The Promotion Industry

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Chapter 2
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• The Promotion Industry

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1. Discuss important trends transforming the
   promotion industry.
2. Describe the promotion industrys size,
   structure, and participants.
3. Summarize what advertising and promotion agencies
   do and how they are compensated.
4. Identify experts who help plan and execute
   integrated marketing communication (IMC)
   campaigns.
5. Discuss the role played by media organizations in
   IMC campaigns.

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• Promotion Industry Trends

• Consolidation into giant full-service advertising
  agencies to provide a large array of fully
  integrated services. Limitations of these giant
  agencies include a possible lack of
  specialization and creativity of smaller shops,
  conflicts of interest with multiple businesses,
  unwieldy size and debt. The unconsolidation of
  some of these agencies seems inevitable.
• Narrower media control due to relaxed FCC
  regulations and media consolidation
• Media clutter due to new and increased media
  options and resulting in fewer focused media
  outlets to reach target audiences
• Consumer control has increased due to interactive
  media such as Internet, social media, DVRs, etc.

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• Industry Scope and Structure

• Marketers are business, not-for-profit, and
  government organizations that use advertising and
  other promotional techniques to communicate with
  target markets and to stimulate awareness and
  demand for their brands.
• Marketers include manufacturers and service
  firms trade resellers federal, state, and local
  governments social and not-for-profit
  organizations.
• Marketers who hire advertising and promotional
  agencies are responsible for defining and
  managing the brand values and objectives as well
  as the market position, target, and supply/demand
  chains.
• Advertising and Promotion Agencies An advertising
  agency is an organization that provides creative
  and business services to clients in planning,
  preparing, and placing advertisements. Promotion
  agencies handle specific promotional efforts,
  including sampling, event promotions, or
  promotional tie-ins.
• External facilitators are organizations or
  individuals that provide specialized services to
  marketers and agencies that may need more
  expertise in areas such as research, consulting,
  production, and software.
• Media organizations own and manage the media
  access to consumers.
• Target audiences are the consumers advertising
  and promotional efforts are directed towards. If
  there is no audience no communication can take
  place.

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• Advertising and Promotion Agencies

• Most marketers use the services of an advertising
  agency. It is up to the marketer to determine
  which agency or set of agencies fulfill the
  marketing companys needs.
• Full service agencies include an array of
  advertising professionals to meet all the
  advertising needs and even some promotional needs
  of their clients. These firms can be large,
  medium, or even small in size.
• Creative boutiques emphasize creative concept
  development, copywriting, and artistic services.
  A marketer can employ this alternative for the
  strict purpose of infusing greater creativity
  into the message theme or individual
  advertisement.
• Interactive agencies help advertisers prepare
  communications for new media such as the
  Internet, podcasting, interactive kiosks, CDs,
  and interactive television. They focus on ways to
  use Web-based solutions for direct marketing and
  target market communications.
• In-house agencies are the advertising departments
  in a firm that take responsibility for the
  planning and preparation of advertising
  materials. This offers greater coordination and
  control of all phases of the IMC process,
  marketers personnel have direct control over and
  knowledge of marketing activities, and the
  ability to cut outside spending. Limitations
  include a possible lack of objectivity,
  resources, and specialized expertise.
• Media specialists are organizations that
  specialize in buying media time and space and
  that offer media strategy consulting to
  advertising agencies and advertisers. Strategic
  coordination of media and promotional efforts has
  become more complex because of the proliferation
  of media options and extensive use of promotional
  tools beyond advertising.

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• Advertising and Promotion Agencies, Continued

• Different types of promotion agencies handle
  different promotional outlets and tools.
• Direct marketing agencies and database agencies
  maintain and manage large databases of mailing
  lists to target customers. They also develop
  direct-marketing campaigns and promotional
  materials and execute campaigns. Fulfillment
  centers ensure consumers receive products ordered
  in response to direct marketing efforts.
• E-commerce agencies handle a variety of planning
  and execution activities related to promotions
  using electronic commerce. They differ from
  interactive agencies (a type of advertising
  agency). Rather than creating websites or banner
  ads, they help firms conduct all forms of
  promotion (sweepstakes, coupons, sampling, etc.)
  through electronic media, particularly the
  Internet.
• Sale promotion agencies design and then operate
  contests, sweepstakes, special displays, or
  coupon campaigns for advertisers. Consumer sales
  promotions focus on price-off deals, coupons,
  sampling, rebates, and premiums. Trade-market
  sales promotions designed to help advertisers use
  promotions aimed at wholesalers, retailers,
  vendors, and trade resellers, such as incentive
  programs, trade shows, sales force contests,
  in-store merchandising, and point-of-purchase
  materials.
• Event-planning agencies are experts in finding
  locations, securing dates, and putting together a
  team of people to pull off a promotional event.
• Design firms provide experts such as designers
  and graphics specialists. Designers specialize in
  the execution of creative ideas and efforts by
  designing logos and other visual promotional
  pieces.
• Public relations firms manage an organizations
  relationships with the media, the local
  community, competitors, industry associations,
  and government organizations. Their tools include
  press releases, feature stories, lobbying,
  spokespersons, and company newsletters.

