Organizing for Advertising and Promotion Role of Ad Agencies Essay Example

Organizing for Advertising and Promotion: Role of Ad Agencies Essay To understand how companies organize for advertising and other aspects of integrated marketing communications. To evaluate the advantages and disadvantages of the various ways companies organize for advertising and promotion. To understand the role of advertising agencies and the services they perform as well as the various types of agencies and media specialist companies. To examine methods for selecting, compensating, and evaluating advertising agencies. To explain the role and functions of specialized marketing communications organizations. To examine various perspectives on the use of integrated services and responsibilities of advertisers versus agencies. LO2 LO3 LO4 LO5 LO6 3 Organizing for Advertising and Promotion: The Role of Ad Agencies and Other Marketing Communication Organizations UNDER ARMOUR PROTECTS ITS HOUSE BY STAYING IN-HOUSE Adidas, Puma, and Reebok are well known brand names in the athletic shoe and apparel business and have one thing in common. They have all been trying to keep pace with Nike, the Beaverton, Oregon, based company which has global sales of nearly $20 billion and whose swoosh has become the most pervasive logo in sports. However, when asked to name the competitor that has the most realistic chance of challenging Nike, many industry analysts do not mention adidas (which now owns Reebok) or Puma, both of which have been competing against Nike for decades. Instead they point to Under Armour, the young Baltimore-based company that many have already nicknamed â€Å"the next Nike. Under Armour (UA) was founded in 1996 by Kevin Plank, a former Maryland football player, who began by selling compression clothing that could â€Å"wick† sweat away from the body to college sports teams out of the trunk of his car. In 2005 the company went public and its stock nearly doubled the first day it was traded. Under Armour has averaged nearly 60 percent annual growth and had sales of $725 million in 2009. Under Armour ac hieved initial success by focusing on niche markets that the big boys overlooked. We will write a custom essay sample on Organizing for Advertising and Promotion: Role of Ad Agencies specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on Organizing for Advertising and Promotion: Role of Ad Agencies specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on Organizing for Advertising and Promotion: Role of Ad Agencies specifically for you FOR ONLY $16.38 $13.9/page Hire Writer The initial product—a line of tight-fitting T-shirts made of a synthetic compression fabric—targeted professional athletes and fitness buffs, offering them a way to stay cool and dry during workouts and games. The product line has been expanded to serve a variety of sports and activities markets including running, football, baseball, soccer, lacrosse, hunting, and snow sports. Under Armour became very successful through strong branding and product positioning, quality products, and dynamic advertising. The company developed a unique brand identity through its TV advertising campaign, which began in 2003 and used the theme â€Å"Protect This House. † The commercials featured a football squad huddled around Eric â€Å"Big E† Ogbogu, one of Kevin Plank’s former teammates at the University of Maryland, who was playing for the Dallas Cowboys when the commercial was shot. The spots show Ogbogu and a number of other well-conditioned athletes working out while wearing Under Armour and end with him standing in the middle of a huddle of the players and shouting â€Å"We must protect this house! as if his life depended on it. â€Å"The goal was to create a spot that would live longer than its 30 seconds on the air,† according to Steve Battista, Under Armour’s Vice President, Brand. This goal was definitely accomplished as the tagline has become a symbol of what Under Armour stands for as a brand and the company continues to use it in much of its advertising . Building on its strong brand reputation, Under Armour made a strategic decision to expand into the football cleat market in 2006. To launch the new product line in this highly competitive market, the company’s in-house agency developed the â€Å"Click-Clack campaign which engaged viewers with the sound of football cleats in the tunnel as players head onto the field. While there was no direct mention of Under Armour cleats in the initial spots, the statement â€Å"I think they hear us coming,† was a message to consumers, as well as the competition, that Under Armour was entering the market. In 2008 Under Armour moved into another segment of the athletic equipment market by launching a new line of high performance cross training shoes, its first foray into noncleated footwear. To introduce the New Proto line, Under Armour ran a commercial on the 2008 Super Bowl telecast which included nearly two dozen high profile male and female athletes and was done in its typical intense style. The New Proto shoes outperformed Nike’s new SPARQ cross trainer line, which was backed by a major ad campaign that included a tagline taking a barb at Under Armour (â€Å"My better is better than your better†). Under Armour also has its sights set on running and basketball shoes which are the two largest categories of the athletic footwear market. In 2009 Under Armour launched a new line of running shoes where it competes against Nike and adidas as well as other strong brands such