Advertising Overview

Advertising Overview
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DEFINING ADVERTISING

Simply defined, advertising is any form of non-personal presentation and promotion of ideas, goods, and services usually paid for by an identified sponsor. Note the key words in italics.

Functions of Advertising

Advertising fulfills four basic functions in society:

. serves as a marketing function (helps companies sell products or services)
. advertising is educational (people learn about new or improved products or services)
. advertising plays an economic role (encourages new competition and lower prices)
. it performs a social function (helps increase productivity and raises the standard of living)

Types of Advertising

Advertising can be classified in several ways:

. target audience the specific audience for whom a product or service has an appeal
. consumer advertising targeted at the people who buy goods and services for personal use
. business-to-business aimed at people who buy products for business use

. geographic focus targets international, national, regional, or local audiences

. purpose advertising designed to accomplish a distinct goal
. primary demand promotes product category rather than a specific brand
. selective demand used to promote a particular product or service brand

. direct action ad promotes direct, short-term feedback (phone number, coupon, etc.)

. indirect action ad promotes long-term brand recognition and consumer awareness

Advertising is part of the overall marketing process. Broadly defined, marketing consists of the development, pricing, distribution, and promotion of ideas, goods and services. Advertising is only part of the general promotion process


A BRIEF HISTORY OF ADVERTISING

Advertising roots disappear in the mist of history, although we can recognize the first serious and repeated attempts at advertising shortly after Gutenberg’s invention of moveable type. The first examples came in the forms of posters, handbills, and newspaper ads. Most early newspaper ads, regardless of the product or service being promoted, looked somewhat like today’s classified ads.

With the advent of mass production in the 1800s came the parallel needs for mass consumption and mass markets. This consumer evolution became most apparent immediately following the Civil War. In little more than three decades:

. the railroad linked all parts of the country together (and manufacturers with consumers)
. the US population doubled between 1870-1900 (more consumers)
. the advent of new communication media (telephone, typewriter, high-speed printing press,
motion pictures, national magazines, photography, and rural mail delivery)
. in an age of prosperity, people had more disposable income to spend on new products

Demand for advertising soon gave rise to the advent of the advertising agency, an organization that specializes in providing advertising services to its clients. During the 1920s radio quickly became an attractive vehicle for national advertisers, and advertising sponsors quickly began supplying popular programs. For obvious reasons, both the Great Depression and WW II somewhat curtailed a more aggressive growth in the advertising industry.

From that point on, advertising’s fortunes more or less paralleled the social mood of the decades within which it existed. The Cold War of the 1950s fostered of fears aimed at advertising’s motivations and techniques, especially subliminal advertising. The 60s reflected a new creative spirit, the 70s a conservative pause and return to basics, the 80s and 90s saw an ad industry coming trying to come to grips with changing national demographics, the introduction of new mass media forms, and an emerging global market economy.

In the past decade, advertising has had to learn how to use and cope with specialized cable networks, infomercials, home shopping channels, an increasingly diverse marketplace, shifting consumer attitudes, and, of course, the recent challenge of the Internet.


ORGANIZATION OF THE
CONSUMER ADVERTISING INDUSTRY

There are three main components of the advertising industry:

Advertisers

. national emphasis on brand names, image, product, service

. local retail emphasis on local prices, sales, location, particular stores, and promotions

Anyone in charge of advertising, whether it be a large or small store, must attend to several basic ad functions:

. planning the ads, deciding how and where they will appear
. budgeting appropriate funds for advertising
. coordinating advertisements with various departments within the organization
. if necessary, supervise any outside agency handling the advertising account

Agencies

An agency is an independent business organization composed of creative people and business people who develop, prepare, and place advertising for sellers seeking to find customers for their goods or services. Once located only in big cities, creative ad agencies are now scattered all over the country thanks to the accessibility created by new forms of mass communications.
Big-city agencies, however, many of who have merged into global-mega-agencies, still dominate the industry.

