THE MEDIA COMMISSION SYSTEM IN ADVERTISING   Term Paper ID:33786 Click to get this paper

Essay Subject: Examines the role of the advertising agency the traditional payment schedule commissions financial issues ...... More...

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Paper Abstract: Examines the role of the advertising agency, and its the traditional payment system of commissions based on media placement fees paid by the client. Financial issues from the agency's perspective with commissions, and alternatives to commissions such as labor-based and full-fee. alternatives. Concludes that the commission structure is being phased out and that the industry will embrace alternatives. Paper Introduction: The Media Commission System in Advertising Introduction The advertising agency has become a staple of business today Thereare advertising agencies that specialize in international marketing othersthat specialize in particular industries and still others that focus onparticular media Some agencies are full-service offering their clients acomplete package from concept through execution and placement while otheragencies are more specialized Increasingly advertising agencies areparticipating in key aspects of marketing including the product aspect ofthe marketing mix and some agencies offer market research and testmarketing as Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. The Commission System Under the commission system, the outlet--print, television, radio--allots 15 percent of its placement fee to the advertising agency as acommission. While the system offered generally higher revenues thanagencies are receiving now, it also posed cash flow problems and bad debtissues that other compensation packages help alleviate. The agency can be a critical partof determining the image that the company seeks for its product, as well asusing the desired image to shape the advertising campaign. Advertising Agencies The advertising agency is responsible for working with the client todevelop an advertising campaign that will promote the product or serviceand help the client realize increased sales. An invoice for such a transaction from the publication to theagency might read as follows: 1 page, October issue $2, Agency commission @ 15% 3 Balance Due $1,7 In this case, the agency would pay $1,7 for the media buy andinvoice the client for $2, . In this way, advertising agencies work withprint media, television and radio in order to develop an effectivecampaign. "GM to Drop Commissions." MediaWeek, 4(Oct 17, 1994): 6.Neff, Jack. Sometimes, advertisingagencies are used to improve brand awareness, or to promote politicalcandidates, but the most common use is for the promotional component of themarketing mix for products and services. Agencies thatwant to offer incentives to their clients or reward long-term relationshipsmay choose to pay some of the media cost themselves, and charge the clientless than the full placement cost. From the advertising agency's perspective,there can be a considerable gap between the time that payment is issued forthe media buy and the time that payment is received from the client. Depending on the type of product being promoted, the agency mayalso work with trade shows or unique promotional techniques such as directmail or Internet promotions (Neff 1). Kleppner's Advertising Procedure. While this systemcontinued into the latter half of the last century, and continues today,alternatives are increasingly being implemented as the nature ofadvertising itself has changed. Some agencies are full-service, offering their clients acomplete package from concept through execution and placement, while otheragencies are more specialized. Advertising agencies play a unique role with the media outlets wherethey place their clients' advertisements. New technologies--such as the Internetand satellite television--changed the media available for purchase, andseveral economic downturns forced companies to re-evaluate their marketingstrategies. Thereare advertising agencies that specialize in international marketing, othersthat specialize in particular industries, and still others that focus onparticular media. Works CitedMcCarthy, M., and Jean Halliday. Thomas and Ron Lane. The media, on the other hand, rely on advertising revenues togenerate the bulk of their income. This can be particularly costly but was one of theproblems that companies faced with the dot-com bust in the early 2 s(Neff 1). This forced negotiations to focus on non-monetaryissues in many cases, which are more difficult to quantify, and also led tolong-term relationships that were not always in the best interests of theclients or the agencies involved (McCarthy and Halliday 6). Under the commission pay format, the agency wouldalso pass along the production costs for the advertisement, including videocosts if a television commercial is being produced. Some clients also took issue with the commission structure. This can be effective if thecompany is large and diverse and can afford to hire the experts required toparticipate in the advertising industry. New, smaller agencies specializing in particularindustries or media began operations, and they sought differentcompensation than the traditional commission structure, as well (Pollack18). Advertising agencies began offering more services that weredifficult to bill under the traditional commission scheme--such asstrategic planning--while clients began to chafe at paying 15 percentcommissions for advertising