Kleppner’s
Advertising
Procedure
Dr. H. Ronald
Moser
Cumberland
University
Chapter 5
The Advertising Agency,
Media Services,
and Other Services
Kleppner’s
Advertising
Procedure, 18e
Lane * King * Reichart
Learning Objectives -1
• Describe the character of an agency.
• Discuss the development of advertising
agencies.
• Explain the nature of a full-service agency.
• Discuss the continuing evolution of the
agency.
Learning Objectives - 2
• Describe the agency and client relationship,
how agencies compete for accounts, and
the meaning of agency of record.
• Explain the global agency.
• Describe other advertising services.
• Describe the forms of agency
compensation.
What is an Advertising Agency? The Agency
• An agency is an independent business
composed of creative people and business
people who develop, prepare, and place
advertising in advertising media for sellers seeking
to find customers for their goods or services.
– There are more than 10,000+ agencies
in the United States.
– There are about 2,000 agencies listed in the New
York Yellow Pages alone.
– The majority of agencies are
small one-to-ten- person shops.
– Agencies advertise themselves in all
appropriate media including the web sites.
Advertising Red Books: Agency Directory The Agency
• The LexisNexis Red Book of Advertising Agencies (also know
as the “Agency Red Book”) lists more that 5,000 agency profiles,
including full-service agencies, house agencies, media-buying
services, sales promotion agencies, cyberagencies, and public
relations firms.
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Company Name.
Annual Billings.
Company Address.
Breakdown of Billings
By Media.
• New Accounts.
• Key Personnel.
• Number of
Employees.
• Branch Offices.
• Specializations.
How Agencies Developed
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Before we discuss present-day agencies further, let us take a look at how
advertising agencies got started and how they developed into worldwide
organizations that play such a role in the marketing and advertising process.
The Early Age (Colonial Times
To 1917)
The No-Rebate Age (1918 To
1956)
The Age of Negotiation (1956
To 1990)
The Reengineering Age (1990
To 2000)
Media and the Digital Age
(Since 2000)
The Early Age
(Colonial Times to 1917)
• It is not generally known that the first Americans to
act as advertising agents were colonial postmasters.
• Space Salesman - Volney B. Palmer was the
first ad salesman to work for a commission.
• Space Wholesalers – During the 1850s in
Philadelphia, George P. Rowell bought large
blocks of space for cash from publishers at very
low rates, less agents’ commissions. He
might be considered in advertising as the
Father of Selling by List.
• First Rate Directory – In 1869, Rowell shocked
the advertising world by publishing a
directory of newspapers’ rates and his
own estimates of their circulation.
The Early Age
(Colonial Times to 1917)
• It is not generally known that the first Americans to
act as advertising agents were colonial postmasters.
• The Agency Becomes A Creative Center –
Scholars indicate that help for establishing
the advertising agency as the creative
center for advertising ideas in the 1870s is
credited to Calkins and Holden.
• Agency-Client Relationship Established – In 1875,
Francis Ayer established N.W. Ayer & Son (which
was merged into The Kaplan Thaler Group in
2002). Ayer billed advertisers for what
he actually paid the publishers (that is,
the rate paid the publisher less the
commission).
The Early Age
(Colonial Times to 1917)
• It is not generally known that the first Americans to
act as advertising agents were colonial postmasters.
• Curtis ‘No-Rebating’ Rule – In 1891, the Curtis
Publishing Company announced that it would pay
commissions to agencies only if they agreed
to collect the full price from advertisers.
• Standard Commissions For Recognized Agencies
Established – In 1917, newspaper publishers,
through their associations, set 15 percent as the
standard agency commission, a percentage that
remains in effect for all media (except for local
advertising, in which the media deal directly
with the stores and pay no commission) to
this day.
The Early Age
(Colonial Times to 1917)
• It is not generally known that the first Americans to
act as advertising agents were colonial postmasters.
• The American Association of Advertising
Agencies – Characteristics of the American
Association of Advertising Agencies include: It is
about 93 years old. At first, national trade
association representing lonely United States
advertising agencies. It is now known as 4As. In
2009, admitted associate member from outside
United Stated.
