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Structure of the Advertising Industry
Broadly speaking, since the 1980s, most advertising agencies have tended to move towards a common structure. Whereas in the past, each individual agency offered a variety of different marketing services under a single roof, the rapid expansion of the media industry - especially the proliferation of cable and digital channels - encouraged most large agencies to spin out their more specialised in-house departments as separate agencies in their own right. At the same time, while the number of individual agencies has as a result increased, ownership of those agencies has concentrated dramatically. Massive consolidation within the industry has led to a huge number of mergers and acquisitions, and the creation at the top end of the market of a small group of major holding companies, each of whom owns or controls a large number of separate agencies. There are still independent owner-operated agencies out there, but in far fewer numbers than ever before, and most are small by comparison with the group-owned brands.
Holding companies. Sitting at the very top of the industry pyramid are a small number of holding companies. There are now just four major international groups, Omnicom, WPP, Interpublic and Publicis Groupe, each of whom controls a huge number of different agency brands spread all over the globe. Generally, the holding company doesn't involve itself too much in day-to-day marketing, but works with its subsidiary businesses to encourage intra-group synergy and to develop strategy. At the next level, there are a small number of mid-size holding company groups, such as Havas, Aegis, and the Japanese groups Dentsu and Hakuhodo DY. Although each of these controls several brands, their range is more limited, either in terms of geographic reach (in the case of the Japanese companies, who tend to operate mainly in Asia) or the range of services they offer. There are also a few smaller holding companies such as MDC in Canada or Chime Communications in the UK, who resemble their larger rivals in terms of the number of different brands they control, but on a very much smaller, sometimes more specialised scale. (See here for major holding companies and independent marketing groups).
Advertising Agencies. The term advertising agency (or sometimes creative agency) is generally applied to a company whose main role is to conceive and create large-scale marketing concepts for its clients. Traditionally, advertising agencies come up with the core idea for a marketing campaign and then create a series of advertisements which address that idea across different media. They tend to specialise in what is called above-the-line marketing: ads which address a mass market through the four major media of television, print, radio and outdoor (posters). The tool most commonly associated with the traditional advertising agency is the 30-second television commercial.
There are three sorts of traditional advertising agency. The most important are the 14 or so worldwide networks, such as BBDO, McCann Erickson, Leo Burnett or Saatchi & Saatchi. Each of these operates a global network, comprising local branded offices in as many as 100 or more different countries. The networks have grown up primarily to serve multinational client companies such as Ford or Procter & Gamble, who wish to provide a consistent marketing message in all the countries in which they operate.
At the next level are "micro-networks", sometimes known as multi-hub creative networks. These are a comparatively recent invention, similar in most ways to the major networks, but operating a far smaller network, with perhaps only four or five worldwide offices, usually in key regional centres. They generally offer a tailored service for more demanding multinational clients, usually with the hallmark of noteworthy creative work. Examples include Bartle Bogle Hegarty, Wieden & Kennedy and M&C Saatchi. Sometimes they will be employed by a client to come up with the core idea for a global marketing campaign, which will then be executed or adapted for local markets by the regional offices of one of the worldwide networks.
The majority of advertising agencies, however, comprise a third type: standalone companies, sometimes independent, sometimes owned by one of the major groups. They tend to operate only in their own country, although they may have links to agencies in other markets. The bigger of these standalone agencies are often able to offer a wide range of other marketing skills beyond creative advertising (including those described below). In that case, they sometimes refer to themselves as full-service agencies. Others, usually smaller more entrepreneurial agencies, specialise in out-of-the-ordinary creative concepts, mainly for television, and are sometimes referred to as creative boutiques. (See here for major advertising agencies).
Media Agencies. Media services is the term generally used to describe the process of delivering an advertisement via the media. There are, broadly speaking, two aspects to this. Media planning involves deciding where the advertisement should be placed in order to achieve the best impact on its intended audience. Media buying is the process of negotiating with individual media owners (such as broadcasters or publishers) over availability and price.