as New Balance, Asics, and Saucony. It is also expected that the company will soon enter the basketball shoe market as it already has Brandon Jennings, one of the up and coming stars in the NBA, wearing Under Armour shoes. Analysts note that a major reason why Under Armour may be able to challenge Nike is because the two companies have very similar corporate cultures. Both companies are dedicated to serving athletes, have a focus on product innovation, and a strong brand mentality. An analyst at the market research firm SportsOneSource notes that â€Å"the real genius of both companies was in creating a strong brand and protecting it. † While Nike is still viewed as the strongest athletic brand in the United States, Under Armour is very popular among teens and young adults indicating that the younger generation is adopting Under Armour as its own brand. One way Under Armour differs from Nike, as well as most of it other competitors, is that rather han using an outside agency to handle its advertising and other type of integrated marketing communications, the company prefers to keep it all in-house. For more than 20 years all of Nike’s advertising was handled by Wieden1Kennedy, which began as a small agency in Portland and grew with the success of its largest and best known client. Nike still uses W+K but has expanded the roster of ag encies with which it works as it looks for marketing communication firms with interactive, digital, and community building capabilities that transcend traditional media advertising. Under Armour has chosen to go a different route as the company has its own brand team that has handled all of it creative work and media buying in-house since the company was founded. The team includes a creative director, advertising director, interactive art director, and a score of talented designers and marketing minds that help plan and create all of Under Armour’s marketing communications. The company has outsourced the production work for some of its commercials and also has used the Deutsch agency to handle some of its public relations. Recently Under Amour considered hiring an outside agency to handle some of the IMC efforts for its expanding women’s line and went through an agency review process. Under Armour has definitely made it to the big leagues and now that it is there, the competition will get more intense as they battle Nike, adidas, Reebok and others for market share. However, Under Armour plans to stick to its game plan and continue to deliver its iconic message, â€Å"We Must Protect This House! † by staying in-house. Sources: Jeremy Mullman, â€Å"Under Armour Seeks Agency to Work on Growing Women’s Line,† Advertising Age, August 31, 2009; http://adage. com/print? article_id=138703; Sean Gregory, â€Å"Under Armour’s Big Step,† May 26, 2008, p. 44; Terry Lefton, â€Å"The Contender, Sports Business Journal,† May, 5, 2008, pp. 1,18; Steve Battista, â€Å"True Confessions of a Super Bowl Ad Virgin,† Advertising Age, February 4, 2008, p. 44. Developing and implementing an integrated marketing communications program is usually a complex and detailed process involving the efforts of many persons. As consumers, we generally give little thought to the individuals or organizations that create the clever advertisements that capture our attention, the Web sites we visit, or the contests and sweepstakes we hope to win. But for those involved in the marketing process, it is important to understand the nature of the industry and the structure and functions of the organizations involved. As discussed in the first two chapters, the advertising and promotions business is changing as marketers search for better ways to communicate with their customers. These changes are impacting the way marketers organize for marketing communications, as well as their relationships with advertising agencies and other communication specialists. 68 Chapter 3 ORGANIZING FOR ADVERTISING AND PROMOTION Advertiser (client) Advertising agency Media organizations Marketing communication specialist organizations Direct-marketing agencies Sales promotion agencies Interactive agencies Public relations firms Collateral services CHAPTER 3 FIGURE 3–1 Participants in the integrated Marketing Communications Process This chapter examines the various organizations that participate in the IMC process, their roles and responsibilities, and their relationship to one another. We discuss how companies organize internally for advertising and promotion. For most companies, advertising is planned and executed by an outside ad agency. Many large agencies offer a variety of other IMC capabilities, including public relations, Internet/ interactive, sales promotion, and direct marketing. Thus, we will devote particular attention to the ad agency’s role and the overall relationship between company and agency. Other participants in the promotional process (such as direct-marketing, sales promotion, and interactive agencies and public relations firms) are becoming increasingly important as more companies take an integrated marketing communications approach to promotion. We examine the role of these specialized marketing communications organizations in the promotional process as well. The chapter concludes with a discussion of whether marketers are best served by using the integrated services of one large agency or the separate services of a variety of communications specialists. PARTICIPANTS IN THE INTEGRATED MARKETING COMMUNICATIONS PROCESS: AN OVERVIEW Before discussing the specifics