Agencies can be classified by the range of services they provide:

. full-service agencies handles all phases of the advertising process plus promotions
. media buying services buys, resells, and monitors radio and TV time slots
. creative boutiques specializes in creating imaginative and creative ad campaigns
A full-service agency starts by studying the product or service and determining its marketable characteristics and how it relates to the competition. The agency then studies the potential market, possible distribution plans, and likely advertising media. The agency presents then presents a formal presentation to the client, and if the client agrees with the plan the agency goes on to launch the execution phase (writing and producing the ads, buying ad space or time, and then verifying the ads appeared as planned).

Media

The media serves as the connection between a company and its customers, with advertisers using both obvious media (TV, radio, newspapers) and auxiliary media (billboards, direct mail, point-of-purchase ads, etc.). To make sure that the right audience sees the ad message, ad media planners help advertisers place and schedule their ads by evaluating media along four dimensions:

. reach How many people can get the message?
. frequency How often will the message be received?
. selectivity Does the medium actually reach the intended potential customers?
. efficiency How much does it cost to reach a certain number of people (usually expressed
in terms of cost per thousand people)?


Characteristics Papers Magazines Radio TV Internet
Direct Mail

Reach High Low High High Medium High
Frequency High Low High High Medium Medium
Selectivity Low High High Medium High High
Cost Medium Medium Low High Medium High

In addition, advertisers must take into account the inherent characteristics of each medium. For example, TV offers sight, sound and motion, but the ad is also short lived and ill-suited to give product details; magazines, by contrast, can offer color and details but not sound and motion).


ADVERTISING ONLINE

Since online advertising first began appearing in 1994, a whole new industry has grown up consisting of companies that sell ads, create ads, and measure how many people see ads online. Most large companies now treat web advertising as part of their normal ad media mix. But more than 70 percent of advertising online comes from other Internet companies.

While the increasing importance of online advertising is not in doubt, the current efficacy of web-based ads and their prices are in question. As a result, many companies are currently taking a more conservative and cost-conscious approach to investing in online advertising.

Categories of Internet Advertising

There are several types of Internet advertising.

Banner ads, the 1x7-inch banners that appear anywhere on a web page, are the most common. Catchy phrases, pictures, or animations help lure the curious to “click-through,” Internet jargon for mouse clicking on a banner ad, to find out what the ad is all about. Some advertisers pay web sites that carry their banners according to the number of click-throughs they generate, although the percentage of people who actually click on these banners is very low.

Free-link exchange ads work when two firms agree to place hyperlinks to the other’s web site.

Sponsored chat rooms or bulletin boards can be created via banner ads to enable consumers to discuss or question about an advertiser’s related products or services.

E-mail campaigns, the Internet equivalent of direct mail, are increasingly seen as in expensive marketing tool, although e-mail recipients often react negatively to what they view as spam mail.
Devoted web sites to highlighting a product or service have grown increasingly popular, more sophisticated, and generally highly interactive in recent years. Some company web sites essentially try to recreate the retail store experience online, giving consumers the chance to browse products, customize items, and place their order online.


PRODUCING ADVERTISING

Typically there are four major departments within an ad department or ad agency:

. creative services people who create the ad concept, write the ad text (copy), and pro-
duce the final product

. account services responsible for the relationship between the agency and the client; an
ad agency’s account executive (AE) acts as the liaison

. marketing services recommends appropriate media for the client’s message, making use
of audience measurement data from firms like the Audit Bureau of Circulation, Arbitron, Nielsen, and MediaMetrix. Marketing Services would also handle parallel ad campaign promotions

. administration responsible for day-to-day business aspects of the agency

The Advertising Campaign

A campaign consists of a large number of ads all stressing the same major theme or appeal that appear in a number of media over a specified time. In simple form, here are six typical phases:

1. choosing the marketing agency
2. selecting the main appeal or theme
3. translating the theme into the various media
4. producing the ads
5. buying space and time
6. executing and evaluating the campaign
During the initial phase, much research is done to determine the target audience, the marketing objective, the appropriate price for the product or service, and the ad budget. Positioning the product or service also comes into play at this point: positioning means fitting a product into the quality and price range of its competition--in a sense, setting it apart from the competition. Then a coordinated overall campaign theme needs to be developed.

