Advertising Agencies Law and Legal Definition

Advertising agencies are full-service businesses able to manage every aspect of an advertising campaign. They vary widely in size and scope and cater to different kinds of customers. Some agencies have only one or two major clients whose accounts they manage. Others have hundreds of clients spread throughout the country or the world serviced from many field offices. In general, an advertising agency will be able to manage an account, provide creative services, and purchase media access for a client.

STRUCTURE OF ADVERTISING AGENCIES

An agency, depending on its size, will likely have different departments which work on the separate aspects of an account. An account manager or the account planning department will coordinate the work of these departments to ensure that all the client's needs are met. The departments within a full-service agency will typically include:

Research

The research department will be able to provide clients with some details about the prospective audience of the final advertising campaign as well as information about the market for the product being advertised. This should include specific market research which leads to a very focused ad campaign, with advertising directed to the ideal target audience.

Creative Services

Advertising agencies employ experts in many creative fields that provide quality, professional services. Copywriters provide the text for print ads, and scripts for television or radio advertising. Graphic designers are responsible for the presentation of print ads, and the art department is responsible for providing the necessary images for whatever format advertisement is decided upon. Most advertising agencies also have a technical staff with expertise in web design and implementing an online advertising campaign. Some agencies have in-house photographers and printers; others regularly employ the services of contractors.

The individuals involved in creative services are responsible for developing the advertising platform, which sets the theme and tone of the ad campaign. The advertising platform should draw upon specific, positive features of the product advertised and extrapolate the benefits the consumer could expect to receive as a result of using the product. The campaign, through the development of this platform, should prove to be eye-catching, memorable, and in some way unique. The ads consumers remember stand out from the rest; it is the advertising agency's (and specifically the creative services department's) responsibility to provide this quality for clients.

The final advertising provided by an agency should be fully developed and polished. Television commercials should be produced with professionalism. Print ads should be attractive, informational, and attention-getting. Radio spots should be focused and of high audio quality. Online ads should be well placed and drive traffic to the clients own web site or a site through which the client's products or services are offered.

Media Buying

An important function of the agency (and a major source of its revenues) is the placement of the ad in various media. The activity is aimed at achieving the largest targeted audience at the lowest cost. The research conducted by the agency will inform any media-buying decisions.

An agency will be able to negotiate the terms of any contracts made for placing ads in any of various media. A full-service agency will deal confidently with television, radio, newspapers, magazines, and on the World Wide Web. Some agencies are also branching into direct mail marketing and point of purchase incentives. Another area in which agencies will look for ad placements is in the local yellow pages, on outdoor advertising locations which can include billboards, and commercial signs on public buses, subways or trains.

The media-buying staff draws on its experience and research. Some factors to be considered in the development of the media plan include:

Cost Per Thousand: This refers to the cost of an advertisement per one thousand potential customers reached. Media-buyers use this method to compare the various media avenues they must choose between. For example, television ads are considerably more expensive than newspaper ads, but they also reach many more people. Cost per thousand is a straightforward way to evaluate how to best spend advertising dollars: if a newspaper ad costs $100 and potentially reaches 2,000 customers, the cost per thousand is $50. If a television ad costs $1,000 to produce and place in suitable television spots and reaches a potential of 40,000 viewers, the cost per thousand is only $25.

Cost Per Click and Click: Through Rate Media Buying are new measurement methods used in assessing the cost of accessing potential customers on the Internet. Agreements are often made today under which a company places a small ad on another entity's web site. There is often no fee for placing this ad; rather a fee is assessed only if and when the visitor to the host site clicks on the ad. Sophisticated systems are used to track the number of clicks an ad generates and the owner of the ad is charged on a weekly, monthly, or quarterly basis for resulting service of forwarding potential clients. The fees are based on a prearranged cost per click basis. This also referred to by many as a pay-per-click agreement. Unlike the more widely applicable cost per thousand figure, cost per click measurements are only useful in assessing online ad campaign activity levels.