of the industry, we’ll provide an overview of the entire system and identify some of the players. As shown in Figure 3–1, participants in the integrated marketing communications process can be divided into five major groups: the advertiser (or client), advertising agencies, media organizations, specialized communication services, and collateral services. Each group has specific roles in the promotional process. The advertisers, or clients, are the key participants in the process. They have the products, services, or causes to be marketed, and they provide the funds that pay for advertising and promotions. The advertisers also assume major responsibility for developing the marketing program and making the final decisions regarding the advertising and promotional program to be employed. The organization may perform most of these efforts itself, either through its own advertising department or by setting up an in-house agency. However, many organizations use an advertising agency, an outside firm that specializes in the creation, production, and/or placement of the communications message and that may provide other services to facilitate the marketing and promotions process. Many large advertisers retain the services of a number of agencies, particularly when they market a number of products. For example, Kraft Foods uses as many as eight advertising agencies for its various brands, while Procter Chapter 3 ORGANIZING FOR ADVERTISING AND PROMOTION 69 EXHIBIT 3–1 National Geographic promotes its value to advertisers Gamble uses eight primary ad agencies and two major media buying services companies. Many large companies often use additional agencies that specialize in creating ads for specific ethnic markets. For example, in addition to its primary agency of record, Toyota Motor Corporation uses additional agencies in the United States to create ads for the African-American, Hispanic, and Asian-America n markets. More and more, ad agencies are acting as partners with advertisers and assuming more responsibility for developing the marketing and promotional programs. Media organizations are another major participant in the advertising and promotions process. The primary function of most media is to provide information or entertainment to their subscribers, viewers, or readers. But from the perspective of the promotional planner, the purpose of media is to provide an environment for the firm’s marketing communications message. The media must have editorial or program content that attracts consumers so that advertisers and their agencies will want to buy time or space with them. Exhibit 3-1 shows an ad run in advertising trade publications promoting the value of National Geographic magazine and its family of media products as a way to reach consumers around the world. While the media perform many other functions that help advertisers understand their markets and their customers, a medium’s primary objective is to sell itself as a way for companies to reach their target markets with their messages effectively. The next group of participants are organizations that provide specialized marketing communications services. They include direct-marketing agencies, sales promotion agencies, interactive agencies, and public relations firms. These organizations provide services in their areas of expertise. A direct-response agency develops and implements direct-marketing programs, while sales promotion agencies develop promotional programs such as contests and sweepstakes, premium offers, or sampling programs. Interactive agencies are being retained to develop Web sites for the Internet and help marketers as they move deeper into the realm of interactive media. Public relations firms are used to generate and manage publicity for a company and its products and services as well as to focus on its relationships and communications with its relevant publics. The final participants shown in the promotions process of Figure 3–1 are those that provide collateral services, the wide range of support functions used by advertisers, agencies, media organizations, and specialized marketing communications firms. These individuals and companies perform specialized functions the other participants use in planning and executing advertising and other promotional functions. We will now examine the role of each participant in more detail. (Media organizations will be examined in Chapters 10 through 14. ) ORGANIZING FOR ADVERTISING AND PROMOTION IN THE FIRM: THE CLIENT’S ROLE LO 03-1 Virtually every business organization uses some form of marketing communications. However, the way a company organizes for these efforts depends on several factors, including its size, the number of products it markets, the role of advertising and promotion in its marketing mix, the advertising and promotion budget, and its 70 Chapter 3 ORGANIZING FOR ADVERTISING AND PROMOTION President Production Finance Marketing Research and development CHAPTER 3 Human resources Marketing research Advertising Sales Product planning FIGURE 3–2 The Advertising Department under a Centralized System marketing organization structure. Many individuals throughout the organization may be involved in the advertising and promotion decision-making process. Marketing personnel have the most direct relationship with advertising and are often involved in many aspects of the decision process, such as providing input to the campaign plan, agency selection, and evaluation of proposed programs. Top management is usually interested