campaigns that may or may not result inincreased sales. Conclusion The commission structure that defined the advertising agency for mostof the twentieth century is now in use by only a handful of agencies andtheir clients. One practice that evolved from this situation was that of rebates.Ostensibly, the commission is paid to the advertising agency by the mediaoutlet that discounts its placement fee. The 15 percent commission levelwas standard by the mid-twentieth century, with few publications oragencies willing to deviate from this level (Russell and Lane 114). The companysought more product management from its advertising agencies, and changedto a fee-based system rather than the traditional commission-based system.Under this system, the agencies charge General Motors for work that is donebased on labor estimates or a fixed-fee approach. In some cases, such as with new clients or clientswho are not financially sound, the agency ends up losing not only itscommission, which is the fee that the client owes, but also the price ofthe media buy itself. Financial Issues The commission structure of the advertising industry carriessignificant risk to the advertising agency, and clients also take issuewith the commission structure. For most of the twentieth century,many publications required that the agencies with which they dealt includea no-rebate clause in their contracts (Russell and Lane 114). A service charge istypically added, as well, and the industry standard evolved to 17.65percent of the gross production cost (Russell and Lane 114). When the $2, is received, $3 is theagency's commission. AlternativeS to the Commission structure The advertising industry, like other industries, evolved over thecourse of the twentieth century. By 1998, fewer than 9 percent of clients remained on the 15percent commission structure. "ANA Survey." Advertising Age, 69(Jun 15, 1998): 18.Russell, J. Englewood Cliffs, NJ: Prentice-Hall, 2 2. Newtechnology, new roles and new media are helping to change this industry,and the shift away from the commission-based compensation reflects the newrealities of the industry. Campaigns ofteninvolve multiple media types, and advertising agencies develop both thecreative aspect of the campaign as well as coordinate the media purchasesto ensure effective coverage. It is not surprising, therefore, that the commissionsystem that at one time dominated the industry and which remainscommonplace evolved over the course of the twentieth century. In some cases, agenciesreceive a percentage of the company's sales rather than commissions,although this is not the case at General Motors (McCarthy and Halliday 6). This research considers the role of theadvertising agency, the commission payment system, and alternatives thatmay become widespread in the future. General Motors dropped its commission structure in 1994 when itseparated the creative effort from other marketing activities. Byadhering to a strict 15 percent commission, advertising agencies made itimpossible for clients to negotiate better deals based on the quantity ofbusiness they did with a particular agency. On the one hand, the agencieswant to use the appropriate media to reach the appropriate audience for theproduct. Companies with large accountsknew that they would pay 15 percent regardless of how much business theygave the agency, and the agency knew that it would receive the 15 percentcommission regardless of the level of service that it provided over thecourse of the contract. The advertising agency then bills the client for the fullplacement fee, pays 85 percent to the outlet, and retains the remaining 15percent. The industrycontinues to evolve, however, and it is likely that some form of commissionwill remain in place, although its use is likely to be slight. Thiscan result in a cash flow problem for the agency if payment is not receivedin a timely fashion. "Feeling the Squeeze." Advertising Age, 72(Jun 4, 2 1): 1.Pollack, Judann. This process of rebating was largelydiscouraged by the publications since it effectively reduced theirplacement rates for some advertisers. During the first half of the twentiethcentury, a payment system evolved in the advertising industry that wasbased on the media placement fees that the client paid. In addition, one advertising agency mayrepresent many different clients, each of which requires media buys fortheir advertising. At the same time 75 percent of agenciesreported that their compensation under non-commission structures resultedin revenues that fell below the level if they had used the commissions.However, with clients increasingly interested in labor-based fee packagesand with increased competition in the industry, agencies recognized thatcommission-based structures were on the wane (Pollack 18). However, the actual cash thatforms the basis of the commission is paid by the client. The shift away from 15 percent commissions has had a marked effect inthe industry. Some companies have moved the traditional advertising agency in-houseboth for creative control and to save money. Increasingly, advertising agencies areparticipating in key aspects of marketing, including the product aspect ofthe marketing mix, and some agencies offer market research and testmarketing as part of their service. The Media Commission System in Advertising Introduction The advertising agency has become a staple of business today. If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.

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