The Structure of the Advertising Industry: Advertisers, Agencies, and Support Organizations

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Chapter 2

The Structure of the Advertising Industry:
Advertisers, Agencies, and Support Organizations
© 2006 Thomson/South-Western

Trends Affecting the Advertising and Promotion Industry
1. The “Undoing” of Agency Consolidation and Globalization 2. Media Proliferation and Consolidation 3. Media Clutter and Fragmentation 4. Consumer Control: Blogs and TiVos

© 2006 Thomson/South-Western

Ch 2: The industry 2

The Worldwide Advertising Industry
U.S expenditures: • >$250 billion

Global expenditures: • $550 billion

© 2006 Thomson/South-Western

Ch 2: The industry 3

1

Structure of the Advertising Industry (text Ex. 2.5)
Advertisers

Advertising and Promotion Agencies

External Facilitators

Media Organizations

Target Audience
© 2006 Thomson/South-Western

Ch 2: The industry 4

Advertisers
Manufacturers and Service Firms
• Procter & Gamble, MCI

Trade Resellers
• Sears, McDonald’s

Government
• Federal, State, Local

Social Organizations
• United Way, Nature Conservancy

© 2006 Thomson/South-Western

Ch 2: The industry 5

In addition to companies, the Government Makes extensive use of advertising

© 2006 Thomson/South-Western

2

The Role of the Advertiser in IBP
• Describe the value that the firm’s brand provides • Describe the brand’s position in the market Describe the firm’s objectives for the brand in the near-term and long-term • Identify the target market(s) that are most likely to respond favorable to the brand • Identify and manage the supply chain/distribution system that will most effectively reach the targets • Be committed to using advertising and other promotional tools to grow the brand. © 2006 Thomson/South-Western

Ch 2: The industry 7

Agencies
Advertising Agencies:
• • • • • • • Full-Service Creative Boutique Interactive In-House Media Specialists Promotion Agencies Direct Marketing

Promotion Agencies:
• Direct Marketing/ Database • E-commerce • Sales Promotion • Event Planning • Design Firms • Public Relations Firms Ch 2: The industry 8

© 2006 Thomson/South-Western

Advertising agencies make extensive use of advertising to acquire new clients

© 2006 Thomson/South-Western

3

Full Service Agency Services
1. Account Services 2. Marketing Research Services 3. Creative and Production Services 4. Media Planning and Buying Services 5. Administrative Services

© 2006 Thomson/South-Western

Ch 2: The industry 10

Agency Compensation
1. Commissions: around 15% of airtime fees—in flux. 2. Markup Charges: production cost + fixed %. 3. Fee Systems: hourly rates, or by project. 4. Pay-for-Results: tightly-specified objectives.

© 2006 Thomson/South-Western

Ch 2: The industry 11

External Facilitators
• Marketing and Advertising Research Firms • Consultants: Creative, Media, Database • Production Facilitators • Software Firms: web tracking, fulfillment

© 2006 Thomson/South-Western

Ch 2: The industry 12

4

Media Organizations
• Broadcast
– TV, radio

• Print
– Magazines, direct mail, newspapers

• Interactive Media
– CD-ROMs, online shopping

• Support Media
– Outdoor, directories, Sponsorship

• Media Conglomerates
– AOL Time Warner, Viacom, AT&T
© 2006 Thomson/South-Western

Ch 2: The industry 13

Target Audiences
• • • • Household consumers Businesses Professionals Government Organizations

© 2006 Thomson/South-Western

Ch 2: The Industry 14

5

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