in how the advertising program represents the firm, and this may also mean being involved in advertising decisions even when the decisions are not part of its day-to-day responsibilities. While many people both inside and outside the organization have some input into the advertising and promotion process, direct responsibility for administering the program must be assumed by someone within the firm. Many companies have an advertising department headed by an advertising or communications manager operating under a marketing director. An alternative used by many large multiproduct firms is a decentralized marketing (brand management) system. A third option is to form a separate agency within the firm, an in-house agency. Each of these alternatives is examined in more detail in the following sections. The Centralized System LO 03-2 In many organizations, marketing activities are divided along functional lines, with advertising placed alongside other marketing functions such as sales, marketing research, and product planning, as shown in Figure 3–2. The dvertising manager is responsible for all promotions activities except sales (in some companies this individual has the title of marketing communications manager). In the most common example of a centralized system, the advertising manager controls the entire promotions operation, including budgeting, coordinating creation and production of ads, planning media schedules, and monitoring and administering the sales promotions programs for all the company’ s products or services. The specific duties of the advertising or marketing communications manager depend on the size of the firm and the importance it places on promotional programs. Basic functions the manager and staff perform include the following. Planning and Budgeting The advertising department is responsible for developing advertising and promotions plans that will be approved by management and recommending a promotions program based on the overall marketing plan, objectives, and budget. Formal plans are submitted annually or when a program is being changed significantly, as when a new campaign is developed. While the advertising department develops the promotional budget, the final decision on allocating funds is usually made by top management. Chapter 3 ORGANIZING FOR ADVERTISING AND PROMOTION 71 Administration and Execution The manager must organize the advertising department and supervise and control its activities. The manager also supervises the execution of the plan by subordinates and/or the advertising agency. This requires working with such departments as production, media, art, copy, digital/interactive, and sales promotion. If an outside agency is used, the advertising department is relieved of much of the executional responsibility; however, it must review and approve the agency’s plans. Coordination with Other Departments The manager must coordinate the advertising department’s activities with those of other departments, particularly those involving other marketing functions. For example, the advertising department must communicate with marketing research and/or sales to determine which product features are important to customers and should be emphasized in the company’s communications. Research may also provide profiles of product users and nonusers for the media department before it selects broadcast or print media. The advertising department may also be responsible for preparing material the sales force can use when calling on customers, such as sales promotion tools, advertising materials, and point-of-purchase displays. Coordination with Outside Agencies and Services Many companies have an advertising department but still use many outside services. For example, companies may develop their advertising programs in-house while employing media buying services to place their ads and/or use collateral services agencies to develop brochures, point-of-purchase materials, and so on. The department serves as liaison between the company and any outside service providers and also determines which ones to use. Once outside services are retained, the manager will work with other marketing managers to coordinate their efforts and evaluate their performances. A centralized organizational system is often used when companies do not have many different divisions, product or service lines, or brands to advertise. For example, airlines such as Southwest, American, and JetBlue have centralized advertising departments, as do major retailers such as Target, Walmart, and Best Buy. Many companies prefer a centralized advertising department because developing and coordinating advertising programs from one central location facilitates communication regarding the promotions program, making it easier for top management to participate in decision making. A centralized system may also result in a more efficient operation because fewer people are involved in the program decisions, and as their experience in making such decisions increases, the process becomes easier. At the same time, problems are inherent in a centralized operation. First, it is difficult for the advertising department to understand the overall marketing strategy for the brand. The department may also be slow in responding to specific needs and problems of a product or brand. As companies become larger and develop or acquire new products, brands, or even divisions, the centralized system may become impractical. The Decentralized System In large corporations with multiple divisions