Canada
United States
Mexico
American Association of Advertising
Agencies founded 1917
How Agencies Develop - The No-Rebate Age
(1918 to 1956)
• The events of this era that left their mark on today’s
agency world are summarized here.
• Radio – One of the main new events in 1925 was
the notorious Scopes trial, and the main advent
was radio. This trial helped establish radio as a
prime new vehicle. The radio boom
lasted until television came along.
• Television – Television became popular after
1952, when nationwide network broadcasts
began. Between 1950 and 1956, television was the
fastest growing medium. It became
the major medium for many agencies.
How Agencies Develop - The No-Rebate Age
(1918 to 1956)
• The events of this era that left their mark on today’s
agency world are summarized here.
• Electronic Data Processing – The computer
entered advertising through the accounting
department. By 1956, the computer was changing
the media department, the marketing department,
and the research department—all having grown
in competence with the increasing number of
syndicated research services.
• Websites, radio, television and newspaper
advertising are effective for conveying
information about an agency’s offering
and pricing.
The Age of Negotiation (1956 to 1990)
• In 1956, a change occurred in the advertiseragency relationship.
• The U.S. Department of justice held that the
no-rebating provision between
media associations and agencies
limited the ability to negotiate
between buyer and seller and therefore, was
in restraint of trade and in violation of
antitrust laws.
• 15% commissions remained but total
compensation became an issue.
I need to
be paid
more.
The Reengineering Age (1990 to 2000)
• During the 1980s, many corporations merged
created giant communications.
• Integrated services became a buzzword phrase
relating to efforts to coordinate a client’s entire
marketing mix which is a response to changing
clients’ needs including:
– Advertising.
– Public relations.
– Package design.
– Web design.
– Sponsorship.
– And more…
Media and the Digital Age (Since 2000)
• Agency Holding Companies - Created mega-media
buying and planning agencies (also called Media
Service Agencies.
• Media Services Agencies - Became profit
centers to attract global clients.
• Global Clients - Created the possibility for agencies
to become more efficient and cost
effective.
• Interactive Agencies - Have risen in importance as
clients have attempted to deal with the
mobile, web, iPhone, blog, BlackBerry,
and consumer-generated advertising
world.
The Full-Service Agency
• A Full-Service Agency - Is one that handles
planning, creation, production,
and placement of advertising
(and other aspects of IMC) for its clients.
• In simple terms, a full-service agency
offers to manage integrated marketing
communications.
• After research is completed in a full-service
agency, the account planning department is
likely to lead the way in setting
objectives and developing strategy.
The Agency Process for New Clients
• When a new account or a new product is assigned to a fullservice agency, work on it will generally proceed as described
in the following sections:
Diagnosing the Marketing and Brand Strategy
Setting Objectives and Developing Strategy
Creating the Communication
Notify Trade of Forthcoming Campaign
Billing and Payments
The Agency Process for New Clients
• When a new account or a new product is assigned to a fullservice agency, work on it will generally proceed as described
in the following sections:
Diagnosing the Marketing and Brand Strategy
• The process begins with the collection of all that you
know about the product category, the brand, and
its competitors.
• Research or brand planning takes the lead as the agency
looks at consumer attitudes to
develop penetrating Insights into the
prospects and to define the brand’s core.
• Who are the prime prospects? Where are they? What are
their demographic and psychographic characteristics and
how does the product fit into their lifestyle?
The Agency Process for New Clients
• When a new account or a new product is assigned
to a full-service agency, work on it will generally
proceed as described in the following sections:
Setting Objectives and Developing Strategy
• Here we may say that a strategy may formulate
the positions the product is in relation to the
prime prospect customer and
emphasize the attribute that will
appeal to the prime prospect.
The Agency Process for New Clients
• When a new account or a new product is assigned to a full-service
agency, work on it will generally proceed as described in the following
sections:
Creating the Communication
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Large clients may separate out the media function,
assigning it to media service agency.
Once the overall strategy is determined, you decide on the creative
strategy, write copy, and prepare rough layouts and
storyboards.
A Media Plan process should define media strategy, check objectives
to ensure they mesh with marketing objectives, select
media, and prepare media schedules.