Reach: This term is used when discussing the scope of an advertisement. The reach of an ad is the number of households which can safely be assumed will be affected by the client's message. This is usually expressed as a percentage of total households. For example, if there are 1,000 households in a town and 200 receive the daily paper, the reach of a well-placed newspaper ad could be expressed as 20 percent: one-fifth of the households in the community can be expected to see the advertisement.

Frequency: The frequency of a message refers to how often a household can be expected to be exposed to the client's message. Frequency differs widely between media and even within the same medium. Newspapers, for example, are read less often on Saturdays and by many more households (and more thoroughly) on Sundays. Fluctuation like this occurs in all media.

Continuity: The media-buyer will also need to consider the timing of advertisements. Depending on the client's product, the ads can be evenly spread out over the course of a day (for radio or television advertisements), a week (for radio, television, or print advertisements), or a month (radio, television, print, or other media). Of course, seasonal realities influence the placement of advertisements as well. Clothing retailers may need to run more advertisements as a new school year approaches or when new summer merchandise appears. Hardware stores may want to emphasize their wares in the weeks preceding the Christmas holiday. Grocery stores or pharmacies, however, might benefit from more evenly distributed advertising, such as weekly advertisements that emphasize the year-round needs of consumers.

SETTING AN ADVERTISING BUDGET

Deciding on an advertising budget is highly subjective; it depends on the type of business, the competitive atmosphere, and the available funds. It will also depend on how well established the business is and what the goal of the advertising is. Trade publications are often good resources to consult in pondering this matter; many provide information on industry standards for advertising budgets.

Price Structures

Advertising agencies charge their clients for all the itemized expenses involved in creating finished ads, including hiring outside contractors to complete necessary work. The client should receive invoices for all such expenses. For example, the client may receive an invoice for a television ad that includes a photographer's fee, a recording studio's fee, an actor's fee, and the cost of the film itself. The client will also be charged for the cost of placing the final advertisement in whatever media the agency has chosen (and the client has agreed to, of course).

Beyond these expenses, easily invoiced and itemized for the client, advertising agencies include a charge for their services. This fee pays for the extensive account management, creative services, research, and media placement provided by the agency, all the hidden costs involved in the production of a quality advertising campaign, and profit margin.

When working with a new client, and particularly with a small business, an agency may ask that the client put the agency on a retainer. This retainer will consist of the full advertising budget agreed upon, and will be used to pay all production expenses and media buying costs, as well as provide the agency with its fee. The client should still insist on detailed and accurate invoices for expenses taken from the retainer.

DECIDING TO USE AN AGENCY

Depending upon how important advertising is to the overall health of the particular business, and the amount of resources available for use in advertising, the small business owner should consider whether an investment in the services of advertising agency will yield meaningful benefit.

Benefits of Advertising Agencies

Advertising agencies provide a valuable resource for any enterprise seeking to increase its customer base or its sales. They bring together professionals with expertise in a wide array of communication fields, and often—though not always—produce polished, quality ads that are well beyond the capacities of the client. Agencies are generally knowledgeable about business strategy and media placement as well. The media-buying experts at an agency will develop a strategic, targeted media plan for their clients, drawing upon years of experience and close relationships with media professionals. This experience and these connections are likely not available to the small business owner, and can be important factors in launching a successful media campaign.

Drawbacks of Advertising Agencies

One drawback to using an agency, of course, is the added stress of dealing with unfamiliar people and unknown territory. Choosing the right agency will take time; the process of reaching a satisfactory ad campaign can be taxing and time-consuming (especially if the client is vague about his or her desires or expects a top-dollar campaign at a bargain-basement price). Work will have to be reviewed, changed, and reviewed again. And the account will have to be monitored closely. As with any outside contractor, the small business owner will need to keep careful tabs on what is received for his or her hard-earned dollar.

