Until the 1960s, the shape and pitch of most U.S. ads were determined by a slogan, the phrase that attempts to sell a product by capturing its essence in words. With slogans such as “A Diamond Is Forever” (which De Beers first used in 1948), the visual dimension of ads was merely a complement. Eventually, however, through the influence of European design, television, and (now) multimedia devices such as the iPad, images asserted themselves, and visual style became dominant in U.S. advertising and ad agencies.

The Influence of Visual Design

Just as a postmodern design phase developed in art and architecture during the 1960s and 1970s, a new design era began to affect advertising at the same time. Part of this visual revolution was imported from non-U.S. schools of design; indeed, ad-rich magazines such as Vogue and Vanity Fair increasingly hired European designers as art directors. These directors tended to be less tied to U.S. word-driven radio advertising because most European countries had government-sponsored radio systems with no ads.

By the early 1970s, agencies had developed teams of writers and artists, thus granting equal status to images and words in the creative process. By the mid-1980s, the visual techniques of MTV, which initially modeled its style on advertising, influenced many ads and most agencies. MTV promoted a particular visual aesthetic—rapid edits, creative camera angles, compressed narratives, and staged performances. Video-style ads soon saturated television and featured such prominent performers as Paula Abdul, Ray Charles, Michael Jackson, Elton John, and Madonna. The popularity of MTV’s visual style also started a trend in the 1980s to license hit songs for commercial tie-ins. By the twenty-first century, a wide range of short, polished musical performances and familiar songs—including the work of Train (Samsung), the Shins (McDonald’s), LMFAO (Kia Motors), and classic Louis Armstrong (Apple iPhone)—were routinely used in TV ads to encourage consumers not to click the remote control.

384

Most recently, the Internet and multimedia devices, such as computers, mobile phones, and portable media players, have had a significant impact on visual design in advertising. As the Web became a mass medium in the 1990s, TV and print designs often mimicked the drop-down menu of computer interfaces. In the twenty-first century, visual design has evolved in other ways, becoming more three-dimensional and interactive as full-motion, 3-D animation becomes a high-bandwidth multimedia standard. At the same time, design is also simpler, as ads and logos need to appear clearly on the small screens of smartphones and portable media players, and more international, as agencies need to appeal to the global audiences of many companies and therefore need to reflect styles from around the world.

Types of Advertising Agencies

About fourteen thousand ad agencies currently operate in the United States. In general, these agencies are classified as either mega-agencies—large ad firms that formed by merging several agencies and that maintain regional offices worldwide—or small boutique agencies that devote their talents to only a handful of select clients. With the economic crisis, both types of ad agencies suffered revenue declines in 2008 and 2009 but had slowly improved within about five years.

Mega-Agencies

Mega-agencies provide a full range of services, from advertising and public relations to operating their own in-house radio and TV production studios. In 2014, the four global mega-agencies were WPP, Omnicom, Publicis, and Interpublic (see Figure 11.1).

385

In 2013, Omnicom and Publicis announced a merger that would have created the world’s largest mega-agency. But that plan fell apart in 2014, according to the New York Times, over a “mix of clashing personalities, disagreements about how the companies would be integrated and complications over legal and tax issues.”10 Based in New York, Omnicom in 2015 had more than 74,000 employees operating in more than 100 countries and currently owns the global advertising firms BBDO Worldwide, DDB Worldwide, and TBWA Worldwide. The company also owns three leading public relations agencies: Fleishman-Hillard, Ketchum, and Porter Novelli. The Paris-based Publicis Groupe has a global reach through agencies like Leo Burnett Worldwide, the British agency Saatchi & Saatchi, DigitasLBi, and the public relations firm MSL Group. Publicis employed more than 63,000 people worldwide in 2015.

The London-based WPP Group grew quickly in the 1980s with the purchases of J. Walter Thompson, the largest U.S. ad firm at the time; Hill & Knowlton, one of the largest U.S. public relations agencies; and Ogilvy & Mather Worldwide. In the 2000s, WPP Group continued its growth and acquired Young & Rubicam and Grey Global—both major U.S. ad firms. By 2013, WPP had 179,000 employees in 111 countries. The Interpublic Group, based in New York with 47,400 employees worldwide, holds global agencies like McCann Erickson (the top U.S. ad agency), FCB, and Lowe and Partners, and public relations firms Golin and Weber Shandwick.

This mega-agency trend has stirred debate among consumer and media watchdog groups. Some consider large agencies a threat to the independence of smaller firms, which are slowly being bought out. An additional concern is that these four firms now control more than half the distribution of advertising dollars globally. As a result, the cultural values represented by U.S. and European ads may undermine or overwhelm the values and products of developing countries. (See Figure 11.2 for a look at how advertising dollars are spent by medium.)

Boutique Agencies

The visual revolutions in advertising during the 1960s elevated the standing of designers and graphic artists, who became closely identified with the look of particular ads. Breaking away from bigger agencies, many of these creative individuals formed small boutique agencies. Offering more personal services, the boutiques prospered, bolstered by innovative ad campaigns and increasing profits from TV accounts. By the 1980s, large agencies had bought up many of the boutiques. Nevertheless, these boutiques continue to operate as fairly autonomous subsidiaries within multinational corporate structures.

