Module 4: Advertising Agency and Budget

Advertising Agency- functions, departments, Client agency relationship, Agency

problems, Advertising budget, Process, methods-historical, percentage of sales,
competitive and task object.

Learning Outcomes
Demonstrate an understanding of advertising strategies and budgets.
Identify and understand the various advertising media.
Demonstrate an understanding of how an advertising agency operates.

What is an Advertising Agency?

Advertising agencies are responsible for initiating, managing,

and implementing paid marketing communications. In addition, some agencies have
diversified into other types of marketing communications, including public
relations, sales promotion, interactive media, and direct marketing.

Typical Departments of An Advertising Agency

Contact Department
Contact department, also known as client department is in charge of keeping contact
with their prospective clients of the advertising agency, mostly the advertisers. The
contact department is headed by the accounts executive.

The functions of the client department includes:

▪ This department begets new clients and also supports and retains the
existing ones, which is crucial for increasing the revenue, expansion, and
growth of the agency.
▪ The contact department furnishes all the required information to its
clients and acts as a negotiator between the agency and its clients.
▪ Effective contact department contributes to the quick growth of the
agency.

Media Planning and Purchase Department

Media Department of advertising agency is responsible for the choice of media. This
department selects the best suitable medium for the ad agency that will be suitable
for its clients.
Functions

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 ▪ The fundamental function of the media planning and purchase
department is to choose the best outlet or a suitable medium for
advertising the products and services based on the budget, market
competition, nature of the product, and client specifications.
▪ The department chooses the appropriate channels for advertisements
through which the message is communicated to the targeted consumers.
▪ The media planning and buying department analyse the category of
potential consumers for a particular product and then adopt a specific
medium for advertising.
▪ This department is responsible for planning, scheduling, booking, and
buying space in the media. The media planning involves research to
analyse the number of viewers or readers of a particular ad medium.
▪ This department also supervises the execution of the advertisement.

The functions of media department are:

• It selects and uses the best media possible to communicate the ad message to
the ultimate consumers
• It can also fail, as a wrong selection will result in the failure of the advertised
product.
• Preparation of media plans for its clients
• Media scheduling
• Supervising the execution
• It keeps constant contact with the media and the client

Copy Department

The copy of the advertising agency is very crucial. It is called the heart of the ad as
this conveys a direct message to the consumers creatively.

Primary functions of the copy department are:

• Preparing an attractive copy for its clients and customers.
• Participate in brain- storming sessions and come up with ideas.
• Using their extraordinary skills of putting flair and fluent language while
preparing a copy.

This department includes copywriters, copy-supervisors, and others. The copy

department works in close co-operation with the art department. Mostly, the copy
department is the largest department of an advertising agency. It comprises of a
hard-working team of qualified professionals and experienced staff.

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Art and Visualization Department
The art department consists of all the artists in an advertising agency. An art director
heads the Art and Visualization department, assisted by a team of artists, layout
men, and visualizers.
The advertisement finally becomes agreeable and acceptable because of these people
in the art department. These people use the principles of real art, probably on
software, as a guideline or base to present a product to the targeted audience. The
personals working in the art department are known as the Art Directors.

The functions of the art department are:

• Transform the idea that the client wants to convey, into a simple and beautiful
imagery.
• To work closely with the copywriters for developing the visual messages.
• Making painted bulletins, posters, car cards, illustrations, slogans, etc.
• It develops visuals and layouts, billboards and calendars for advertisements.
• The art department is concerned with the overall look and feel of the
advertisement from choosing the headline, text, size and type of the font to
the pictures, visuals, logo, and the photographic treatment of the commercials
with originality and extraordinary talent.
• The art department and the creative department work together guided by the
vice-president of creative services and devise the final copy of the
advertisement.
• Some ad agencies outsource their artwork to freelance artists.

Production Department

Once, after the copy and art is finalized, the advertisement is sent to the production
department for further process. Both the departments, copy and art, create the basic
model of the advertisement. The production department takes the advertisement
into its final stage. A production manager heads the production department.

