as follows: Director of Client Services (overall responsibility for the Account Service team),  Group Account Director (responsible for a group of accounts, each account headed by an Account Director), Account Director (may be responsible for more than one account), Account Manager  and Account Executive.

Not all titles are required for every account and each is staffed according to its unique needs.

Creative Services

If an advertising agency’s “products” are the advertisements it creates, then it’s the creative services group that is responsible for making these products. Advertising can take many forms (TV commercials, radio spots, print ads, and outdoor billboards to name a few), but collectively they are referred to as “the creative” or “the work.”

Development of the creative is ly done in teams of two. A Copywriter (words) and an Art Director (visuals) work together to create rough versions of the ads including: TV storyboards, print layouts, and radio scripts. Creative teams can work successfully together for years -- often hired, fired and promoted together.

Overseeing these teams is the agency Creative Director, who approves all the work before it is shared with the client. Even though the creative director rarely writes ads himself, he has a tremendous influence on all the work an agency develops. The Creative Director helps guide each team, ensuring that the work is unique and appealing while strategically on target. In many ways the Creative Director can be likened to the coach of a sports team.

Once an idea for a radio or TV commercial is ready to be brought to life, a Producer joins the team. The Producer coordinates with the outside resources necessary to produce finished ads – in the case of a TV commercial this can include a large group: a commercial director and his production company, actors and voiceover artists, film editors, musicians. The producer estimates the cost to produce the ads, oversees the writing of contracts, and coordinates the production from start to finish.

The Print Production Manager performs a similar function for print ads, estimating costs, briefing suppliers and coordinating these jobs from start to finish.

An agency may employ a Traffic Manager who is responsible for monitoring the progress of jobs through the agency and then ensuring dispatch of finished materials to TV stations, newspapers, etc. In other cases, the Account Executive has this responsibility.

Media Planning and Buying

The largest portion of a marketer’s budget goes towards buying media. This places a huge responsibility on the media planning and buying department.

Media Planners determine how to best expose the creative message to the desired target. They determine what combination of TV, radio, magazines, etc., would reach as many target consumers as possible at the lowest cost. The result of their research and analysis is the Media Plan.

 The Media Plan is formatted similar to a calendar, and lays out when and where the advertisements will appear. Plan effectiveness can be measured in many ways.

Following are a few of the most important measures:

Reach: what percentage of the target audience will be exposed to the ad

Frequency: how many times the average consumer in the target audience will be exposed to the ad

Effective Reach: also referred to as ‘3+ reach,’ quantifies the percentage of the target audience that will be exposed to the ad more than three times

Media Buyers take the media plan recommended by the planners and negotiate its purchase as inexpensively as possible. The media buyer’s front-line experience often provides invaluable expertise on when and how to make these commitments. As a client’s media budget can be quite large, even small tactical changes can result in big savings.

Research and Account Planning

Advertising agencies have been actively doing research since the 1920s. Historically, this research has been focused on helping agencies and their client answer specific business questions. For example, a perfume manufacturer might want to know:

Do consumers like this new fragrance?

Which package is more appealing?

Is the main message of this commercial coming through?

What is the market share of this competitor?

While useful for specific issues, traditional research was not an integral part of the creative development process. All that changed with the emergence of Account Planning.

Started in England during the 1960s, account planning takes a more insightful look into consumer attitudes, including those about the brands they use. In-depth discussions among small groups of consumers tell agencies a lot more about what consumers think and feel than a nationwide survey.

Account Planners use this information in a unique way. Rather than simply report facts, planners weave facts together into compelling stories. These stories can form the basis of a brand positioning, a unique product benefit or perhaps even a commercial storyline.

Many agencies have created unique planning processes. For example, J Walter Thompson relies on TTB (Thompson Total Branding), McCann has the Brand Footprint, and Bates offers the Brand Wheel.

While these processes each have a somewhat different approach, they are all intended to achieve a similar goal: create an identity for the client’s brand which is distinct from the competition and compelling to the target consumer.

3. How Agencies Work

The workflow in an agency is not as linear as one may initially expect. Projects ly do not start in one department, then get handed off to the next, and so forth.

The process is much more collaborative with multiple agency departments involved at key points along the way. This may seem a bit chaotic at times, but the process encourages input from diverse points of view, stimulates healthy debate and allows strong ideas to emerge regardless of the source. Ideally, the process leads to the best possible creative.

While no two advertising projects run exactly the same, what follows is a rough chronology of how most advertising is generally created.

Project assignment: The client’s Marketing Management team  details their business objectives to the agency Account Service team, and together they define the role that advertising is expected to play. Often advertising is just one component in a marketing plan that also includes many communications efforts – public relations, promotions, direct mail, etc.

The Account Service team collects as much information as possible and briefs the key agency departments – strategic planning, creative, and media.

 Strategic Development: As a group, the agency team analyses the assignment – what type of people would use this product? Why would they use it? What would compel someone to purchase it? Research is vital at this stage, and can be conducted among consumers, industry experts or published reference materials.

The goal of strategic development is to find a compelling story about the product (referred to as the positioning) and a unique message for the advertising creative (the creative brief).

