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Advertising communication and Agency

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Advertising communication and Agency

  1. 1. Advertising and Managing the client-agency relationship
  2. 2. <ul><li>Welcome to Advertising communication learning session . </li></ul>
  3. 3. <ul><li>We will discuss Advertising communication and the components of advertising . </li></ul>
  4. 4. <ul><li>Thanks for keeping your mobile phones in silent mode. </li></ul>
  5. 5. Objectives <ul><li>Understand the relationship between an advertiser and the agency </li></ul><ul><li>What happens after a client chooses an agency </li></ul><ul><li>Agency compensation – different methods of paying the agency </li></ul>
  6. 6. Objectives <ul><li>Running the relationship – the meetings </li></ul><ul><li>Looking at the advertising budget </li></ul>
  7. 7. Advertising Agency Organization <ul><li>Link the agency with the client </li></ul><ul><li>Act as liaisons so that the client does not need to interact directly with several different service departments and specialists </li></ul>Creative Services Account Management Media Services Research Services
  8. 8. Ad-Investment <ul><li>Consistent investment spending is the key factor underlying successful advertising. </li></ul>
  9. 9. Arguments for Investing in Advertising <ul><li>Investment in advertising requires that incremental revenue > advertising expense </li></ul>
  10. 10. Arguments for Disinvesting in Advertising <ul><li>Decreased expenses in advertising mean increased profits (everything else held equal) </li></ul>
  11. 11. Investment in the Brand Equity Bank <ul><li>“ S trong advertising represents a deposit in the brand equity bank.” </li></ul><ul><li>Strong - that is, different, unique, clever, memorable </li></ul>
  12. 12. Advertising Functions Informing Persuading Reminding Adding Value Assisting Other Company Efforts
  13. 13. Advertising Functions <ul><li>Makes consumers aware , educates them about the features and benefits, and facilitates the create the creation of positive brand images </li></ul><ul><li>Facilitates the introduction of new brands and increases demand for existing brands </li></ul><ul><li>Performs another information role by teaching new uses for existing brands (Usage expansion advertising) </li></ul>Informing
  14. 14. Advertising Functions <ul><li>Persuades customers to try advertised products and services </li></ul><ul><li>Primary demand- creating demand for an entire product category </li></ul><ul><li>Secondary demand- the demand for a specific company’s brand </li></ul>Persuading
  15. 15. Advertising Functions <ul><li>Keeps a company’s brand fresh in the consumer’s memory </li></ul><ul><li>Influences brand switching by reminding consumers who have not recently purchased a brand that the brand is available and that it possesses favorable attributes </li></ul>Reminding
  16. 16. Advertising Functions <ul><li>Three basic ways by which companies can add value </li></ul><ul><ul><li>innovating </li></ul></ul><ul><ul><li>improving quality </li></ul></ul><ul><ul><li>altering consumer perceptions </li></ul></ul><ul><li>Advertising adds value to brands by influencing consumers’ perceptions </li></ul>Adding Value
  17. 17. Setting The Terms <ul><li>After choosing an agency </li></ul><ul><li>Need to define what the clients objectives are in detail. </li></ul><ul><li>Need to look at method of payment </li></ul>
  18. 18. Setting The Terms <ul><li>Agency and client need clear understanding on many issues </li></ul><ul><li>Draw up a contract </li></ul><ul><li>See Box 3.1 on page 27 </li></ul><ul><li>Note that contract is usually of most importance when things go wrong. </li></ul>
  19. 19. Setting The Terms <ul><li>Of importance to the client is meeting the objectives they have set for the campaign </li></ul>
  20. 20. Setting Advertising Objectives <ul><li>Expression of management consensus </li></ul><ul><li>Guides the budgeting, message, and media aspects of advertising strategy </li></ul><ul><li>Provide standards against with results can be measured </li></ul>
  21. 21. Setting Good Advertising Objectives <ul><li>Include a precise statement of who, what, and when </li></ul><ul><li>Be quantitative and measurable </li></ul><ul><li>Specify the amount of change </li></ul><ul><li>Be realistic </li></ul><ul><li>Be internally consistent </li></ul><ul><li>Be clear and put it in writing </li></ul>
  22. 22. Sales Volume as an Advertising Objective <ul><li>Traditional View </li></ul><ul><li>Sales volume is the consequence of a host factors in addition to advertising </li></ul><ul><li>Effect of advertising is delayed </li></ul>
  23. 23. Sales Volume as an Advertising Objective <ul><li>Heretical View </li></ul><ul><li>Advertising’s purpose is to generate sales </li></ul><ul><li>Sales measures are “vaguely right” </li></ul>
  24. 24. The Logic of Vaguely Right Vs. Precisely Wrong Thinking Versus Measurement Accuracy Issue Vaguely Precisely Choice of Objective Issue Right Wrong
  25. 25. Setting The Terms <ul><li>Of most import to the agency is how they will get paid. </li></ul><ul><li>Client wants to get the most bang for its buck </li></ul><ul><li>Agency must ensure that their responsibilities are clearly laid out in the contract </li></ul>
  26. 26. Agency Compensation <ul><li>Commissions from media (15%) </li></ul><ul><li>Reduced commission system(<15%) </li></ul><ul><li>Labor-based fee system </li></ul><ul><li>Outcome-based </li></ul>Three Sources
  27. 27. Commission Issues <ul><li>Its absolute level </li></ul><ul><li>Whether it should vary with different media, levels of spending </li></ul><ul><li>How to apply non-media items </li></ul><ul><li>- eg. Production costs </li></ul>