The next step is to translate the concept into an actual media format, attempting concept variation between media without compromising the ad campaign’s central theme. For print media, artists create a rough layout to experiment with positioning ad elements; then a comprehensive layout (the final draft) is executed.

Radio ads are often created in ways similar to a dramatic program, with scripts, sound effects, music, and professional voice talent. Television ad production starts with a storyboard, a series of drawings depicting key scenes of the planned ad; because of the costs involved, storyboards are usually shown to the client before any actual production begins. Television ads are the most expensive ads to produce, a 30-second commercial easily costing $250,000. During the production stage, the marketing department is buying time in the media mix they deemed to be the most cost effective for their target audience. The final stage has the agency doing test research both during the ads and after the run is finished to see if the ads really had the desired effect on sales.

Advertising Research

Ad research goes on during all phases of the campaign and helps agencies and their clients make informed decisions about their strategies and tactics.

. Formative research done before campaign starts to help guide creative efforts

. audience defining identifies physical demographics of target audience

. audience profiling seeks to identify attitudes, motivation, beliefs, lifestyles

. Message research

. Stage 1 pre-testing campaign messages for clarity and understanding

. Stage 2 screening print and broadcast ad prototypes; consumers tested
to recall main points, changing attitudes toward product, and
which prototype ads have best effects. Advertisers often try a split-run ad test, showing two similar audiences two different ads that carry the same message to see which ad works best.

. Tracking studies examine how ads perform during and after campaign; checks to
see if the ads changed consumer attitudes or buying behaviors


ECONOMICS

Advertising Volume in Various Media

About $215 billion was spent on advertising in the United States in 1999. TV and newspapers accounted for almost half the total amount spent.

Agency Compensation

There are three common ways ad agencies bill their clients:

1. Commissions historically, the media have given ad agencies a 15% commission on
any time and space they bought from the media; recently, however,
companies have negotiated the percentage charge, often tying the
final figure to ad performance as it affects sales

2. Agency charges represent out-of-pocket expenses linked with production of the ads

3. Fees covers services such as research, focus groups, market analysis--types
of services not traditionally treated as commissionable items


BUSINESS-TO-BUSINESS ADVERTISING

Low profile though it is, the business-to-business advertising industry rang up more than $150 billion in sales in 2000. Advertising directed at the business buyer rather than the general consumer, business advertising consists of four main categories:

. Trade advertises goods and services to wholesalers and retailers
. Industrial advertises items used in the production of goods and services
. Professional advertises services aimed at doctors, architects, nurses, teachers, etc.
. Agricultural advertises goods and services aimed at farmers

Consumer versus Business-to-Business

1. The target audience in business advertising is much smaller.
2. Most advertised business products tend to be technical, complicated, and high priced.
3. Buyers will be professional purchasing agents, basing purchases on reason and research.
4. Personal selling plays a much greater role in the business sector.

Media

Since the target audience for business advertising is smaller than the consumer market, a mix of highly selective media works best; buying trade magazine space, for example, counted upwards of 60 percent of all business advertising dollars spent. Trade magazines come in two formats:

. horizontal deals with a particular job function without regard to the industry
. vertical covers all interests within an entire single industry
Other selective channels with good effect include direct mail, trade catalogs, well-placed spots in traditional consumer media outlets, and web pages.



Appeals

Business ad copy tends to be long, fact filled, detailed, technical, accurate, and complete, with little, if any, emotional appeal, yet buyers pay close attention to these ads and place a premium on data accuracy and completeness. Some of the most common business ad formats are testimonials, case histories, new-product news, and demonstrations.