ADVERTISING AGENCIES

Advertising agencies are independent businesses that evolved to develop, prepare, and place advertising in advertising media for sellers seeking to find customers for their goods, services, and ideas (American Association of Advertising Agencies, 2000). Advertisers use agents when they believe the agency will be more expert than they are at planning and creating advertisements or at developing an advertising campaign. As businesses have become more complex and diversified, many of them have consulted agencies to help them carry out their marketing communication efforts.

The modern advertising agency provides a variety of important services to clients, including media planning and buying, research, market information, sales promotion assistance, campaign development and creation of advertisements, plus a range of services designed to help the advertiser achieve marketing objectives. The first advertising agency in the United States was opened in Philadelphia by Volney Palmer in 1841 (John Hartman Center, 2000). At this time, advertising agents were largely space brokers agents who solicited ads from businesses and then sold them to newspapers that had difficulty getting out-of-town advertising (Lane, King, & Russell, 2005).

EVOLUTION OF THE ADVERTISING AGENCY FROM THE 1870S TO THE EARLY 1900S

While the invention of printing paved the way for the development of modern advertising, the influence of salesmanship began to influence the evolution of advertising toward more like what we recognize today. The advertising agency, working on a commission basis, has been chiefly responsible for this evolution. During the late nineteenth century, most advertising appeared in newspapers, on posters, and in handbills (Wells, Burnett, & Moriarty, 2000). Because it was difficult to reproduce illustrations, most of these ads were simple text-based items.

By 1900, the first specialized magazines had begun to appear in the United States. Magazines such as Field & Stream (in 1895) and Good Housekeeping (in 1900) established niche markets, which allowed for mass marketing to consumers with varied interests. Also, print technology had evolved considerably, making full-color illustrations possible. Advertising agencies began to use the new technology to create more attractive advertisements for the new niche markets, thus becoming creative centers rather than merely space brokerages.

The late nineteenth and early twentieth centuries were also times of public concern about unethical business practices. Many professions formed their own organizations to create ethical standards of operation. The American Association for Advertising Agencies (AAAA) was founded in 1917 to represent the agencies, partially in response to these ethical concerns.

Newspapers also set their own ethical standards concerning rates charged for advertisements. By 1917, publishers had agreed to set a flat rate of 15 percent as the standard commission an advertising agency would receive with the exception of local advertising, for which there was generally no predetermined commission (Lane et al., 2005).

In addition, two laws were passed to alleviate concerns about unethical advertising practices. The Federal Trade Commission Act of 1914 was originally designed to make all unfair methods of competition unlawful. It was not until 1922 that advertising was legally regulated under this act. The case that set this legal precedent was FTC v. Winsted Hosiery Company (1922) (Lane et al., 2005). The Pure Food and Drug Act of 1906 was the first act that limited the advertising of patent medicines—drugs that were advertised using exaggerated claims of effectiveness—for use by children.

EVOLUTION OF THE ADVERTISING AGENCY FROM 1920 TO THE EARLY 1950S

During the first part of the twentieth century, agencies expanded their role from one largely comprised of selling space to one of "full service" to clients—involvement in all advertising functions, from market research to ad production, to space buying (Jones, 2004). Agency development was stimulated after World War I when consumers were demanding more goods and services (Wells et al, 2000).

By the 1920s, market research suggested the role of women in making many family purchasing decisions. Thus, advertising agencies created full-color magazine advertisements for goods such as automobiles, refrigerators, and radios. Newspapers continued to use simple advertisements. In the 1920s and 30s, radio also became popular for home and family use as an inexpensive form of entertainment (Wells et al., 2000). Advertising agencies produced radio programs for the sole purpose of attracting consumers for popular national products. For example, the term "soap opera" was coined by the American press in the 1930s to denote these popular serialized domestic radio dramas. The "soap" in soap opera alluded to their sponsorship largely by manufacturers of household cleaning products (Museum of Broadcast Communications, 2005).

The 1930s were a time of renewed public interest in legislation concerning unfair and deceptive business practices. The Robinson-Patman Act of 1936 prevented manufacturers from providing promotional allowances to a retail customer unless it also offered promotional allowances to that customer's competitors. The 1938 Wheeler-Lea Amendments to the Federal Trade Commission Act enabled the Federal Trade Commission (FTC) to protect consumers from deceptive advertising in the food, drug, therapeutic device, and cosmetic industries (Lane et al., 2005).

Although World War II suspended production of many peacetime goods and services, many advertising agents found employment working for the War Advertising Council, which was responsible for mobilizing public support for the war effort. This organization later became the Ad Council.

EVOLUTION OF THE ADVERTISING AGENCY FROM THE 1950S TO THE EARLY 1990S

The end of World War II saw a culmination of more than a decade of unsatisfied consumer demand as a result of the Great Depression and war. Most markets for goods and services found a willing consumer base for new products—including television sets. Because television is a medium that combines the visual element available in print ads with sound and motion, this created a change in the structure of advertising agencies. For example, prior to the 1950s, the main source of creativity was the person writing the advertising message—referred to as the copywriter. As television became more popular, the art director and artist became more important (Wells et al., 2000).

Between 1945 and 1960, large numbers of returning veterans began to marry and have children—the generation of children known as baby-boomers. For the first time in the United States, advertising agencies found it profitable to market certain goods and services directly to the youth market. Ads for blue jeans and stereo equipment appeared in newspaper inserts, in youth-oriented niche market magazines, and on television.

