Advertising Agency and Budget Allocation

Chapter-5: Advertising Agency and Budget Allocation
Advertising Agency:
Advertising agency is an independent organization of creative people and businesspeople who specialized in developing and preparing advertising plans, ads, and other promotional tools. The agency purchases advertising space and time in various media on behalf of different advertisers, or sellers to find customers for their goods and services.
Types of Advertising Agencies:
(a). Full Service Agencies: The modern full-service advertising agency supplies both advertising and non-advertising services in all areas of communications and promotion.
(i). A general consumer agency represents the widest variety of accounts, but it concentrates on consumer accounts- companies that make goods purchased chiefly by consumers.
(ii). Business or industrial agencies represent clients that make goods sold to other businesses; for example, computer hardware.
(b). Specialized Service Agencies: In the early of 90s, specialization blossomed, fostering many small agency-type groups called creative boutiques and specially businesses such as media-buying services.
(i). Creative Boutiques: Some talented specialists like art directors, designers, and copywriters set up their own creative services or creative boutiques. They work for advertisers and occasionally subcontract to advertising agencies.
(ii). Media-Buying Services: Some experienced media specialists set up organizations to purchase and package radio and TV time. As part of their services, medial-buying firms provide their customers with a detailed analysis of the media buy.
What Advertising Agency People Do:
(i) Account Management: Account executives are responsible for formulating the advertising plan, mustering the agency’s services, and representing the client’s point of view to the agency.
(ii) Research: Before creating any advertising, agencies research the uses and advantages of the product, analyze current and potential customers, and try to determine what will influence them to buy.
(iii) Account Planning: Account planning is a hybrid discipline that bridges the gap between traditional agency research, account management, and creative departments.
(iv) Creative Concepts: Copywriters, art directors, graphic designers, production artists etc.
(v) Advertising Production: Print and Production advertising materials.
(vi) Traffic: The agency traffic department ensures the workflow is smooth and efficient. It coordinates all phases of production.
(vii) Additional Services: To integrate all marketing communication tools some agency may have a full-staffed sales promotion department.
(viii) Agency Administration: Like any business, an agency needs management.
How Advertising Agencies Make Money:
(i) Media commissions: Generally media have traditionally allow agency 15% medial commission of their ads.
(ii) Markups: To create ad, the agency buys various services or materials from outside suppliers. They add a markup to bills.
(iii) Fees: More and more clients expect agencies to solve problems rather than just place ads, so fees are becoming common.
How Advertising Agencies Get Clients:
(i) Referrals: From existing clients, friends, or even other agencies.
(ii) Soliciting and Advertising for New Business: Through advertising themselves.
(iii) Reputation and Community Relations: Agency frequently finds that the best source of business is a good reputation.
(iv) Presentations: The presentation process allows the agency and the advertiser to get to know each other before they agree to work.
Advertising Budget:
What should the sum total of the advertising budget be for the form? The ways of determining that figure include:
(i) Percentage-of-sales method: The advertiser use industry figures to determine what similar forms are spending on advertising relative to sales. This method is used widely because of its simplicity.
(ii) Unit-of sale method: This method relates the budget to units should or units to be sold. The base figure may be the physical unit for big-ticket items or it may be in terms of case, carton, or size of shipment for inexpensive items.
(iii) Competitive-parity method: An advertising budget amount that is equivalent to what the competition is spending.
(iv) All-you-can-afford method: This method deals with the firms’ affordability to spend on advertising.
(v) Market-share method: In this method, firms’ spend on advertising based on their market-share proportion.
(vi) Arbitrary method: Advertising expenditure may be determined without any specific justification called arbitrary method.
(vii) Objectives and Task method: The first step is to determine the objectives and then determine how much to spend to achieve these objectives.
(viii) Quantitative methods: There are also quantitative techniques that might be used by the advertisers to determine advertising expenses.
Which method to use? (Combination is the best approach).
Factors That Influence the Budget:
(i) Product life cycle: New products typically receive large advertising budgets to build awareness and gain customer trial
(ii) Competition: Markets with large number of competitors, usually require large advertising budgets
(iii) Promotional strategy: Views of the company’s promotional outlook, and
(iv) Uncontrollable external restraints (economic recession, boom or so on).
Budget allocation:
Allocation of advertising budget depends on the following factors:
(i) Time allocation (for different months of the year),
(ii) Geographical allocation, and
(iii) Product/service allocation.
Advertising Research:
Advertising research is becoming a more significant factor in the planning of advertising. In order to achieve maximum effectiveness, it is necessary that the proper message reach effectively the maximum number of potential prospects at the minimum practical cost.
General Procedures in Marketing Research:
(i) Planning of the study: Through analysis of the problem in order to define the objective/s of the study.
(ii) The preliminary investigation: To ascertain the possible solutions to the problem under study and to eliminate all the proposed solutions except those that are probable correct ones.
(iii) Planning the procedure of the study: Clear statement of the problem, hypothesis of the statements, where, how, and from whom information to be obtain.
(iv) Execution of the research program: Primary source of data (consumers, dealers, and specialists), secondary source of data (libraries, reference bureaus, government source, publishers, trade associations, and private source).
(v) Methods of collecting data: Observation, experimental, and survey (mail survey, the personal interview, the telephone survey).
(vi) Executing the collection of primary data: sampling, preparing questionnaires, interviewing, tabulation and analysis, interpretation and presentation of the findings.
Measuring Advertising Effectiveness:
Following are the methods to measure advertising effectiveness:
(i) Consumer jury test: It obtains the preference of a sample typical prospective consumers of the product for one advertisement or some one part of an advertisement out of several being considered by the advertiser.
Advertisements are shown to the individual jury and asked to express their preferences of the different advertisements by answering the following questions:
a). Which of these advertisements would you notice first?
b). Which of these advertisements is most interesting to you?
c). Which of these advertisements is most convincing to you?
(ii) The inquiry test: The offer stimulating the inquiry may be made by including in the advertisement an actual coupon which can be cut out and mailed in, by giving the offer a prominent position in the advertisement.
(iii) Sales-area or sales-result test: Run an advertisement campaign on a small scale to determine effectiveness before running the campaign over the entire
marketing area with its attendant large costs.
(iv) The systematic rating list or checklist: Develop a list of qualities, which the advertisement should contain, or a list of questions to be asked about each advertisement being evaluated, and then to check the advertisement.
(v) Recognition of readership test: The test conducted after the advertisement has been run to determine the number of readers of the publication who have
seen and read the specific advertisement being tested.
(vi) Recall test: It is based on the memory of the respondents, and is designed to measure the positive impression created by the advertisement on the person being interviewed.
(vii) Attitude and opinion test: Five to seven points scale are used to measure attitude or opinion ranging dislike to like (1-5 points scale).