Functions of the production department are:

• Produces the final advertisements for the markets.
• Making contacts in the industry for the easy carrying out of tasks.
• The department stays in touch with the press, typographers and
photoengravers, and congregates typographic designs, engraved photos, and
illustration copies.
• It presents the final ad to the client and once approved by him, sends it to the
media for release.

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 • Keeping them updated about the latest trends and technologies.
• Production department comes under creative services; not all ad agencies
have a production unit, some agencies prefer outsourcing jobs related to
production.
Creative Department
▪ The creative department taps the right words, appropriate visuals and
everything that grabs the attention of the consumers and promotes sales.
▪ The creative team comprises of a creative director, copywriters, editors,
artists, and web designers.
▪ Creating a concept is the first step in the production process, where a
general theme or idea is formulated.
▪ The creative team also organizes focus groups and conducts surveys to
obtain consumer feedback.
▪ Creative teams often experiment with their advertisements before
releasing to ensure the effectiveness of the ads. For example, a small
business house may issue ads in 3 of their ten markets and track the
number of sales and leads created.
Copy Department
▪ The copy director heads this department who directs the functioning of it.
▪ The fundamental responsibility of this department is to generate an
attractive ad copy. The ad copy is very significant and is called the heart
of the ad because it conveys the ad message to its consumers without any
deviation.
▪ The copy team includes copywriters and supervisors who use their
creative skills while preparing an ad copy.
▪ The copy department is mostly the largest department of an advertising
agency which consists of dedicated, qualified and experienced team
members.

Research Department
The research department in advertising collects information about the market,
market competition, market trends, products and services, competitors, consumer
behavior, media trends, new trends in advertising, so on. A research director heads
the research department

The success of the advertising agency’s advertisement campaign depends upon how
hard the research team has done its work. A right direction and the right approach
are very important for a successful ad campaign.

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Functions of the research department include:
• Research department measures the effectiveness of media and provides a
systematic quantifiable basis for planning an advertisement.
• It comprises of seasoned executives from various disciplines who use some
tools and methods of statistical modelling and sampling techniques of
research and engage in a rigorous analysis to arrive at a conclusion.
• The success of the ad agency is conditioned on the success of its client’s ad
campaign, and the success of the ad campaign depends on a good amount of
research.
• The research team consists of investigators, analysts, statisticians and field
workers.
• Agency makes use of above information for executing an excellent ad
campaign.

Accounting and Finance Department

As the name suggests, the accounting and finance department of an advertising

agency looks into the financial and accounting matters of the organization.

The functions of this department are:

• To generate and keep a record of the invoices that the company incurs or
gains.
• Sending out regular reminders to the clients for un-cleared payments.
• Clear accounts before or within the due dates.
• Issue payments to vendor parties within or on the due date.
• Keep a track of the monthly and yearly accounts.
• Deposit the government fees on time.
• Manage salary accounts of the employees.

Public Relations (PR) Department

The chief responsibility of a public relations (PR) department is to maintain a cordial
relationship among three parties, namely, advertising agency, clients, and media.
Every organization may not have a separate department for PR hence, it becomes
important for the other members of the organization to build cordial relations with
clients and customers.

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The functions of the PR department are:
• Redressing the grievances as a mediator between the agency, media, and its
clients
• Taking feedback from clients and customers and working on it immediately.
• Serve as a road between the advertising agency and the other parties.
• The growth and endurance of an advertising agency are taken care by the PR
department by maintaining a healthy relationship between the agency, media,
and its clientele.
• It also promotes goodwill and retains the reputation of the agency.