The Total Plan is where you present roughs of the copy, layouts and
production cost along with media schedules and cost.
The Evaluation Plan should include double checking of
media schedule, presentation of copy and layout roughs,
assignment of total costs and refined objectives.
Creating the Communication
The Media Plan
The Total Plan
The Evaluation Plan
The Agency Process for New Clients
• When a new account or a new product is assigned
to a full-service agency, work on it will generally
proceed as described in the following sections:
Notify Trade of Forthcoming Campaign
• For many product categories, you inform
dealers and retailers of the campaign details
early enough so that they can prepare
to take advantage of the advertising campaign.
Billing and Payments
• When advertisements are run, you bill the client
and pay the bills invoiced by the
media and product vendors.
The Traditional Agency Organization
• In this section, we first examine the
traditional approach to the full-service
agency structure, and then we look at
the reengineering of this process.
• All agencies do not structure themselves in
exactly the same manner. For discussion
purposes, we have chosen a typical traditional
organizational structure under the command
of major executives: the vice presidents of (1)
Creative Services, (2) Account Services, (3)
Marketing Services, and (4) Management and
Finance (see Exhibit 5.2).
Exhibit 5.2. Organizational Structure
• EXHIBIT 5.2. Organization of a Typical
Full-Service Agency
The Traditional Agency Organization Creative Service
• In this section, we first examine the traditional
approach to the full-service agency structure, and
then we look at the reengineering of
this process.
• (1) Creative Services – Agencies are generally hired
on the basis of their creative abilities—the promise
that they can create campaigns that will
build business for the client.
• In a traditional agency, if Mary Lou is ultimately
responsible for the finished products-ads and
This is the ad we want to
commercials—she is likely the
run on this product.
Creative Director.
The Traditional Agency Organization Account Service
• In this section, we first examine the traditional
approach to the full-service agency structure, and
then we look at the reengineering of
this process.
• (2) Account Services – The vice president in
charge of account services is responsible for the
relationship between the agency and the client and
is, indeed, a person of two worlds: the client’s
business and advertising (see Exhibit 5.3).
• The vice president must be knowledgeable about
the client’s business, profit goals,
marketing problems, and advertising
objective.
Exhibit 5.3. Typical Team Responsibilities
• EXHIBIT 5.3. Typical Agency Team
Responsibilities
The Traditional Agency Organization –
Marketing Service
• In this section, we first examine the
traditional approach to the full-service
agency structure and then we
look at the reengineering of this process.
• (3) Marketing Services – The vice president
in charge of marketing services is
responsible for media planning and media
buying (if the creative agency handles
media), for research, and for sales
promotion.
The Traditional Agency Organization –
Management and Finance
• In this section, we first examine the
traditional approach to the full-service
agency structure, and then we
look at the reengineering of this process.
• (3) Management and Finance – Like all
businesses, an advertising agency needs
an administrative head to take charge of
financial and accounting control, office
management, and personnel
(including trainees).
The Continuing Evolution of the Agency
• Decades ago, clients sought agency powerhouse
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talents.
Then agencies that were less driven by
famous individuals and more often driven
by a collection of bright talent became popular.
Agencies of the 1980s might best be described as
responding to clients merging to be more financially
competitive.
Advertising agencies reengineered in the
1990s to better serve the integrated and
Web needs of their clients.
Most traditional agencies today are treated by most
clients as vendor-order takers.
The Continuing Evolution of the Agency –
Specialty Agencies
• Most advertising agencies are primarily general
consumer agencies, however, some
agencies specialize in certain kinds of
business.
• Doremus is an agency that specializes
in corporate and financial marketing.
• Kang & Lee, Uniworld and Diesti are specialty
agencies that focus on multiculturalism.
• Another big growth area includes digital agencies
(Digitas, Organaic Ogilvy Interactive,
Avenue A/Razorfish) which might
think of themselves as mainstream
agencies.
Accounting
Moser’s
The Continuing Evolution of the Agency –
Brand Innovation Companies and Agency Size
• Most agencies are involved with their client’s
product development, but in 2006 Zag, a brandinvention company and a division of Bartle Bogle
Hegarty advertising agency in London, developed
and launched their own brands, bringing
them to market with joint venture partners.
