The Birth of the Advertising Agency

By the 1840s, these sorts of problems led to the development of the advertising agency—a company that specializes in the creation of ads for placement in media that accept payment for exhibiting those ads. Volney Palmer is credited with starting the first advertising agency. Palmer was essentially a space salesman. He made money by soliciting notices from merchants or manufacturers who wanted to sell to a wide territory. He would place these notices in a group of newspapers, to which he often had exclusive space-selling rights. Though merchants were expected to write the ads, they saved time and energy by having the ad agency reach far-flung audiences. The advertising agent typically received compensation from various newspapers in the form of 15-25 percent of the payment as commission.

The ad agency's function changed dramatically in the decades after the Civil War, when the United States experienced the rapid growth of manufacturing as a result of the Industrial Revolution. More and more, fac­tory activity was based on the principle of continuous- process, or “flow", production. Conveyor systems, rollers, and gravity slides sent materials through the production process in an automatic, continuous stream. As a result, companies could transform massive amounts of raw materials into finished goods.

These new approaches changed American business. The manufacturing capacity of the United States increased sevenfold between 1865 and 1900. Cities suddenly bulged with people as workers streamed in from farms and from other countries to work in factories.

Many factories created products that had been made by hand only a few years before. Other plants turned out items—toothpaste, corn flakes, safety razors, cameras— that nobody had made previously.

But the trick to making lots of money was not just in the manufacturing of these products; it was in getting stores to carry them and consumers to buy them.

The large number of items available for sale encouraged competition between manufacturers of similar goods.

One result was the creation of the brand—a name and image associated with a particular product. With brands, a company did not make just soap, it made Ivory soap or Pears' soap. To make money on a particular brand of soap or any other mass-produced item, a manufacturer had to make sure that hordes of people knew about the product and asked their local retailers— grocery and department stores—for it.

In this new environment, the advertising agency’s function changed. The manufacturers and stores now needed firms to help them create ads that would stand out from the competition. Around 1910, advertising agencies started copy and art departments to create both words and images for advertisements. Along with the agency's creation of the ad came its work on the ad campaign, which is a carefully considered approach to creating and circulating messages about a product over a specific period with particular goals in mind. That work included early forms of research on the marketplace and on consumers, as well as on the media that claimed to reach those consumers. Entrepreneurs started research companies to meet those needs. As part of their growing research operation, in 1914 advertising agencies helped to establish an independent organization, the Audit Bureau of Circulation, to verify the size of a periodical's audience. Among the major agencies involved in those developments was one that still exists—J. Walter Thompson—which is today called JWT and is part of the WPP Group.

Ad agencies created jingles, artwork, and trade characters that became part of American culture. Within the industry, two broad differences in the approach to creating ads emerged, approaches that are still used today. Some practitioners used reason-why ads—those that listed the benefits of a product in ways that would move the consumer to purchase it. Others swore by the effectiveness of image ads— those that tied the product to a set of positive feelings. Advertising practitioners eventually agreed that some types of products were better sold through reason-why pitches, whereas others could use the push of image ads.

It wasn't long before anger about false or manipulative advertising threatened to lead to government regulation of the ad industry. To calm the population’s concerns and reduce the chances of government regulation, leaders of the ad industry started organizations such as the Association of National Advertisers and the American Association of Advertising Agencies. Their purpose was to establish norms of proper ad-business behavior and to plead their industry’s case with government regulators.