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• Agency Services

• Before hiring an agency to provide services,
  marketers need to identify which services they
  need.
• Account services work with clients to determine
  how the brand can benefit most from promotion and
  then to develop a complete promotion plan.
  Account service managers work with the creative
  and media services to ensure the best promotional
  message is delivered via the most effective media
  strategy. Account services also works to keep
  various agency teams on budget and schedule.
• Marketing research services locate studies
  (conducted by research agencies and
  organizations) that relate to the clients market
  or promotional objectives. This department also
  helps translate research data for the client or
  other departments and may engage in some consumer
  testing to check the efficacy of the promotional
  message.
• Account planners coordinate research efforts to
  ensure that the input is included at each stage
  of the campaign development.
• Creative services come up with the concepts that
  express the value of a companys brand in
  interesting and memorable ways. Clients will push
  their agencies hard to come up with interesting
  and expressive ways to represent the brand.

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• Agency Services, Continued

• Production services include producers (and
  sometimes directors) who take creative ideas and
  turn them into advertisements, direct-mail
  pieces, or events materials.
• Media Planning and Buying Services Full-service
  advertising agencies also provide media planning
  and buying services similar to those of the
  specialized agencies to determine how a clients
  message can most effectively and efficiently
  reach the target audience.
• Administrative services manage the agencys
  business affairs. Agencies have personnel
  departments, accounting and billing departments,
  and sales staffs that go out and sell the agency
  to clients. The traffic department is responsible
  for monitoring projects to be sure that deadlines
  are met.

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• Agency Compensation

• Different agencies get paid somewhat differently.
  Traditionally advertising agencies work on a
  commission basis, but this is changing. Promotion
  agencies usually work on a fee basis.
• Commission systems are based on an agreed-upon
  percent (traditionally 15) of the total amount
  billed by a media organization. This amount is
  retained by the advertising or promotion agency
  as compensation for all costs in creating
  advertising/promotion for the advertiser. Some
  agencies and clients wonder if this system
  encourages agencies to choose the most expensive
  methods rather than the most effective.
• Markup charges are based on adding a percentage
  charge to a variety of services the agency
  purchases from outside suppliers. This became
  prevalent because so many agencies were providing
  services that did not use traditional media and
  thus could not be charged under the commission
  system. A typical markup on outside services is
  17.65 to 20 percent.

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• Agency Compensation, Continued

• Fee systems use an agreed-upon hourly rate across
  all services. Another version is the fixed fee,
  or contract, set between the client and agency
  for compensation of all work. The agency and the
  marketer agree on precisely what services will be
  provided, by what departments in the agency, and
  over what specified period of time. In addition,
  the parties must agree on which supplies,
  materials, travel costs, and other expenses will
  be reimbursed beyond the fixed fee. Advertising
  agencies are often opposed to this system,
  arguing that creativity cannot be measured in
  work hours.
• Pay-for-results programs use results criteria of
  communications objectives such as the target
  audiences brand awareness, brand identification,
  or knowledge of brand features and then base the
  fee upon achieving these results. Sales volumes
  are not used as result criteria because they are
  also related to factors outside the agencys
  control (product features, pricing strategy,
  distribution programs).

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• External Facilitators

• External facilitators provide specialized
  services in areas that full-service ad or
  promotional agencies may not have the expertise.
• Marketing and Advertising Research Firms
  Marketing research firms perform original
  research for marketers, using focus groups,
  surveys, or experiments to assist in
  understanding the potential market for consumer
  perceptions of a product or services. Other
  research firms routinely collect data (from
  grocery store scanners, for example) and have
  these data available for a fee.
• Consultants specialize in areas related to the
  promotional process. Consultants can provide
  expert advise on marketing planning, creativity,
  communications, event planning, public relations,
  media mix and placement, database identification
  and management, website development and
  management, and customer relationship management
  (CRM).
• Production facilitators provide the elements to
  produce a broadcast production or print
  advertisement, including studio facilities,
  producers, directors, actors, models,
  technicians, etc. This is the area where
  advertisers rely most heavily on external
  facilitators.
• Software firms provide software that gathers and
  analyzes data on the behavior of Web surfers,
  streams audio and video files, and manages
  relationships with trade partners.

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• Media Organizations

• Media organizations are essential to the IMC
  process because they own and manage access to
  consumers.
• Broadcast media include television and radio.
• Print media include magazines, newspapers, direct
  mail, and specialty publications (handbills,
  theater programs, etc.).
• Interactive media include online computer
  services, home-shopping broadcasts, kiosks, CDs,
  podcasts, and cell phones.
• Support media include outdoor ads, directories,
  premiums, point-of-purchase displays, event
  sponsorships, and brand placements in
  entertainment.
• Media conglomerates own multiple media outlets
  usually including broadcast, cable, film, print,
  and Internet organizations.