They develop, find partners, then market.
• Brad Majors, CEO of Brand Reps, LLC, indicates
that medium-sized agencies will continue to
produce provocative work as they grow.
• Regarding small agencies, Brad Major
indicates their key to success is strong
financial management.
Moser’s
Competing Accounts
• Because the client-agency relationship is a
professional one, it may involve sensitive
and confidential information in all of the
areas dealing with profit and loss, new marketing
strategies, new product strategies and sales data.
• As a result, most clients will not approve
of an agency’s handling companies or
products in direct competition.
• Coca-cola isn’t going to allow its agencies to handle
Pepsi products. In some cases, agencies will handle
accounts for the same type of product or service if
they do not compete directly—
for example, brands that do not
compete in the same market.
Client-Agency Relationship Length
• Clients generally retain agencies as long as the
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relationship seems to be working. However, most
contracts allow for a 90-day cancellation by either
party if the relationship goes sour.
Agencies can resign an account if they
find their philosophies conflict with
the
client’s goals and the account isn’t profitable.
Both client and agency can terminate a relationship.
4As’ data indicates the average tenure
of client-agency relationships has
declined for 7.2 years to 5 years since 1984.
GE and Pepsi have been with BBDO worldwide
for almost 50 years.
Agency of Record
• The agency-of-record relationship offers
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marketer an advertising team to work
solely on their brand, creating a stable
team of experts in that particular industry.
The following pertains to an agency of record:
This lend agency will make the corporate contracts
under which other agencies issue their orders.
This lend agency will coordinate the
total media buy for products.
This lend agency maintains a record of all
advertising placed.
This lend agency coordinates programming
of products in a network buy.
Agency Multiple Offices and Global
Agencies and Global Markets
• Many major agencies have offices in cities through•
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out the United States.
For the most part, each office functions as an autonomous
agency that serves different clients and is able to
draw on a the talents and services of the other
offices as needed.
A parent agency with multiple offices does not try to secure
accounts globally.
Globalization has become a necessary part of
business and advertising.
Globalization in advertising essentially is about the need
to learn and understand consumers, markets, and cultures
from a global perspective.
United
JWT opened its first office outside the United
Kingdom
States in 1891 in London. JWT is one of the
world’s best-known marketing communications brands.
JWT’s Global Agency Network
Global Agencies and Global Markets
• Global Ad Centers – The cities handling the most
local advertising billings are New York
and Tokyo—fighting neck and neck for
world leadership.
• For United States agencies, setting up a foreign
office can be very complex. Each country is
a different market, with its own language,
buying habits, ways of living, mores,
business methods, marketing traditions, and laws.
• Global Marketing – To market and use advertising
globally and effectively, companies
need to consider creating advertising
locally from a worldwide plan and strategy.
Global Agencies and Global Markets
• Global Production Efficiencies – In theory, cost efficiencies
in production of global advertising motivate
advertisers to seek a single world execution for
advertising concepts.
• While a single advertising execution helps build the same
global brand equity, the reality is every international brand
starts as a successful local brand and is reproduced often.
• Despite being a global advertiser for many decades, Coca-Cola
didn’t launch it first global adverting campaign until 1992 with
all the advertisements being similar in each
country. Exhibit 5.6. shows an advertisement
that was developed by Coca-Cola CompanyJapan.
• A brand and its advertising must be presented in
relevant and meaningful ways in the context of local
environment, or consumers won’t buy or care.
Coca-Cola Creates a Global Dialogue
• EXHIBIT 5.6.
Coca-Cola (Japan)
Co. Lid. tries to
create a dialogue
with young
consumers in an
attempt to develop
a lasting
relationship
between the brand
and the reader.
Agency Networks
• Independent agency networks should not be
confused with the multinational agency
networks owned by huge holding companies.
• Usually the relationship is centered around a single
client’s needs where the agency has the
capabilities to serve without their agency
network partner or partners.
• As a rule there is only one network member in each
market or region.
• International agency networks are established
primarily to provide information and
financial skills to enhance member
agencies’ operations.
Agency Networks
• The Mega-Agency Holding Companies – Marion
Harper set out his holding company vision
for the Interpublic Group of companies in
1960, and the mega-agency was born.