and many different products, it is very difficult to manage all the advertising, promotional, and other functions through a centralized department. These types of companies generally have a decentralized system, with separate manufacturing, research and development, sales, and marketing departments for various divisions, product lines, or businesses. Many companies that use a decentralized system, such as Procter Gamble, Unilever, and Nestle, assign each product or brand to a brand manager who is responsible for the total management of the brand, including planning, budgeting, sales, and profit performance. (The term product manager is also used to describe this position. The brand manager, who may have one or more assistant brand managers, is also responsible for the planning, implementation, and control of the marketing program. 1 72 Chapter 3 ORGANIZING FOR ADVERTISING AND PROMOTION EXHIBIT 3–2 Many of Procter Gamble’s brands compete against each other CHAPTER 3 Corporate Production Finance Marketing Research and development Human resources Sales Product management Marketing services Brand manager Advertising department Marketing research Ad agency Brand manager Sales promotion Package design Merchandising Ad agency Brand manager FIGURE 3–3 A Decentralized Brand Management System Ad agency Under this system, the responsibilities and functions associated with advertising and promotions are transferred to the brand manager, who works closely with the outside advertising agency and other marketing communications specialists as they develop the promotional program. 2 In a multiproduct firm, each brand may have its own ad agency and may compete against other brands within the company, not just against outside competitors. For example, Exhibit 3–2 shows ads for Tide and Gain, which are both Procter Gamble products that compete for a share of the laundry detergent market. As shown in Figure 3–3, the advertising department is part of marketing services and provides support for the brand managers. The role of marketing services is to Chapter 3 ORGANIZING FOR ADVERTISING AND PROMOTION 73 assist the brand managers in planning and coordinating the integrated marketing communications program. In some companies, the marketing services group may include sales promotion. The brand managers may work with sales promotion people to develop budgets, define strategies, and implement tactical executions for both trade and consumer promotions. Marketing services may also provide other types of support services, such as package design and merchandising. Some companies may have an additional layer(s) of management above the brand managers to coordinate the efforts of all the brand managers handling a related group of products. This system—generally referred to as a category management system—includes category managers as well as brand and advertising managers. The category manager oversees management of the entire product category and focuses on the strategic role of the various brands in order to build profits and market share. Each category manager will have one or more brand managers reporting to him or her for each specific brand as well as an advertising manager. The advertising manager may review and evaluate the various parts of the program and advise and consult with the brand managers. This person may have the authority to override the brand manager’s decisions on advertising. In some multiprodu ct firms that spend a lot on advertising, the advertising manager may coordinate the work of the various agencies to obtain media discounts for the firm’s large volume of media purchases. Category management is often used in large multiproduct or divisional companies. For example, Procter Gamble’s broad portfolio includes 86 brands (22 of which generate more than a billion dollars in revenue each year) which are assigned to one of three major divisions: Beauty Grooming, Health Well Being, and Household Care (Exhibit 3–3). Each division includes multiple product categories to which individual brands are assigned for management purposes. For example, the North American Household Care Brands division contains seven product categories including laundry and fabric care, household cleaners, baby and child care, batteries, paper, dishwashing, air fresheners, and paper. An advantage of the decentralized system is that each brand receives concentrated managerial attention, resulting in faster response to both problems and opportunities. The brand managers have full responsibility for the marketing program, including the identification of target markets as well as the development of integrated marketing communications programs that will differentiate the brand. The brand manager system is also more flexible and makes it easier to adjust various aspects of the advertising and promotional program, such as creative platforms and media and sales promotion schedules. 5 There are some drawbacks to the decentralized approach. Brand managers often lack training and experience. The promotional strategy for a brand may be developed by a brand manager who does not really understand what advertising or sales promotion can and cannot do and how each should be used. Brand managers may focus too much on short-run planning and administrative tasks, neglecting the development of long-term programs. Another problem is that individual brand managers often end up competing for management attention, marketing dollars, and other resources, which can lead to EXHIBIT 3–3 PG’s broad portfolio of brands are assigned to various categories for management 74 Chapter 3 ORGANIZING FOR ADVERTISING AND PROMOTION unproductive rivalries and potential misallocation of funds. The manager’s persuasiveness may become a bigger factor in determining budgets than the long-run profit potential of the brands. These types of problems were key factors in Procter Gamble’s decision to switch to a category management system. Finally, the brand management system has been criticized for failing to provide brand managers with authority over the functions needed to implement and control the plans they develop. 