Cost is another factor that must be weighed carefully by the small business owner. Although advertising agency campaigns are often extremely valuable in terms of shaping market share, product recognition, and public image, the small business owner will have to carefully consider the potential benefits against the costs associated with hiring an agency of any size. When deciding whether or not to use an agency, the small business owner should consider if the advertising he or she envisions really requires a team of experts working on it. If the ads will be fairly simple, or if they will be placed only in one medium (such as a local newspaper), the owner should probably attempt to create the ads without the aid of an agency. It will be more economical to hire one expert, such as a graphic designer, and to place the ads personally than to hire an agency.

SELECTING A PARTICULAR ADVERTISING AGENCY

It is important for a small business to work with an agency able to devote the time needed to insure a successful ad campaign. Smaller, local agencies can usually offer more one-on-one attention. Large agencies with a stable of large corporate clients may not pay the small business owner the attention he or she thinks needed. Difficult choices arise when a business is mid-sized and needs the "heavy hitters" before it has become one itself.

Ideally, an agency should be familiar with the specific set of concerns shared by most small businesses: a limited advertising budget, finding a niche in a community, and establishing a loyal customer base. Finding a well-informed agency experienced in the customer's line is very helpful. If the potential client's business is a bookstore, for example, and the agency has never promoted a bookstore before, it does not mean they will necessarily be a poor choice to create and manage an advertising campaign. They may have done work for other local retail stores that have faced the same obstacles and challenges.

In an article for Entrepreneur, Kim T. Gordon outlined a series of questions for small business owners should ask in picking an agency. First, they should ascertain whether the agency is familiar with the target audience and knows how to reach them. Second, the small business should make sure that the agency has done extensive work in the media they plan to use most extensively. Third, small business owners should ask potential agencies about the results the agency has achieved in working with similar clients. Finally, the business owner should ask for a clear picture of what they should expect to accomplish with their specific advertising budget.

One of the best ways to choose an agency is the same way you would choose a bank, a doctor, or a house-painter: ask others you trust whom they are using. If your friends, neighbors, or fellow business owners have used an agency they were pleased with, it is worth further inquiry. If you see advertising you really like, call the business and compliment them on their good taste; then ask who prepares their ad copy. The agency-client relationship is very much trust-based; the creative work agencies do is subjective. You should work with an agency whose collective personality and creative work make you feel comfortable. These services will cost a considerable amount; starting off with a firm you feel optimistic about will help insure your satisfaction throughout the relationship. The American Association of Advertising Agencies (AAAA) helps match agencies and clients through their New Business Web site, located at www.aaaa.org.

During the introductory meeting, the agency will be prepared to show samples of their work. These are called case histories; they should be relevant to your business. These samples should reflect the agency's understanding of the needs of your small business—including who your customer base is—and a working knowledge of the kind of marketing necessary to sell your product. As a potential client, you should feel free to ask many questions concerning the approach of the advertisements, the audience reached by certain media, and what media plans have been developed for businesses similar to yours. An agency, though, should never be asked to do work "on spec." Advertising agencies cannot afford to use their considerable creative resources doing free work for potential clients. The case histories they provide, along with the answers to any questions you may have, should be sufficient to decide whether to give them your business.

Once you have found an agency you feel comfortable with, and you have together agreed upon a budget and a timeline for the advertising, the agency will begin producing copy for you to approve. Laying a strong foundation, including asking all the questions you have as they arise, will pave the way for a productive, mutually beneficial relationship.

SEE ALSO Marketing

BIBLIOGRAPHY

Adams, Richard. Www.Advertising. Watson-Guptill, March 2003.

"Checking the Local Market, Asking Media Can Help Start Long-Term Relationship." Arkansas Business. December 27, 1999.

Gordon, Kim T. "Call in the Pros." Entrepreneur. December 2000.

Larry, D. Kelly and Donald W. Jugenheimer. Advertising Media Planning. M.E. Sharpe, September 2003.

Peppers, Don. Life's a Pitch and Then You Buy. Doubleday, 1995.

Poteet, G. Howard (editor). Making Your Small Business a Success: More Expert Advice from the U.S. Small Business Administration. Liberty Hall Press, 1991.

"Select an Advertising Agency." Milwaukee Business Journal. February 11, 2000.

Hillstrom, Northern Lights

updated by Magee, ECDI