Accounting and Finance Department

▪ The accounting and finance department is headed by the vice-president
of accounting services.
▪ The accounting team comprises of a chief financial officer, accounts
receivable and payable managers, accounts supervisors and accounts
executives.
▪ This department is responsible for billing, maintaining accounts, and
collecting the payments due from its clients.
▪ It generates invoices and sends regular reminders to its clients for the
collection of unpaid dues.
▪ The department books the expenses and issues payments to the vendors
on a timely basis.
▪ The accounts department also deposits government dues on a timely
basis in the authorised banks.
▪ This department takes care of all the routine matters related to
accounting.
Office Management
▪ The office management in an ad agency functions under its management
services.
▪ This department is responsible for hiring office staff, training and
developing the newly joined team, issuing salaries and perks to the staff,
extending welfare facilities, and filing and maintaining records of all the
prime documents.
An advertising agency mostly manages all the above departments but the name and
number of departments may differ from one company to another based on the
capacity of its business, besides the functions of two or more departments may be

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consolidated and fulfilled by one department. The agency may also consider
outsourcing specialists instead of creating all the departments.

Types of Advertising Agencies

1. Full-service advertising agencies

Full-service advertising agencies offer a wide variety of advertising services to its

clients, with both traditional and digital options. Clients may choose this type of
agency when they desire several advertising options for their brand. Advertisers
may choose to work at this agency if they're skilled in an assortment of
advertisement skills and enjoy switching between tasks for campaigns. For example,
in one campaign, a professional may work on the traditional advertisement and in
another campaign, the professional may work on the digital deliverables. Here are
some options a full-service advertising agency may offer to clients:

• Television advertisements
• Advertisement campaigns
• Content creation
• Search engine optimization (SEO)
• Graphic design
• Social media management
• Radio advertisements
• Web development

2. Digital Advertising Agencies

Digital advertising agencies offer advertising services online. Clients may choose
this agency when they only desire to have digital advertisements rather than
tangible advertising goods. Professionals may choose to work at this agency when
they're passionate about digital advertisement and their strengths are in this area.
Other professionals, other than advertisers, can work in this agency, including
copywriters, videographers and photographers. Here are some services a digital
advertising agency can offer:

• SEO
• Email marketing
• Account-based marketing
• Social media marketing
• Website design and marketing
• Content marketing

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 • Lead generation

3. Traditional Advertising Agencies

Traditional advertising agencies offer classic styles of advertising for clients. Clients
may choose this agency when they're advertising their business to the local area.
Professionals may choose to work at this agency if they have a passion for
implementing traditional advertising strategies into campaigns for clients. Some
services a traditional advertising agency can offer to its clients include:

• Billboard advertisements
• Postcard mail advertisements
• Television commercial advertisements
• Newspaper advertisements
• Radio advertisements
• Magazine advertisements

4. Social Media Advertising Agencies

Social media advertising agencies offer its clients social media-focused advertising.
You may choose to work in this agency if you're a content creator or have significant
knowledge of social media to help optimize accounts for clients. Clients may choose
to have this agency help them with their advertising if they desire an increase in
their social media engagement or more traffic going to their website through their
social media accounts. Professionals work with their clients to ensure the advertising
strategy aligns with their business strategies. Here are some services this agency can
offer their clients:

• Establish social media advertisement optimization

• Design profiles
• Write blog posts
• Produce videos
• Create content
• Write captions

5. Creative Boutiques

Creative boutiques offer a variety of creative design options for its clients based on
their needs. This type of agency allows clients to monitor how their campaign is
performing on their own. A creative boutique also allows clients the ability to choose
where they place their advertisements. For example, they can choose to place them
as an online banner on third-party websites or as sponsored social media posts. A
client may choose this agency when they lack creative professionals to produce the
desired content.

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Professionals may choose to work at a creative boutique because they can create the
content and give the analytical portion to the client. Some services this agency can
offer its clients include:

• Building an online community

• Creating content, such as social media posts, blog posts or videos
• Planning campaign strategies

6. Media Buying Agencies

Media buying agencies work with their clients to choose the best location to place
their advertising material. This can include deciding where most consumers may
view the material and who is more likely to act on the advertisement when they see
it. In this agency, it can include both digital and print campaigns. For example, if a
client has a television advertisement for their small pizza shop business, a
professional at this agency may suggest placing the television advertisement on a
local channel during the news slot.

This can help ensure several individuals in the area are viewing the advertisement
for their new local pizza establishment to try.