Advances in product design during the 1960s and 1970s forced advertising agencies to become more creative in order to differentiate their client's product from competitors' equally good products. The resulting newer, more creative advertisements proved both popular and profitable, allowing agencies to spend more money on advertising research—often employing behavioral psychologists to design elaborate studies of consumer buying behavior. All of this creativity had a cost: it became very expensive to produce lengthy TV advertisements. Advertising agencies addressed the cost issue by designing thirty-second television commercials with memorable advertising slogans short phrases designed to keep a consumer's attention and maintain recognition of a particular brand of good or service.

As the cost of advertising rose, agency clients began to demand results for increasingly expensive ad efforts—in the form of consumer research. During the 1980s and 1990s, many advertising agencies merged in order to remain financially competitive in this period of consolidation and rising costs. Some agencies moved toward providing a range of marketing services options to clients, including direct marketing, sales promotion, and public relations (Lane et al., 2005). Some advertising agencies moved from traditional radio and TV advertising toward sales promotion techniques such as rebates, coupons, and sweepstakes that offered measurable proof of increased sales (Wells et al., 2000).

Evolution of the Advertising Agency from 1995 to the Present

The traditional advertising agency is now facing competition from many different directions. In recent years, a number of advertising media companies have consolidated their businesses. These large organizations have sought to blend media, such as television, print, cable, and Internet to be able to better design messages to meet individual consumer needs (Lane et al., 2005). Some large advertisers are directly employing branding specialists, media specialists and CRM specialists and dissolving their longstanding relationships with agencies in an effort to increase the effectiveness of their marketing dollars. Marketing, branding and research consultancy firms have developed, with each claiming to provide the strategic planning offered by agencies. In addition, media firms and production houses are now delving into concept development (Williams, 2004).

Present-day agencies employ many of the techniques that were popular in the early years of advertising. Newspapers continue to advertise primarily in text format, although color inserts are becoming popular. Advertising agencies continue to be able to advertise in smaller and smaller niche-market magazines. Radio remains a popular advertising medium in local markets. The widespread availability of cable TV and satellite transmission has fragmented television advertising into niche markets. However, new and enhanced technologies plus continuing innovation in product development are adding an interactive flavor to advertising. With the development of new media channels new marketing opportunities will arise. These developments in the advertising industry continue to influence how agencies operate. The changes are discussed next.

Globalization and International Marketing

Advertising agencies are under increasing pressure to create ads for products distributed in a global market. Costs for producing and executing advertising campaigns across international markets can be very high. Success often depends on a brand maintaining a uniform position across the markets in different countries. Agencies must often consider culture, language, and customs when designing an advertisement tailored to the international market. In order to meet the demands of a global market, advertisers are forming large multinational agencies and continuing to debate whether to standardize advertising globally or to segment advertisements by culture or nationality (Wells et al., 2000).

Interactive Marketing and the Internet

Since 2000, interactive marketing has been the fastest growing area within marketing. Interactive marketing includes Internet advertising, permission e-mail, marketing web sites, mobile media (including digital mobile communication devices) and other new media (Stafford & Faber, 2005). These media are distinctive among the mass media in that they permit people the chance to communicate outside the traditional medium limitations of time and space.

The Internet allows advertising agencies to target consumers worldwide and to conduct market research inexpensively. The easy access to market research information may permit advertising agencies to continue developing ads to reach smaller and smaller niche markets worldwide. At the same time, certain forces are reducing the availability and use of information gathered over the Internet. For example, the Children's Online Protection Act (1998), or COPA, is a U.S. law that affects business transactions by children using the Internet. COPA requires Web sites soliciting personal information from children under the age of 13 to prominently post a privacy policy and require parental consent for the release of personal information provided by those children before any business can be transacted. Many countries are developing laws similar to COPA, and it remains to be seen how COPA and other impending legislation will affect advertising agencies that conduct business globally.

The Role of Government in Advertising

Very few industries have been more thoroughly regulated than advertising. Advertising's visibility in society sometimes makes it a target for criticism. Consumers often believe that many advertisements are untruthful and manipulative, which draws attention from citizens, the media, government, and competitors (Wells et al., 2000). At these times, government often has taken steps to regulate advertising practices and content.

The Ad Council is a private, non-profit organization that marshals volunteers from advertising and communications, media facilities, and the resources of the business and non-profit communities to deliver messages to the American public. Since its founding in 1942 as the War Advertising Council, the Ad Council has produced public service ads and acted as an agency that addresses social issues such as improving the quality of life for children, preventative health, education, community well being, environmental preservation and strengthening families (The Ad Council, 2005).

Changing Incentives

Advertising agencies produce revenue and profits by charging commissions and fees for their services. The 15-percent commission has remained a common practice, with the rate sometimes negotiated downward are account budgets become large. In recent years, fees have become the largest source of revenue for agencies. Increasingly, agency revenues are based on sales or market distribution goals (Lane et al., 2005).

Evolving Career Fields in Advertising

Today's advertising agencies include a vast array of specialists who work together to create a complete and thorough advertising campaign. Account managers allocate agency resources, including time, money, and personnel for individual projects. An account manager often assembles a team of individuals, each bringing a particular advertising specialty to the project. The team includes an art director, creative director, artist(s), copywriters, and designers. The team may also include other specialists such as media analysts, product testers, researchers, and public relations consultants.