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1

Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Chapter 3 Organizing for Advertising and

Promotion: The Role of Ad Agencies

and Other Marketing Communication Organizations

3-2

Participants in the Integrated Marketing

Communications Process

Advertisers or clients

• Have the products, services, or causes to be marketed

• Provide the funds that pay for advertising and promotions

• Responsible for developing marketing program

Advertising agency

• Specializes in the creation, production, and/or placement of the communications message

• Facilitates the integrated marketing communications proess?

3-3

Participants in the Integrated Marketing

Communications Process

Media organizations

• Provide information, entertainment, or an environment for a firm’s marketing communications message

Specialized marketing communication services organizations

• Direct-marketing agencies

• Sales promotion agencies

• Digital/Interactive agencies

• Public relations firms

Collateral services organizations

• Collateral services: Support functions used by advertisers, agencies, media organizations, and specialized marketing communication firms

3-4

Factors Affecting How Companies

Organize for IMC

 Size of the organization

 Number of products it markets

 Role of advertising and promotion in the marketing

mix

 Allocated budget

 Marketing organization structure

3-5

Centralized System

 Marketing activities are divided along functional

lines

 Advertising manager: Responsible for:

 Planning and budgeting

 Administration and execution

 Coordination with other departments

 Coordination with outside agencies and services

3-6

Decentralized System

 Used by firms with multiple divisions and many

different products

 Each product or brand is assigned to a brand

manager

 Brand manager: Responsible for the total

management of the brand, including planning,

budgeting, sales, and profit performance

 Category management system: Additional layer of

management above the brand managers

2

3-7

In-House Agencies

Advertising agency that is set up, owned, and operated by the advertiser

3-8

Comparison of Advertising

Organizational Systems

3-9

Advertising Agencies

 Service organizations that specialize in planning

and executing advertising programs for its clients

 Superagencies: Large agencies that merged with or

acquired other agencies and support organizations

 Have now evolved into 4 major agency holding

companies?

3-10

Reasons for Using an Ad Agency

Highly skilled specialists

Specialization in a particular industry

Objective viewpoint of the market

Broad range of experience

3-11

Full-Service Agencies Performing research

Selecting media

Full range of marketing

communication and promotion

services

Creating advertising

Planning advertising

Producing advertising

Interactive capabilities

Package design

Nonadvertising services

Public relations and publicity

Sales promotions

Strategic market planning

Direct marketing

3-12

Account Services

 Link between the ad agency and its clients

 Account executive: Understands the advertiser’s

marketing and promotion needs and interprets them

to agency personnel

 Presents agency recommendations and obtains client

approval

3

3-13

Marketing Services

 Research department - Gathers, analyzes, and

interprets useful information

 Account planners: Gather information that is

relevant to the client’s product or service

 Media department - Analyzes, selects, and contracts

for space or time in the media

3-14

Creative Services

 Responsible for the creation and execution of

advertisements

 Copywriters: Conceive ideas for the ads and write

the headlines, subheads, and body copy

 Art department - Responsible for how the ad looks

 Traffic department - Coordinates all phases of

production

3-15

Agency Organization and Structure

• All agency functions are set up as a separate department

Departmental system

• Individuals from each department work together in groups to service particular accounts

Group system

3-16

Creative Boutiques

 Small ad agencies that provide only creative

services

 Advantages

 Turn out inventive creative work quickly

 Provide more attention and better access to creative

talent

3-17

Media Specialist Companies

 Specialize in the buying of media

 Agencies and clients develop media strategy

 Media buying organizations implement strategies,

and buy time and space

3-18

Agency Compensation Methods

Commissions

from media

Fee, cost, and

incentive-based

systems

Percentage

charges

4

3-19

Commission System

 Receiving specified commission from the media on

any advertising time or space purchased for the

client

 Negotiated commission system

 Based on a sliding scale that becomes lower as the

clients’ media expenditures increase

3-20

Fee, Cost, and Incentive-Based Systems

 Fee arrangement

 Fixed-fee method: Basic monthly fee is charged for

services provided and media commissions earned

are given to the client

 Fee-commission combination: Media commissions

received are credited against the fee

3-21

Fee, Cost, and Incentive-Based Systems

Cost-plus system

• Agency is paid a fee based on the costs of its work plus some agreed-on profit margin

Incentive-based system

• Agencies are compensated above their basic costs, if they achieve or exceed results as measured by agreed-upon metrics

3-22

Percentage Charges

 Adding a markup of percentage charges to various

services purchased from outside providers

 Market research

 Artwork

 Printing

 Photography

 Other services or materials

3-23

Evaluating Agencies

Financial audit

Costs, expenses

Personnel hours billed

Payments to media

Payments to suppliers

Qualitative audit

Planning

Program development

Implementation

Results achieved

3-24

Figure 3.9 - How Agencies Add Value

to Client’s Business

Source: “Report on the Agency–Advertiser Value Survey,” American Association of Advertising Agencies and Association of National Advertisers, August