7. Public Relations Advertising Agencies

Public relations (PR) advertising agencies help their clients enhance and maintain
their public image. The public image can include the company, its employees and
the CEO. A PR advertisement agency can work with companies to feature their
business in the news, local or digital community and other industry websites. Clients
may choose to use a PR advertising agency to improve the public image of their
brand or increase public awareness about them. Professionals may choose to work at
this agency because they're passionate about public relations and collaborating with
brands.

8. Brand Advertising Agencies

Brand advertising agencies offer a specialty in branding for clients. Branding is a

company's name, logo, colors and overall design that differentiates them from other
companies. The goal of branding is to make it recognizable and memorable for
consumers to recall. Professionals working at these agencies conduct brand and
industry research to determine an effective plan for a brand. Clients may choose this
agency when they're starting a new business or wanting a rebranding of their
existing business. Professionals may choose to work here because they're creative
and have a passion for creating brand identities for clients.

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Some services a brand advertising agency may offer their clients include:

• Logo designs
• Signage
• Brand name development
• Color palettes

9. In-House Advertising Agencies

In-house advertising agencies are agencies that operate within an existing company.
This means the agency exists to operate for a single client, which is the company that
owns them. For example, a multi-national clothing company has created its own
advertising agency in the office to focus on creating an advertising campaign for the
clothing company. Clients may choose this because it saves them money from
outsourcing the work. It can also make communication easier when the agency exists
where the company is operating.

10. Interactive Advertising Agencies

Interactive advertising agencies are like digital advertising agencies, but it focuses
on the consumer interacting with the advertisement online. For example, a client
may request to send their advertisement to mobile phones as personal messages if
the consumer opts into the messages. This is interactive to the consumer because it
comes to their phone, often with a link they can click on and follow to the website.
Clients may choose this advertiser to increase their online engagement and
encourage consumers to click on the advertisements that redirect them to their site.

Client agency relationship in advertising

The client-agency relationship starts when a client appoints an advertising agency

for making his ad. It continues till the ad agency provides satisfactory services to
him. Such a relation should always be cordial. There should be a mutual trust,
confidence and understanding between the two parties. It is so, since, the primary
objective of both sides is same, i.e. to make a successful advertising campaign.

Lack of mutual trust will be harmful to both parties. It is, therefore, necessary to
maintain good relations between the client and ad agency as follows:

1. Meaningful two-way communication is required to maintain a friendly client-

agency relationship.
2. Both parties should take special efforts to maintain a cordial relationship.

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 3. The approach of give-and-take is required to keep relations over a longer
period.

Mentioned below are some significant guidelines (grouped under three categories)
to maintain a cordial client-agency relationship in advertising:

1. Suggestions for both parties (Client and Ad Agency).

2. Guidelines for the Client (Advertiser), and
3. Advice to the Advertising Agency.

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Client and advertising agency to maintain their relations:

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Guidelines for the client to preserve relationship with advertising agency:

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Advice to the advertising agency to maintain good relationship with client:

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What is an Advertising Budget?

An advertising budget is a company’s allocation of promotional expenditures over a

specified time period. It is a measure of a company’s planned expenditure on
accomplishing marketing objectives. The advertising budget is where a company’s
strategic marketing objectives and cost-benefit analysis converge in its operational
plans.
• An advertising budget is an organization’s allocation of promotional
expenditure over a specified time period.
• Effective budgeting for advertising requires an in-depth understanding of the
qualitative and quantitative background behind the advertising.
• There are various methods of budgeting: percentage of sales method,
competitive parity method, objective and task method, and the Dorfman-
Steiner Theorem.

The Three Pillars of the Advertising Budget

1. Situational Analysis

A situational analysis identifies the challenges and opportunities facing a company

both internally and externally. The structured analysis breaks down the company,
the customers it serves, and the competition in the market. It relates socio-cultural,
technological, economic, and political-regulatory trends to a company’s operations.
Ultimately, the situational analysis sets the framework for the development of a
company’s strategic plan.
2. Segmentation, Targeting, and Positioning (STP)

A segmentation, targeting, and positioning (STP) analysis identifies potential

opportunities for an organization to pursue. Segmentation is the process where
customer groups are identified. The customer groups are formed by sorting through
geographic, demographic, and psychographic variables.