The client will normally have developed a profile of the consumer and his/her expected use of  their product/service. Commonly  the agency will work with the client to explore additional opportunities for consumption of the product/service. For example, are there other times of the year when the product could be promoted, could certain aspects of the product appeal to different types of consumers, could the product be used in conjunction with another to extend its consumer base, etc.

The Media Department uses the client profile to develop a media strategy and produce a media schedule to reach these consumers based on their media consumption habits. The plan is presented to the client and (when approved) is purchased by the media buyers.

Creative Development: the creative team develops rough versions of ads. After input by the creative director, the account manager and strategic planner are consulted for further fine-tuning.

Creative work is then presented to the client and, when approved, is often tested among consumers. The advertising will be judged a success if it grabs consumer attention and motivates him to try the product – changes may be made if necessary at this point.

 Once finalized, TV spots are shot, radio spots recorded, and the print ads produced.

Campaign Debut: The Traffic Manager sends the advertising where it is needed and ensures it debuts in accordance with the media plan. This can get quite complicated, as each type of ad must be finished at varying times prior to debut - magazine ads will need to arrive as much as a month prior to publication, while TV and Radio spots may be needed by stations just a few days before air.

 Tracking of an advertising campaign is essential, allowing client and agency to gauge the impact of their efforts and signal changes that might need to be made. Tracking can be done in a variety of ways, depending on the client’s business goals. Product sales are evaluated. Changes in consumer opinion may be measured. Media purchases will checked to ensure they ran as purchased.

4. Types of Agencies

Changing business needs have spawned the creation of many different types of agencies, each well suited to the needs of a particular type of client.

 Full-Service Agencies can effectively manage advertising for most companies, and full-service shops represent the majority of ad dollars spent worldwide. Agencies come in various sizes with various strengths and it is important for a client to work with one that is appropriate for his/her needs. The largest agencies are global in scale, catering to multinational corporations and large domestic companies with heavier advertising needs. These agencies ly offer comprehensive service, proven development tools and research techniques, and employees often have experience on household name brands. They maintain numerous offices around the globe and can effectively target people in almost any country. Global agencies also can offer assistance with other communications needs such as PR or Direct Response via sister companies who specialize in these fields.

 Regional agencies are a good fit for clients who do not have the need for a global agency. Regionals ly have expertise within specific states or regions and the agency principals (the people with their names on the door) may be actively involved in the client’s business – a rarity with global agencies. Because of their smaller scale, regionals can also be less expensive than their global counterparts.

Boutiques are smaller advertising organizations that focus almost exclusively on the creative product. These agencies offer the services of a creative development department, but do not ly provide media or strategic planning services. Clients who work with boutiques often need to retain a separate agency for these services or do it themselves. Media Agencies specialize in the planning and buying of all types of media. Increasingly, these agencies are formed from the combination of media departments of multiple full-service agencies. By joining their purchasing power, media agencies are often able to command lower rates from TV networks and magazine publishers and pass the savings on to their clients.

Industry Specialty Agencies concentrate on particular industries with unique set of advertising-related issues. For example, pharmaceutical advertising is subject to strict advertising guidelines imposed by the government and manufacturers may seek out a health care specialty agency. Specialty agencies exist for a number of categories, including computers and technology, employee recruitment, and retail.

Agency Holding Companies

Last year, nearly 40% of all global advertising was managed by just three companies. These companies achieved such stature after decades of buying numerous agencies throughout world. They also snapped up hundreds of companies specializing in public relations, direct marketing, or promotions.

The resulting vast entities are known as Holding Companies. The names of the world’s largest holding companies (WPP Omnicom, Interpublic) may be unfamiliar to many outside the industry. That’s because the agencies they own ly continue to operate under their original names – BBDO, McCann, J Walter Thompson, etc.

Consolidation allows agencies to provide greater reach and a broader array of services for their clients. And it also allows agencies to operate more cost-efficiently and be more profitable.

5. Agency Compensation

Historically, agencies were paid a commission based on a percentage of the cost of media they bought for clients. This system is a holdover from the earliest days of advertising, when agencies were simply in the business of buying and selling media space and did not perform other services.

However the commission arrangement has its shortcomings. It is based on the spending level of clients, not on the amount of work an agency performs. When an agency is doing development work on a product that will not be heavily advertised, the commission generally isn’t enough to cover expenses. When the agency is simply airing older creative, the commission can be excessive.

 More and more, agencies are being compensated under a fee arrangement. There are multiple ways to do this: the agency can track actual time dedicated to a client’s business and bill for services by the hour. Or the agency and client can develop a project list and agree on a flat amount for each project. In 2000, more than 75% of clients compensated their agency under a fee arrangement, up from just 15% in 1985.

Another increasingly-popular trend in compensation is the performance incentive, where the agency’s pay is contingent on the success of its work (success being defined jointly by the agency and the client). The appeal of this arrangement for clients is obvious, and in 2000 about 10% of agency relationships included a performance component.

The Future

This century promises even faster change than the last. Companies will develop greater numbers of  unique products than ever before. Moreover they will need advertising to make these products interesting to consumers.

The structure of agencies will undoubtedly continue to evolve, adapting to the ever-changing needs of its clients and to the communications environment. The agency of 100 years ago is remarkably different from the agency of today – and tomorrow’s agency will be completely different as well.