2007

5

3-25

Why Agencies Lose Clients

 Poor performance or service

 Poor communication

 Unrealistic demands by the client

 Personality conflicts

 Personnel changes

 Changes in size of the client or agency

 Changes in the client’s corporate and/or marketing strategy

 Conflicts of interest

 Declining sales

 Conflicting compensation philosophies

 Changes in policies

 Disagreements over marketing and/or creative strategy

 Lack of integrated marketing capabilities

3-26

How Agencies Gain Clients

Solicitations

Referrals

Presentations

Public relations

Image and reputation

3-27

Direct-Marketing Agencies

 Provide a variety of services

 Database analytics and management

 Direct mail

 Research and media services

 Creative and production capabilities

 Has following departments

 Account management

 Creative

 Media

 Database development/management

3-28

Sales Promotion Agency

 Involved with the developing and managing of sales promotion programs

 Provide following services

 Promotional planning, creative research, and tie-in coordination

 Fulfillment

 Premium design and manufacturing

 Catalog production

 Contest/sweepstakes management

3-29

Public Relations Firm

 Develops and implements programs to manage

organization’s:

 Publicity

 Image

 Affairs with consumers and other relevant publics

 Employees, suppliers, stockholders, government, labor

groups, citizen action groups, and the general public

3-30

Functions Performed by Public

Relations Firms

Strategy

development

Generating

publicity Lobbying

Public

affairs

News releases, communication

Research

Managing crisis

Special events

Coordination w/promotional

areas

6

3-31

Digital/Interactive Agencies

 Specialize in the development and strategic use of

various digital marketing tools

 Websites for the Internet

 Banner ads

 Search engine optimization

 Mobile marketing

 Social media campaigns

3-32

Collateral Services Marketing research

Package design

Consultants

Photographers

Printers

Video production

Event marketing

3-33

Pros and Cons of Integrated Services

Pros

 Greater synergy

 Convenience

 Single image for product or

service

Cons

 Budget politics

 Poor communication

 No synergy

3-34

Responsibility for IMC: Agency versus

Client  Key Obstacles

 Lack of people with a broad perspective and the skills to make it work

 Internal turf battles

 Agency egos

 Fear of budget reductions

 Ensuring consistent execution

 Measuring success

 Compensation

1

Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Chapter 4 Perspectives

on Consumer Behavior

4-2

Consumer Behavior

 Process and activities people engage in with

relation to products and services to satisfy their

needs and desires

 Searching and selecting

 Purchasing and using

 Evaluating

 Disposing

4-3

A Basic Model of Consumer Decision

Making

4-4

Problem Recognition

 Consumer perceives a need and gets motivated to solve the problem

 Caused by a difference between consumer’s ideal state and actual state

 Sources

 Out of stock

 Dissatisfaction, new needs or wants

 New products, related products or purchases

 Marketer-induced problem recognition

4-5

Examining Consumer Motivations

 Helps in understanding the reasons underlying

consumer purchases

 Motives: Factors that compel a consumer to take a

particular action

4-6

Maslow’s Hierarchy of Needs

Social needs

(sense of belonging, love)

Safety needs

(security, protection)

Physiological needs

(hunger, thirst)

Esteem needs

(self-esteem,

recognition, status)

Self-

actualization

needs

(self-development

and realization)

2

4-7

Psychoanalytic Theory

 Influenced modern psychology and explanations of

motivation and personality

 Applied to the study of consumer behavior

 Deep motives can only be determined by probing

the subconscious

4-8

Some of the Marketing Research Methods Used to

Probe the Mind of the Consumer

4-9

Criticisms of Psychoanalytic Theory and

Motivation Research

Psychoanalytic theory

• Very vague

• Unresponsive to the external environment

• Too reliant on the early development of the individual

• Uses a small sample for drawing conclusions

Motivation research

• Results are difficult to verify

• Lack of experimental validation

• Findings are not generalizable to the entire population

4-10

Contributions of Psychoanalytic Theory and

Motivation Research

Psychoanalytic theory

• Insights gained make more effective strategies than rationally based appeals

Motivation research

• Helps assess how and why consumers buy

• Helps get around stereotypical or socially desirable responses

• Forerunner of psychographics

4-11

Information Search

 Internal search: Information retrieval that involves recalling:

 Past experiences

 Information regarding various purchase alternatives

 External search: Seeking information from external sources

 Internet, personal, and public sources

 Marketer-controlled sources

 Personal experience

4-12

Information Search

 Extent of external source to be used depends on

the:

 Importance of the purchase decision

 Effort needed to acquire information

 Amount of past experience relevant

 Degree of perceived risk associated with the

purchase

 Time available

3

4-13

Perception

 Receiving, selecting, organizing, and interpreting

information to create a meaningful picture of the

world

 Depends on:

 Internal factors

 Characteristics of a stimulus

4-14

Perception Processes

Sensation

• Immediate, direct response of the senses to a stimulus

Selecting information

• Internal psychological factors determine what one focuses on and/or ignores

Interpreting the information

• Organizing, and categorizing information is influenced by:

• Internal psychological factors

• The nature of the stimulus

Selective perception

• Results from the high number and complexity of the marketing stimuli a person is exposed to