  28. 28. Commission Issues <ul><li>Key problems </li></ul><ul><li>Distorts an agency’s advice </li></ul><ul><li>- using TV campaigns – can reduce the creative work needed per commercial </li></ul><ul><li>Very profitable for the agency </li></ul>
  29. 29. Fees <ul><li>Time-based fee systems </li></ul><ul><li>Agency is paid for work done on clients behalf. </li></ul><ul><li>Every option is given equal weight in recommendations. </li></ul>
  30. 30. Fee problems <ul><li>Requires effective and efficient time-sheet system </li></ul><ul><li>Agency and client need to agree on rate of each member of team. </li></ul><ul><li>The creative teams time is most valuable. </li></ul>
  31. 31. Menu System/work-unit pricing <ul><li>Cost-per-task basis </li></ul><ul><li>Main virtue is transparent price structure </li></ul><ul><li>Tight cost controls </li></ul><ul><li>Meshes well with cost accounting </li></ul>
  32. 32. Menu System/work-unit pricing problems <ul><li>Does not allow for the synergy </li></ul><ul><li>Client can shop around for best price </li></ul><ul><li>Does not deal with quality </li></ul>
  33. 33. Result Based Payment <ul><li>Usually combined with other approach </li></ul><ul><li>Allows agency to earn a bonus for above target performance. </li></ul>
  34. 34. Result Based Payment Problems <ul><li>Developing attainable targets </li></ul><ul><li>Measuring progress </li></ul><ul><li>Will discuss in chapter 8 </li></ul>
  35. 35. The creative fee <ul><li>Two part charging system </li></ul><ul><li>1) Monthly fee </li></ul><ul><li>- based on proportion of work of individual assigned to account </li></ul><ul><li>2) Determined value for the creative idea </li></ul>
  36. 36. Running the relationship <ul><li>Agency will need to learn everything </li></ul><ul><li>Visits to offices/factories </li></ul><ul><li>Conversations </li></ul><ul><li>Review available market research </li></ul><ul><li>Getting to know each other’s teams </li></ul>
  37. 37. Structuring contact <ul><li>Primary contact is the account manager </li></ul><ul><li>Responsible for smooth running of account </li></ul><ul><li>Effective use of agency resources on behalf of client </li></ul><ul><li>*large agencies can be 2 or 3 levels </li></ul>
  38. 38. Structuring contact <ul><li>Client side is the marketing director </li></ul><ul><li>Responsible for the advertising </li></ul><ul><li>Marketing mix </li></ul><ul><li>*large companies may have specialist advertising or communications directors </li></ul>
  39. 39. Formalizing contacts <ul><li>Day-to-day contact </li></ul><ul><li>Meetings could be weekly, biweekly, monthly </li></ul><ul><li>Discuss new work or progress etc… </li></ul><ul><li>Major meetings </li></ul><ul><li>New briefs for major campaigns </li></ul><ul><li>Presentation of new campaign proposals, </li></ul><ul><li>Research debriefs….. </li></ul>
  40. 40. The advertising Budget <ul><li>How do you decide how much to spend ? What do you spend it on? </li></ul><ul><li>Establishing budgets is difficult </li></ul><ul><li>Practice lags behind theory </li></ul>
  41. 41. Advertising Budgeting in Theory <ul><li>The best(optimal) level of any investment is the level that maximizes profits(MR=MC) </li></ul><ul><li>Advertisers should continue to increase their advertising investment as long as it is profitable to do so </li></ul>MC = (Change in total cost) (Change in quantity) =  TC/Q MR = (Change in total Revenue) (Change in quantity) =  TR/Q
  42. 42. Budgeting Considerations in Practice <ul><li>What is the Ad objective? </li></ul><ul><li>How much are competitors spending? </li></ul><ul><li>How much money is available? </li></ul>
  43. 43. Budgeting Methods <ul><li>Percent-of-Sales Budgeting </li></ul><ul><li>Objective-and-Task Method </li></ul><ul><li>Competitive Parity Method </li></ul><ul><li>(match competitors method) </li></ul><ul><li>Affordability Method </li></ul>
  44. 44. Percentage-of-Sales Budgeting <ul><li>A company sets a brand’s advertising budget by simply establishing the budget as a fixed percentage of past or anticipated sales volume </li></ul><ul><li>Criticized as being illogical </li></ul><ul><li>Sales= f (Advertising) (o) </li></ul><ul><li>Advertising= f (Sales) (x) </li></ul>
  45. 45. Objective-and-Task Method <ul><li>The most sensible and defendable advertising budgeting method </li></ul><ul><li>Specify what role they expect advertising to play for a brand and then set the budget accordingly </li></ul>
  46. 46. The Competitive Parity Method <ul><li>Sets the ad budget by basically following what competitors are doing </li></ul>
  47. 47. Affordability Method <ul><li>Only the funds that remain after budgeting for everything else are spent on advertising </li></ul><ul><li>Only the most unsophisticated and impoverished firms </li></ul><ul><li>However, affordability and competitive considerations influence the budgeting decisions of all companies </li></ul>
  48. 48. Summary <ul><li>Working with an agency should be a professional business relationship and structured accordingly. </li></ul><ul><li>This requires a formal contract, with especial attention paid to the thorny question of how the agency will be remunerated for its efforts. The contract should also cover a range of other details. </li></ul>
  49. 49. Summary <ul><li>The agency will aim to tailor its account team to fit with the client’s structure, with the main contacts going through the account management team and the client marketing departments of the agency. </li></ul>
  50. 50. Summary <ul><li>The relationship will – inevitably – revolve around a series of meetings, which need to be call reported to provide a record of the decisions taken. </li></ul><ul><li>The budget will be central to the relationship. Setting a budget is difficult, but the difficulties are often avoided by using simple rules of thumb. </li></ul>