Basic Marketing: A Global Managerial Approach

Perreault−McCarthy: Basic
Marketing: A
Global−Managerial
Approach, 14/e

16. Advertising and Sales
    Promotion

Text © The McGraw−Hill

Companies, 2002

Advertising and Sales Promotion 471

campaigns that use little space or time. Agencies don’t always like a commission

arrangement, either. Some try to charge additional fees when advertisers spend

relatively little on media or need extra services—like preparation of materials to

support a website or the personal selling effort. About half of all advertisers now

pay agencies some sort of labor-based fee.

A number of advertisers now grade the work done by their agencies—and the

agencies’ pay depends on the grade. General Foods was the first to do this. It low-

ered its basic commission to about 13 percent. However, it paid the agency a bonus

of about 3 percent on campaigns that earned an A rating. If the agency only earned

a B, it lost the bonus. If it earned a C, it had to improve fast or GF removed the

account.

Variations on this approach are becoming common. For example, Carnation

directly links its agency’s compensation with how well its ads score in market

research tests. Gillette uses a sliding scale, and the percentage of compensation

declines with increased advertising volume. And some agencies develop their own

plans in which they guarantee to achieve the results expected or give the advertiser

a partial refund. This approach forces the advertiser and agency to agree on very

specific objectives for their ads and what they expect to achieve. It also reduces the

likelihood of the creative people in an agency focusing on ads that will win artis-

tic approval in their industry rather than ads that do what the firm needs done.^24

Ad agencies usually work closely with their clients, and they often have access

to confidential information. This can create ethical conflicts if an agency is work-

ing with two or more competing clients. Most agencies are very sensitive to the

potential problems and work hard to keep people and information from competing

accounts completely separated. But many advertisers don’t think that’s enough—

and they don’t want to risk a problem. They refuse to work with an agency that

handles any competing accounts, even when they’re handled in different offices. For

example, a top executive for the Budweiser brand ended a 79-year relationship with

an agency when one of the agency’s subsidiaries accepted an assignment to buy

media space for a competing brand of beer.

This potential conflict of interest in handling competing products is a problem

for some of the international mega-agencies. The worst case was years ago when the

mergers had just started. Saatchi & Saatchi gained over $300 million in billings

through its mergers but then quickly lost $462 million in billings when old clients

departed because Saatchi’s new clients included competitors.^25

Some firms pay the

agency based on

results

Ethical conflicts

may arise

Success depends on

the total marketing mix

It would be convenient if we could measure the results of advertising by looking

at sales. Certainly some breakthrough ads do have a very direct effect on a com-

pany’s sales—and the advertising literature is filled with success stories that “prove”

advertising increases sales. Similarly, market research firms like Information

Resources can sometimes compare sales levels before and after, or during, the period

of an ad campaign. Yet we usually can’t measure advertising success just by looking

at sales. The total marketing mix—not just promotion generally or advertising

specifically—is responsible for the sales result. And sales results are also affected by

what competitors do and by other changes in the external marketing environment.

Only with direct-response advertising can a company make a direct link between

advertising and sales results. Then, if an ad doesn’t produce immediate results, it’s

considered a failure.

Measuring Advertising Effectiveness Is Not Easy