• The major advantage that mega-agencies offer their
clients is greater reservoir of
talent to draw upon.
• A major disadvantage of mega-agencies for their
clients is conflicts with competing accounts.
• An inherent reality that mega-agencies
seem to forger when they decide to create
an agency to serve a single account is the need for top
create who don’t mind working on a single account.
Agency Networks - Top 5 Mega-Agencies
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Omnicom Group.
WPP Group.
Publicis Groupe.
Dentsu.
With the
Product.
With the
Service.
With the
Technology.
Advantages of Mega-agencies
• Inventory of talent.
• Shifting of work among
agencies.
Other Advertising Services
• Talent and Production Agencies Creating
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Creative.
Independent Creative Services.
A La Carte Agencies.
In-House Agency.
Rolodex Agency.
Outside Media Buying Services.
In-House Media Services.
Media As Client Creative Resource.
Other Advertising Services –Talent and
Production Agencies Creating Creative
• New services are continually springing up in competition with
advertising agencies. Each new service is designed to serve
clients’ needs a little differently. This competition has
impacted agency structure and operations. Today,
we’re seeing a lot of innovation related to gaming,
mobile, and interactive services.
• Talent and Production Agencies Creating Creative – A few
major clients attempt to meld Hollywood talent
and related skills sources into their advertising
planning.
• Some production and talent agencies get entertainment
stars, writers, and directors involved; and they develop
advertising concepts and commercials
for advertisers.
Other Advertising Services – Independent
Creative Services Agency
• Independent Creative Services - Some advertisers seek top
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creative talent on a freelance, per-job basis.
Many creative people do freelance work.
Some open their own creative shops or boutiques.
In general these creative people have no media
department, no researchers, and no account
executives.
The purpose to the shop is strictly to develop creative ideas
for clients.
With a combined 20 years of experience creating award
winning advertising, Martin + Owen is a source for Branded
Content and Original programming, say their promotions (see
Exhibit 5.7). ”Quite simply we are storytellers.
Creative Shop
We write and produce original content for a variety
of clients such as television networks, movie
studios, websites, and traditional markets.
Exhibit 5.7. Independent Creative Services
Agency – Other Advertising Services
• EXHIBIT 5.7.
Martin+Owen
write and
produce original
content for
television
networks, web
site marketers,
and agencies.
5-49
Other Advertising Services – A La Carte
Agency and Rolodex Agency
• A La Carte Agency – La Carte Agency arrangement
primarily offers creative service for a fee.
• The La Carte Agency arrangement is used mostly for
creative services and for media planning
and placement.
• Rolodex Agency – The kind of agency arrangement
where several advertising specialists-usually
account and/or creative people-have no basic
staff but hire specialists is called Rolodex Agency.
• Clients are told a Rolodex agency has a major
advantage over a small full-service agency because
of its access to expertise that the small fullservice agency just can’t match.
Other Advertising Service – In-House
Agency
• In-House Agency – A major reason to create an in•
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house agency is to allow for more control
over every aspect of their business.
As a rule, the in-house agency is an administrative
center that gathers and directs various outside
service for its operation and has a minimum staff.
Companies are always seeking the
best means to deliver their marketing
services efficiently and at lower costs.
Broyhill Furniture’s constantly has to educate
account people about the furniture business.
Broyhill solved its problem by building a strong inhouse agency (see Exhibit 5.8.)
Other Advertising Service – In-House
Agency –The Broyhill’s In-House Agency
• EXHIBIT 5.8.
Created by
Broyhill’s InHouse Agency.
5-52
In-House Media Services – Outside Media-Buying
Services – Media As Client Creative Resource
• In-House Media Service - A few large advertisers have taken
the media-buying function in-house so they will have more
control over the buying operation.
• It is more likely that advertisers will keep a seasoned
media consultant on staff to ride herd on their
agency or media service’s performance.
• Outside Media-Buying Services – One of the major changes
that began in the mid-1990s was the way advertising
agencies handle media.
• Media As Client Creative Resource – Companies such as
Procter & Gamble, Johnson & Johnson, KimberlyClark Corp., have enlisted media companies
lately, not only as conduits to reach consumers
but also as co-creators of programs to do so.