4-15

Selective Perception Process

• Consumers choose whether or not to make themselves available to information

Selective exposure

• Consumer chooses to focus attention on certain stimuli while excluding others

Selective attention

• Consumers interpret information on the basis of their own attitudes, beliefs, motives, and experiences

Selective comprehension

• Consumers do not remember all the information they see, hear, or read even after attending to and comprehending it

• Mnemonics: Symbols, rhymes, associations, and images that assist in the learning and memory process

Selective retention

4-16

Subliminal Perception

 Ability to perceive a stimulus that is below the

level of conscious awareness

 Controversial tactic with strong ethical implications

4-17

Alternative Evaluation

 Comparing the brands one has identified as being capable of:

 Solving the consumption problem

 Satisfying the needs or motives that initiated the decision process

 Evoked set - Subset of all the brands of which the consumer is aware

 Size depends on the:

 Importance of the purchase

 Time and energy spent comparing alternatives

4-18

Evaluative Criteria and Consequences

 Evaluative criteria: Dimensions or attributes of a

product that are used to compare different

alternatives

 Objective or subjective

 Viewed as product or service attributes

 Functional consequences: Concrete outcomes of

product or service usage

 Tangible and directly experienced by consumers

4

4-19

Evaluative Criteria and Consequences

 Psychosocial consequences: Abstract outcomes

that are more intangible, subjective, and personal

 Subprocesses

 Process by which consumer attitudes are created,

reinforced, and changed

 Decision rules or integration strategies used to

compare brands and make purchase decisions

4-20

Attitudes

 Learned predispositions to respond to an object

 Theoretically summarize a consumer’s evaluation

of an object

 Represent positive or negative feelings and

behavioral tendencies

4-21

Multiattribute Attitude Model

 Attributes of a product or brand provide the basis

on which consumers form their attitude

 Consumers attach different levels of importance to

different attributes

 Salient beliefs

 Beliefs concerning specific attributes

 Consequences that are activated and form the basis

of an attitude

4-22

Multiattribute Attitude Model

4-23

Attitude Change Strategies

 Changing the strength or belief rating of a brand on

an important attribute

 Changing consumers’ perceptions of the

importance or value of an attribute

 Adding a new attribute to the attitude formation

process

 Changing perceptions of belief ratings for a

competing brand

4-24

Integration Processes and Decision Rules

Integration processes

• Combining product knowledge, meanings, and beliefs to evaluate alternatives

Decision rules - Strategies used to decide among alternatives

• Heuristics: Simplified decision rules customers use for purchase decisions

• Affect referral decision rule: Selection is made on the basis of:

•Overall impression or summary evaluation of the various alternatives under consideration

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4-25

Purchase Decision

 Purchase intention

 Predisposition to buy a certain brand by matching

purchase motives with attributes of brands

considered

 Brand loyalty

 Preference for a particular brand that results in its

repeated purchase

4-26

Postpurchase Evaluation

 Satisfaction - Consumer’s expectations are met or

exceeded

 Dissatisfaction - Product performance is below

expectations

 Cognitive dissonance: Psychological tension

experienced after a difficult purchase choice

4-27

Behavioral Learning Theory

 Based on the stimulus–response orientation (S–R)

 Learning occurs as a result of responses to external

stimuli in the environment

 Classical conditioning: Learning is an associative

process with existing relationship between a

stimulus and a response

4-28

Operant Conditioning

 Learning occurs when individual actively operates

or acts on some aspect of the environment

 Reinforcement: Reward or favorable consequence

associated with a particular response

 Reinforced behavior strengthens the bond between

stimulus and response

4-29

Schedules of Reinforcement

 Continuous - Learning occurs rapidly and every

response is rewarded

 Behavior is likely to cease when reinforcement stops

 Partial or intermittent - Learning occurs more

slowly but lasts longer

 Only some responses are rewarded

 Shaping: Reinforcement of successive acts that

lead to a desired behavior pattern or response

4-30

Application of Shaping Procedures in

Marketing

6

4-31

The Cognitive Learning Process

4-32

Environmental Influences on Consumer

Behavior

• Complexity of learned meanings, values, norms, and customs shared by members of a society

Culture

• Smaller segments within a culture, whose beliefs, values, norms, and patterns of behavior set them apart from the larger cultural mainstream

Subcultures

• Homogeneous divisions in a society into which people sharing similar lifestyles, values, norms, interests, and behaviors can be grouped

Social class

4-33

Environmental Influences on Consumer

Behavior

• Group whose presumed perspectives or values are being used by an individual as the basis for his or her judgments, opinions, and actions

Reference group

• Specific situation in which consumers plan to use the product or brand directly affects their perceptions, preferences, and purchase behaviors

• Types - Usage, purchase, and communications situation

Situational determinants

4-34

Alternative Approaches to Consumer

Behavior  New methodologies

 Qualitative methods

 Linguistic or historical perspective of communications

 Examining the symbolic meanings of advertising and the facets of consumption

 Leads to better understanding of:

 Cultural significance of advertising messages

 Influence of advertising images on society