6 Some companies have dealt with this problem by expanding the roles and responsibilities of the advertising and sales promotion managers and their staff of specialists. The staff specialists counsel the individual brand managers, and advertising or sales promotion decision making involves the advertising and/or sales promotion manager, the brand manager, and the marketing director. For example, General Motors, which is the largest advertiser in the United States, decided to drop its brand management system and give division marketing directors more control of the advertising and promotion for its various models. 7 The traditional brand management system has come under attack recently as critics argue that brand managers spend too much time on internal issues such as planning and budgeting and do not devote enough effort to external matters or to creativity and problem solving. 8 It has also been argued that this system is becoming increasingly outdated in the apidly changing world of digital media as is discussed in IMC Technology Perspective 3–1. LO 03-2 CHAPTER 3 In-House Agencies Some companies, in an effort to reduce costs and maintain greater control over agency activities, have set up their own advertising agencies internally. An in-house agency is an advertising agency that is set up, owned, and operated by the advertiser. Some in-house agencies a re little more than advertising departments, but in other companies they are given a separate identity and are responsible for the expenditure of large sums of advertising dollars. Large advertisers that use in-house agencies include Hyundai, Avon, Revlon, and Benetton. Many companies use in-house agencies exclusively; others combine in-house efforts with those of outside agencies. For example, retail giant Target has an internal creative department that handles the design of its weekly circulars, direct-mail pieces, in-store displays, promotions, and other marketing materials. However, the retailer uses outside agencies to develop most of its branding and image-oriented ads and for specific TV and print assignments. Other retailers such as Benetton and Banana Republic also have in-house advertising departments that work with outside agencies. A major reason for using an in-house agency is to reduce advertising and promotion costs. Companies with very large advertising budgets pay a substantial amount to outside agencies in the form of media commissions. With an internal structure, these commissions go to the in-house agency. An in-house agency can also provide related work such as production of collateral materials, digital media, package design, and public relations at a lower cost than outside agencies. A study by M. Louise Ripley found that creative and media services were the most likely functions to be performed outside, while merchandising and sales promotion were the most likely to be performed in-house. 9 In house agencies are also preferred by some companies because they keep the marketing communications function more closely tied to top management. A study by Forrester Research found that nearly 60 percent of in-house agencies report directly to the company’s CEO or chief marketing officer (CMO). 10 Another reason is the stability an n-house agency provides because external agencies have much higher turnover levels which can take a toll on the client-agency relationship. In contrast, in-house agencies are known for retaining their personnel and have a turnover rate of less than 5 percent. 11 Saving money is not the only reason companies use in-house agencies. Time savings, bad experiences with outside agencies, and the increased knowledge and understanding of the mark et that come from working on advertising and promotion Chapter 3 ORGANIZING FOR ADVERTISING AND PROMOTION 75 IMC Technology Perspective 3–1 gt; gt; gt; How Technology Is Changing the Role of the Brand Manager The brand management concept originated at Procter Gamble nearly 80 years ago. A young employee working on an advertising campaign for the company’s Camay soap brand became frustrated with having to compete against competing brands from Lever and Palmolive as well as PG’s own flagship Ivory soap brand. He sent a memo to PG management which argued that more focused attention should be paid to Camay, as well as to other PG brands, and suggested that there should be an individual or team of people responsible for overseeing all aspects of marketing each product. The idea was that each brand would be managed as if it were its own company which would result in more attention being given to it, particularly with respect to marketing. The brand management system was adopted by PG and widely emulated in one form or another by companies throughout the world, particularly those with multiple brands competing in a product category. Marketers viewed brand management as a way to decentralize their decision making and give