Other Services – Barter – Research/Planning
Service – Managing Integrated Brands
• Barter - Is the original business model. Long before
monetary systems came into existence, trade
was the primary form of commerce.
• In bartering, the one item that neither an agency nor
an advertiser offers media is cash.
• Research/Planning Service – The advertiser, the agency, or
an independent research firm can conduct any
needed original research. Large agencies may
have substantial in-house research departments.
• Managing Integrated Brands – A brand needs a single
architect, someone who will implement and coordinate a
cohesive strategy across multiple media and
markets. The advertising agency is often a
strong candidate for this role.
Other Services – Managing Integrated Brands
• Managing Integrated Brands – The challenge for today’s
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agency is to develop an integrated program that accesses
and employs a wide range of communication
vehicles which may include the following:
Agency Conglomerate – The hope is that advertisers
will buy one-stop coordinated communications.
In-House Generalist Agency – Another option is to expand
the agency’s capabilities to include such functions as
promotion and public relations.
Service Cluster – A service cluster is a group of
people drawn together from all agency affiliate
organizations and whose purpose is to create ideas rather
than ads.
Communication Integrator – In the communication integrator
approach, the agency draws from sources outside the
agency and integrates these services for the brands.
Approaches to Integrating Brand
Communications – Brand Strategy In-House
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Agency Conglomerate.
In-House Generalist Agency.
Service Cluster.
Communication Integrator.
Brand Strategy In-House –
Many advertisers choose not to rely on the
agency at all for managing brand strategy.
• Their view may be that agencies may be
great at creating advertisements, but the
brand management team may be better at
planning brand strategy.
Forms of Agency Compensation
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Media Commissions.
Production Commissions or Markups.
Fee Arrangements.
Performance Fees.
• EXHIBIT 5.10.
This complex production piece
involved many photos pieced
together in PhotoShop. There
had to be a mutual
understanding between client
and agency over production
changes.
Forms of Agency Compensation
• Media Commissions – The traditional 15
percent commission remains a form of
agency income, especially for modestly
budgeted accounts. Clients and agency may
agree to a relationship in which the rate is
fixed at less than 15 percent. This generally
applies to large-budget accounts-the larger
the budget, the lower the rate for the agency.
• The types of work for which an agency can
negotiate a fixed fee include artwork charges
based on the salary of the personnel
involved.
Forms of Agency Compensation
• Production Commissions
or Markups – Agencies
subcontract production
work (all outside
purchases such as type,
photography, or
illustrators) and charge
the client the cost plus a
commission-17.65 percent
is the norm. Exhibit 5.10.
involved different photos
for each plate of food, plus
the background.
Forms of Agency Compensation
• Fee Arrangements – The form of compensation an
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agency might receive for its variety of work could
include:
Flat-fee arrangement – Is an agreed-on
payment based on the type of work being done.
Labor-based fee-plus-profit-arrangement – Covers
the agency’s cost for servicing
the account plus a markup.
Sliding scale based on client expenditures – Here
the agency and client may negotiate a
fee arrangement based on the client cost.
Mark-ups – Here we are talking about the difference
between the cost and the selling price.
Forms of Agency Compensation
• Performance Fees – The type of
compensation an agency can ask
for based on an agreed-upon goal
is called a performance fee.
• A predetermined performance goal may
determine the compensation fee.
• If the agency meets the goals, compensation
may be at the 15 percent level; if it
exceeds them, a bonus could give
the agency a 20 percent level.
Extending Clients Credit and Cost-Based
Versus Performance-Based Fees
• Extending Clients Credit - What happens
to the bills, if clients don’t pay? Always a
sticky point in any business relationship.
• In 2009, Omnicom standardized the language in its
contract to emphasize that “production companies
will be paid when agencies are paid by marketers.
• Cost-Based Versus Performance-Based Fees – The
industry has moved in the direction of cost-based
fee arrangements, rather than moving in the direction
of value-and performance-based arrangement.
• This shift to cost-based arrangements,
which are predominant today, is not
optimal for either agencies or advertisers.
The End!
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