An Overview of the Modern Advertising Industry

Advertising is a large and widespread operation, and the amount of money advertis­es shell out is impressive (see Table 15.2). According to the media consultancy firm Veronis Suhler Stevenson, in 2008 advertisers in the United States spent around $77 billion in support of television programming and about $18 billion to fund radio broadcasting. In addition, the ad industry spent $43.6 billion on advertisements in newspapers (including their online and mobile versions), compared with the $10.5 billion that consumers shelled out to buy the papers. Advertisers funded consumer magazines (including their online and mobile versions) to the tune of about $13 billion, and consumers dropped a smaller $9.8 billion into the periodicals’ coffers. When it came to supporting internet and mobile websites that are unattached to traditional media brands—industry people call them pure-play internet sites—advertisers put out about $11 billion to support them. The total amount is huge. As Table 15.2 indicates, Veronis Suhler Stevenson estimated that in 2008 about $210 billion was spent in the United States on all types of advertising. As you can see, that is over $30 billion more than they spent in 2003. You will also notice that the decisions by advertisers regarding what media to fund have changed as well. Newspapers have lost out, while the internet has won many advertising dollars.

Advertising Agencies

business-to-business agencies advertising agencies that carry out work for companies that are interested in persuading personnel in other companies to buy from them instead of from their competitors

consumer agencies advertising agencies that carry out work for advertisers that are intent on persuading people in their nonwork roles to buy products

general ad agency an advertising agency that invites business from all types of advertisers

specialty ad agency an advertising agency that tackles only certain types of clients (or accounts)

internet agency an advertising company that promotes its expertise in understanding the technology for reaching people online, for creating the ads and websites that will lead to customer responses, and for measuring those responses

direct-to-consumer (DTC) used most effectively by the pharmaceutical industry, this type of advertising presents a prescription drug as a medical solution and encourages viewers to ask their physician to order the medicine if appropriate

traditional ad agency an advertising agency that creates and distributes persuasive messages with the aim of creating a favorable impression of the product in the minds of target consumers that will lead them to buy it in stores

The number of companies involved in advertising is also huge. Just about every business advertises somewhere. Sometimes the executives of the business write the ads themselves and then place them in newspapers and magazines. Other times—and this is particularly true of larger firms—the executives turn to companies that specialize in the creation of ads and their placement in media that accept payment for exhibiting those ads. As we said earlier, these companies are called advertising agencies. The companies that hire them and pay for their work are called advertisers. In the ad industry, when an agency takes on an advertiser’s business, it is said to take on an account.

There are about 5,000 advertising agencies in the United States, and they are scattered throughout the country. The largest tend to be located in the largest cities, especially New York, Chicago, and Los Angeles. Ad agencies range from one-site operations with just a few people, to organizations with several offices and thousands of employees. The kinds of things ad agencies do also vary. We can describe them along four dimensions:

• Business-to-business agencies vs. consumer agencies

• General agencies vs. specialty agencies Traditional agencies vs. direct-market- ing agencies

• Agency networks vs. stand-alone firms

BUSINESS-TO-BUSINESS AGENCIES VS. CONSUMER AGENCIES Busi­ness-to-business agencies work for companies that are interested in persuading personnel in other companies to buy from them instead of from their competitors. For example, a zipper manufacturer might want to inform a pants manufacturer about its great new development in the fly business. Consumer agencies, by con­trast, work for advertisers that want to persuade people in their nonwork roles to buy products. An agency that touts a client’s cereal to children and their parents is one example. Individual agencies typically do not do both.

GENERAL AGENCIES VS. SPECIALTY AGENCIES A general ad agency invites business from all types of advertisers, whereas a specialty ad agency tackles only certain types of clients. One type of specialty agency that works in both the consumer and business-to-business areas is the internet agency. This is a company that promotes its expertise in understanding the technology for reaching people online, for creating the ads and websites that will lead to customer responses, and for measuring those responses. A different type of specialty agency deals with healthcare advertising. A big source of clients is the pharmaceutical industry, as firms in this industry are constantly competing to persuade physicians that their prescription products are best. In recent years, pharmaceutical firms’ desire to get consumers to nudge their doctors to order new prescription drugs for them has led to a specialty called direct-to-consumer (DTC) pharmaceutical advertising, and ad firms focusing on that business have developed. Advertising to ethnic and racial groups is also a big specialty in the consumer area. You can find agencies that claim to have particular knowledge of how to persuade African-Americans; others that tout their abilities to move Latinos to buy; others that go after Irish-Americans; still others that specialize in Asian or Russian immigrants—and the list can go on.

TRADITIONAL AGENCIES VS. DIRECT-MARKETING AGENCIES A traditional ad agency creates and distributes persuasive messages with the aim of creating a favorable impression of the product in the minds of target consumers that will lead them to buy it in stores. Direct-marketing agencies have a different mandate. Their job is not just to create a favorable image that will eventually result in purchases. Instead, they have to shape consumer mailings, telephone marketing contacts, TV commercials, and other appeals to target audiences so as to elicit pur­chases right then and there. Traditional advertising practitioners generally consider direct-marketing approaches more gruff, fast-talking, and even obnoxious than the traditional rhetorical tools. For their part, direct-marketing people believe that they are the only ones who really show that advertising can sell things, as the results are immediate: people either buy the product or they don’t.

AGENCY NETWORKS VS. STAND-ALONE FIRMS The biggest advertising agencies tend to be traditional, consumer-oriented companies (see Table 15.3). They often have offices in a number of cities in the United States as well as in foreign countries; the trade press calls firms such as these agency networks. These types of agencies are different from firms that have only one location. The agency networks typically work for large national advertisers such as Procter & Gamble, Phillip Morris, General Motors, Sears, Ford, and McDonald’s. Because national advertisers tend to sell many products, they will often appoint a number of ad agencies to work for them, each working on a different product or a different set of products. In 2009, for example, Procter and Gamble used the Grey, New York, agency (owned by WPP) to tout its Downey brand, Saatchi and Saatchi (also owned by WPP), New York for Pampers, and Publicis, New York, (owned by Publicis Groupe) for its oral care products.

Specialty racial and ethnic firms sometimes enter the mix. For example, in addition to relying on Saatchi and Saatchi for general advertising of pampers, P&G called on Burrell Communications Group in Chicago for its advertising to African- American consumers. It used Conill in Miami to pitch Pampers to Hispanics. popular books, movies, magazine articles, and television shows encourage most people to think of a large and powerful “full service” ad agency such as JWT or Young and Rubicam when they think about the advertising industry. In today's complex marketing world, though, even large agencies such as JWT work with other organiza­tions in the industry to carry out the three basic functions of ad work: creative persuasion, market research, and media planning and buying. We can explain how these three func­tions are carried out by exploring how they fit into our three familiar activities: production, distribu­tion, and exhibition.