386

One independent boutique agency in Minneapolis, Peterson Milla Hooks (PMH), made its name with a boldly graphic national branding ad campaign for Target department stores. Target moved its business to another agency in 2011, but PMH—which employs only about sixty people—rebounded. By 2015, the agency’s client list included Gap, Kohl’s, Nine West, Mattel, Kmart, Sephora, Rooms To Go, Sleep Number, JCPenney, Target, and Chico’s.11

The Structure of Ad Agencies

Traditional ad agencies, regardless of their size, generally divide the labor of creating and maintaining advertising campaigns among four departments: account planning, creative development, media coordination, and account management. Expenses incurred for producing the ads are part of a separate negotiation between the agency and the advertiser. As a result of this commission arrangement, it generally costs most large-volume advertisers no more to use an agency than it does to use their own staff.

Account Planning, Market Research, and VALS

The account planner’s role is to develop an effective advertising strategy by combining the views of the client, the creative team, and consumers. Consumers’ views are the most difficult to understand, so account planners coordinate market research to assess the behaviors and attitudes of consumers toward particular products long before any ads are created. Researchers may study everything from possible names for a new product to the size of the copy for a print ad. Researchers also test new ideas and products with consumers to get feedback before developing final ad strategies. In addition, some researchers contract with outside polling firms to conduct regional and national studies of consumer preferences.

Agencies have increasingly employed scientific methods to study consumer behavior. In 1932, Young & Rubicam first used statistical techniques developed by pollster George Gallup. By the 1980s, most large agencies retained psychologists and anthropologists to advise them on human nature and buying habits. The earliest type of market research, demographics, mainly studied and documented audience members’ age, gender, occupation, ethnicity, education, and income. Today, demographic data are much more specific. They make it possible to locate consumers in particular geographic regions—usually by zip code. This enables advertisers and product companies to target ethnic neighborhoods or affluent suburbs for direct mail, point-of-purchase store displays, or specialized magazine and newspaper inserts.

Demographic analyses provide advertisers with data on people’s behavior and social status but reveal little about feelings and attitudes. By the 1960s and 1970s, advertisers and agencies began using psychographics, a research approach that attempts to categorize consumers according to their attitudes, beliefs, interests, and motivations. Psychographic analysis often relies on focus groups, a small-group interview technique in which a moderator leads a discussion about a product or an issue, usually with six to twelve people. Because focus groups are small and less scientific than most demographic research, the findings from such groups may be suspect.

In 1978, the Stanford Research Institute (SRI), now called Strategic Business Insights (SBI), instituted its Values and Lifestyles (VALS) strategy. Using questionnaires, VALS researchers measured psychological factors and divided consumers into types. VALS research assumes that not every product suits every consumer and encourages advertisers to vary their sales slants to find market niches.

Over the years, the VALS system has been updated to reflect changes in consumer orientations (see Figure 11.3). The most recent system classifies people by their primary consumer motivations: ideals, achievement, or self-expression. The ideals-oriented group, for instance, includes thinkers—“mature, satisfied, comfortable, and reflective people who value order, knowledge, and responsibility.” VALS and similar research techniques ultimately provide advertisers with microscopic details about which consumers are most likely to buy which products.

387

388

Agencies and clients—particularly auto manufacturers—have relied heavily on VALS to determine the best placement for ads. VALS data suggest, for example, that achievers and experiencers watch more sports and news programs; these groups prefer luxury cars or sport-utility vehicles. Thinkers, on the other hand, favor TV dramas and documentaries and like the functionality of minivans or the gas efficiency of hybrids.

VALS researchers do not claim that most people fit neatly into a category. But many agencies believe that VALS research can give them an edge in markets where few differences in quality may actually exist among top-selling brands. Consumer groups, wary of such research, argue that too many ads promote only an image and provide little information about a product’s price, its content, or the work conditions under which it was produced.

Creative Development

Teams of writers and artists—many of whom regard ads as a commercial art form—make up the nerve center of the advertising business. The creative department outlines the rough sketches for print and online ads and then develops the words and graphics. For radio, the creative side prepares a working script, generating ideas for everything from choosing the narrator’s voice to determining background sound effects. For television, the creative department develops a storyboard, a sort of blueprint or roughly drawn comic-strip version of the potential ad. For digital media, the creative team may develop Web sites, interactive tools, flash games, downloads, and viral marketing—short videos or other content that (marketers hope) quickly gains widespread attention as users share it with friends online or by word of mouth.

Often the creative side of the business finds itself in conflict with the research side. In the 1960s, for example, both Doyle Dane Bernbach (DDB) and Ogilvy & Mather downplayed research; they championed the art of persuasion and what “felt right.” Yet DDB’s simple ads for Volkswagen Beetles in the 1960s were based on weeks of intensive interviews with VW workers as well as on creative instincts. The campaign was remarkably successful in establishing the first niche for a foreign car manufacturer in the United States. Although sales of the VW Bug had been growing before the ad campaign started, the successful ads helped Volkswagen preempt the Detroit auto industry’s entry into the small-car field.