Although some advertising agencies still offer media services inhouse, most larger agencies have spun out their media departments as an entirely separate business. In simple terms, this means that clients pay separately for the creation of advertising and for the booking of media space. On the planning side this encourages "media-neutrality", so that advertising is placed in the medium best suited to the client's particular marketing message, not just the one that earns most money for the agency (which would be television). On the buying side it allows for economy of scale, with the media agency able to purchase ad space in bulk for several clients at a time, rather than on an individual basis. As a result of the consolidation process, this part of the market is now dominated by global networks, such as MindShare, Carat or Starcom MediaVest. Like the advertising agency networks, these are all owned by the major or mid-size holding companies, and each operates through 100 or more local offices around the world. Unlike the advertising agency sector, there is no real media equivalent to the multi-hub network. (Smaller media agency brands, such as Vizeum or PHD, are there primarily to resolve client conflicts rather than to provide a different level of service). A small number of standalone media agencies remain, mainly independently owned, but they now form only a tiny part of the overall market. (See here for major media agencies).
Despite their size and scale, the major media networks are under increasing pressure from their clients on one side and the media outlets in which they buy space on the other. This has led to an implacable squeeze on margins. Media networks are generally paid in commission on the advertising space they purchase. According to longstanding tradition, agencies take a cut of 15% of the media space they purchase as their fee. However competition and negotiation have greatly reduced this percentage, in the case of large clients. (In some cases, media agencies might agree to take a cut of as little as 2% or 3% of billings from an especially large or prestigious client, although they would never allow this to be publicly known).
To boost their income, the larger media agencies have also broadened their range of services, adding fee-based disciplines such as sponsorship, product placement and internet search. One key area of growth has been "branded entertainment", or brand-funded entertainment content. This form of marketing, increasingly popular in the 2000s, represents a move back towards the old style of advertising prevalent between the 1930s and 1950s in which a sponsor paid for all the cost of a particular radio show or TV broadcast (such as The Maxwell House Show Boat or The Palmolive Hour). Some media agencies have also shown signs of moving into areas such as general business strategy and management consultancy.
Marketing Services. This is the term generally understood to denote anything other than advertising in the major media, and is often described as below-the-line marketing. It comes in many different forms, each of which demands a more specialised, often more technically complex, set of skills. These include direct marketing, sales promotion, interactive marketing, public relations, healthcare marketing, and so on.
In simple terms, direct marketing involves any form of advertising which communicates with its target audience one-to-one, for example through individually targeted direct mail. It often involves or asks for a response from the target, for example, in the form of a coupon (in which case it is sometimes called "direct response"). Increasingly, direct marketing and interactive marketing via the internet have become aligned since both involve a one-to-one relationship with an end user. Depending on the type of interaction, this is also sometimes described as "customer relationship management" (or CRM), for example in the case of customer loyalty schemes, or financial services membership. In many cases, old-style direct mail agencies and new-style interactive agencies have merged to offer a combined service.
Sales promotion covers a variety of different areas, such as in-store promotions, exhibitions or one-off sponsored events. In very broad terms it relates to the interaction between the client brand and its customer in a specific place (for example, in-store) or at a specific event (for example, a sports match). However different agencies use different terms to describe the process. Those involved in the retail environment often use the term "brand activation"; agencies which specialise in live events sometimes call it "experiential marketing".
Traditionally, all of these marketing services disciplines have been largely execution-based - in other words, a large client would employ an advertising agency to come up with its main advertising concept, and would then hire the appropriate marketing services agency to adapt that concept in other forms. However the lines between these different disciplines have become blurred, especially with the emergence of the internet as a major advertising medium.
As a result, a breed of larger marketing services agency has emerged. This resembles the traditional advertising agency in many ways, such as global scale and creativity, but tends to specialise in a more direct form of marketing which engages the target audience not as part of a mass market (as with television advertising) but on a more individual level, often through direct contact, whether online, by mail, in a store at point of purchase, or at a sponsored event. Examples include Wunderman, Draft, Rapp Collins and others. Sometimes, these agencies also offer all the above-the-line skills of the traditional advertising agency as well, in which case, they are often known as integrated agencies, or sometimes through-the-line agencies. (See here for major marketing services agencies)
Last full revision 22nd April 2008; updated 1st May 2008
