This industry includes establishments primarily engaged in preparing advertising (writing copy, artwork, graphics, and other creative work) and placing such advertising in periodicals, newspapers, radio, and television, or other advertising media for clients on a contract or fee basis. Establishments that either place advertising with media but offer no creative services or provide creative services but do not place the advertising with media are excluded from this industry.
The total spent on advertising is expected to exceed $400 billion worldwide in 2006, an increase of more than 20 percent since 2001, a year marked by one of the worst economic downturns in recent times. The U.S. Census Bureau reported that there are approximately 12,415 advertising agencies nationwide.
Advertising agencies are primarily responsible for two functions. The first is the production of advertising materials in the form of written copy, art, graphics, audio, and video. The second is the strategic placement of the finished creative product in various media outlets, such as periodicals, newspapers, radio, and television. Agencies generally receive compensation for production costs from the client, plus a standard 15 percent commission from the media source for the ad placement.
Advertising agencies can be found throughout the United States, with the greatest percentage located in large cities. Many have headquarters in New York and field offices in Chicago, Los Angeles, San Francisco, Atlanta, Detroit, and other major areas of commerce in order to be close to clients.
Although the larger agencies are more frequently mentioned in the media and in trade publications, the industry is actually predominately comprised of smaller agencies, many with only one or two principals. Industry observers credit lower overhead, diversified services, willingness to accommodate change, and an entrepreneurial attitude for the success of smaller, boutique agencies.
As many clients have begun to focus on a variety of forms of marketing communications, advertising agencies have had to look beyond conventional media-based advertising. Advertising budgets reflect this shift, with additional dollars being earmarked for point-of-sale promotions, public relations, and a major entry into the media mix—the Internet. Changing demographics and a savvy American consumer were the driving forces behind these alternative forms of marketing communications.
Some industry leaders have projected that advertising agencies will need to augment their primary line of work and change their longstanding compensation system based on commissions. Realizing the need for "integrated marketing services," many agencies have responded by offering public relations, direct mail, promotional, and Internet services.
The activities within an advertising agency are typically divided into four broad groups: account management, the creative department, media buying, and research. These divisions are usually physically separated, although all four areas work closely together to produce an advertising campaign in its entirety. Account managers usually have daily interaction with a counterpart at the client's office and coordinate the activities of the other departments according to the client's wishes. The creative department designs original themes or concepts for ads, while the media department places finished ads within the media in which they will receive the most exposure to a target audience. The research department provides data about consumers to help the agency and the client make informed advertising decisions.
Recently added to advertising agencies' roster of services are public relations, direct marketing, and promotional services. Other activities that used to be completed by outside vendors, such as photography and high-tech print work, have been brought in-house in many agencies.
Advertising agencies began in the mid-1800s, when independent agents sold newspaper space. Later these agents took on the added responsibilities of writing and designing the actual advertisements. Such advertising agents could be found in major industrial areas such as Philadelphia, New York, and Boston. Volney Palmer opened offices in 1841 in Philadelphia. Representing a selected list of newspapers, Palmer sold space to advertisers and received a 25 percent commission from the newspapers. After his death, Joy, Coe & Co. took over the business and renamed the firm Coe, Wetherill & Company. This agency later was absorbed by N.W. Ayer & Son, the oldest U.S. advertising agency to be continuing operations in the early 2000s.
By 1860, roughly 30 agencies in the United States sold newspaper space by offering exclusive representation in selected periodicals. As new agents entered the scene, the principle of exclusive representation ended because publishers accepted anyone who brought in advertising. Most agents soon became independent brokers or middlemen, selling space to advertisers and then buying from publishers to fill their orders.
Increased commercial and industrial activity following the Civil War facilitated the growing acceptance of advertising as a sales tool. A new type of advertising agent also appeared on the scene at this time. Space wholesalers, including industry leader George Rowell, purchased space in bulk from publishers at a discounted rate and then sold the space to advertisers. Some agents went as far as purchasing all the advertising space in the publications they represented, thereby essentially controlling selected periodicals.
Advertising legend J. Walter Thompson had his start in the industry at this time. Thompson persuaded several literary magazines to carry advertising, something not previously done. Thompson thought magazines should accept advertising because their widespread circulation could be a powerful selling medium. By 1900 his "List of Thirty" represented most of the popular women's and general monthly periodicals. This transformation of magazines into an advertising medium had an enormous impact on the entire advertising industry, because magazines were the first publications with nationwide distribution.
George Rowell took an early step toward changing the advertising business into a modern-day agency. In 1875, Rowell announced that he...