Targeting involves selecting the most attractive customer groups. Factors that
influence how attractive a consumer group can be are market size, spending power,
or even customer loyalty. Once market segments are ordinally ranked, the most
valuable are targeted.

Positioning requires developing strategies pandering the target markets. The

previously completed situational analysis provides background information to build

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a positioning strategy. The purpose of the positioning strategy is to ensure that the
value proposition connects with the targeted market.

A thorough STP analysis is critical in maximizing the impact of an advertising

campaign. In addition, it is important to formulate streamlined strategies to reduce
excess costs.
3. Return on Investment

Quantifying an advertising campaign’s impact on a company’s operating income is

critical to understanding the relationship between advertising expenditure and
revenue generation. A cost-benefit analysis is commonly conducted to assess the net
financial benefit of a project undertaken.

The cost-benefit analysis discounts forecasted after-tax operating cash flows to

its Net Present Value (NPV). For any given expenditure on advertising, a company
should aim to maximize the NPV of advertising expenditure.

Impact on Income Statement

Advertising expense is accounted for as selling, general, and administrative

(SG&A) expenses. SG&A expenses impact operating income, and by extension, net
income. A company’s operating sector exerts a large impact on selling, general, and
administrative expenses’ correlation with net income.

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In the fast-moving consumer goods (FMCG) sector, where products are sold in high
volumes at low prices, advertising expenditure makes up a larger proportion of
revenues. It is important to assess the benefits and costs of an advertising project.

After quantifying the campaign’s impact, the company can then justify its
expenditure and budget accordingly. Ultimately, each company must budget for
advertising relative to maximizing shareholder wealth.

Industry-Normal Advertising Budget Practices

1. Percentage of Sales Method

Commonly, a company’s advertising budget is a percentage allocation of
projected revenues. Accurately budgeting advertising expenditure requires an
in-depth analysis of historical data to better understand the relationship
between advertising and revenues.
Business-to-business companies generally spend between 2%-5% of their
revenues on advertising. On the other hand, business-to-consumer companies
generally spend between 5%-10% of their revenues on advertising.
2. Competitive Parity Method
The competitive parity method is a common strategy utilized by companies
that wish not to be out-advertised by the competition. The strategy involves
using competitor advertising spending as a benchmark for a company’s own
spending.

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 However, budgeting the same amount of money does not guarantee the same
outcome for a company. Therefore, the competitive party method comes with
limitations.
3. Objective and Task Method
The objective and task method is commonly used by large corporations. It
brings forth is a strong correlation between advertising spending and overall
marketing objectives. The method is only as useful as its underlying strategic
objectives.

4. Market Share: In this method, the advertising budget is based on a

company’s market share. For a higher market share, less marketing budget is
set.
5. All available Funds: This is a very aggressive method under which all
available profits are allocated towards advertising activities. This method can
be used by start-up businesses that need advertisements to attract customers.
6. Unit Sales: Under this method, the advertisement cost per article is calculated
and based on the total number of articles, it is set.
7. Affordable: As the name suggests, the company sets its budget based on how
much it can afford.

Optimizing the Advertising Budget

The Dorfman-Steiner Rule is an economic theorem that optimizes advertising

expenditure. The theorem states that a company can drive revenue generation
through advertising expenditure or decreasing a good’s price.

Specifically, the Dorfman-Steiner Rule states that a company’s advertising

expenditure is at its profit-maximizing equilibrium when an additional dollar of
advertising just produces an additional dollar of net revenue. The Dorfman-Steiner
rule applies only to profit-maximizing monopolists.
References
https://itsaugust.com/organizational-structure-advertising-agency/
https://studiousguy.com/departments-advertising-agency/
https://www.linkedin.com/pulse/explain-client-agency-relationship-advertising-
digital-marketing/
https://corporatefinanceinstitute.com/resources/accounting/advertising-budget/
https://www.wallstreetmojo.com/advertising-budget/
https://www.indeed.com/career-advice/finding-a-job/types-of-advertising-agencies

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