Both the creative and the strategic sides of the business acknowledge that they cannot predict with any certainty which ads and which campaigns will succeed. Agencies say ads work best by slowly creating brand-name identities—by associating certain products over time with quality and reliability in the minds of consumers. Some economists, however, believe that much of the money spent on advertising is ultimately wasted because it simply encourages consumers to change from one brand name to another. Such switching may lead to increased profits for a particular manufacturer, but it has little positive impact on the overall economy.

Media Coordination: Planning and Placing Advertising

Ad agency media departments are staffed by media planners and media buyers: people who choose and purchase the types of media that are best suited to carry a client’s ads, reach the targeted audience, and measure the effectiveness of those ad placements. For instance, a company like Procter & Gamble, currently the world’s leading advertiser, displays its more than three hundred major brands—most of them household products like Crest toothpaste and Pampers diapers—on TV shows viewed primarily by women. To reach male viewers, however, media buyers encourage beer advertisers to spend their ad budgets on cable and network sports programming, evening talk radio, or sports magazines.

389

Along with commissions or fees, advertisers often add incentive clauses to their contracts with agencies, raising the fee if sales goals are met and lowering it if goals are missed. Incentive clauses can sometimes encourage agencies to conduct repetitive saturation advertising, in which a variety of media are inundated with ads aimed at target audiences. The initial Miller Lite beer campaign (“Tastes great, less filling”), which used humor and retired athletes to reach its male audience, became one of the most successful saturation campaigns in media history. It ran from 1973 to 1991 and included television and radio spots, magazine and newspaper ads, and billboards and point-of-purchase store displays. The excessive repetition of the campaign helped light beer overcome a potential image problem: being viewed as watered-down beer unworthy of “real” men.

The cost of advertising, especially on network television, increases each year. The Super Bowl remains the most expensive program for purchasing television advertising, with thirty seconds of time costing on average $4.5 million in 2015 on Fox—up from $4 million in 2014. (The network also reported that in 2015, the big game generated 24.4 million tweets.) Running a thirty-second ad during a national prime-time TV show can cost from $50,000 to more than $500,000, depending on the popularity and ratings of the program. The prime-time average for a thirty-second TV spot was $107,000 in 2015, down from an all-time high of $129,600 in the prerecession year 2005.12 (See “Case Study: Hey, Super Bowl Sponsors: Your Ads Are Already Forgotten,” page 395.)

Account and Client Management

Client liaisons, or account executives, are responsible for bringing in new business and managing the accounts of established clients, including overseeing budgets and the research, creative, and media planning work done on their campaigns. This department also oversees new ad campaigns in which several agencies bid for a client’s business, coordinating the presentation of a proposed campaign and various aspects of the bidding process, such as determining what a series of ads will cost a client. Account executives function as liaisons between the advertiser and the agency’s creative team. Because most major companies maintain their own ad departments to handle everyday details, account executives also coordinate activities between their agency and a client’s in-house personnel.

390

The advertising business is volatile, and account departments are especially vulnerable to upheavals. One industry study conducted in the mid-1980s indicated that client accounts stayed with the same agency for about seven years on average, but since the late 1980s, clients have changed agencies much more often. Clients routinely conduct account reviews, the process of evaluating and reinvigorating a product’s image by reviewing an ad agency’s existing campaign or by inviting several new agencies to submit new campaign strategies, which may lead the product company to switch agencies. For example, when General Motors restructured its business in 2010, it put its advertising account for Chevrolet under review. Campbell Ewald (a subsidiary of Interpublic) had held the Chevy account since 1919, creating such campaigns as “The Heartbeat of America” and “Like a Rock,” but after the review, it lost the $30 million account to Publicis.13

Trends in Online Advertising

The earliest form of Web advertising appeared in the mid-1990s and featured banner ads, the printlike display ads that load across the top or side of a Web page. Since that time, other formats have emerged, including video ads, sponsorships, and “rich media”—like pop-up ads, pop-under ads, flash multimedia ads, and interstitials, which pop up in new screen windows as a user clicks to a new Web page. Other forms of Internet advertising include classified ads and e-mail ads. Unsolicited commercial e-mail—known as spam—accounted for more than 85 percent of e-mail messages by 2010.

Paid search advertising has become the dominant format of Web advertising. Even though their original mission was to provide impartial search results, search sites such as Google, Yahoo!, and Bing have quietly morphed into advertising companies, selling sponsored links associated with search terms and distributing online ads to affiliated Web pages.14

Back in 2004, digital ads accounted for just over 4 percent of global ad spending. By 2012, the Internet had gained an 18 percent share of worldwide ad spending, and in 2014, it was the second-largest global advertising medium behind only television. In the United States, the Internet accounted for 19.1 percent of ad spending in 2012, making it the second-largest advertising medium, behind television.15 According to Adweek, spending on digital ads globally grew to 16 percent in 2014.16

391

Online Advertising Challenges Traditional Media

Because Internet advertising is the leading growth area, advertising mega-agencies have added digital media agencies and departments to develop and sell ads online. For example, WPP has 24/7 Media and Xaxis, Omnicom owns Proximity Worldwide, Publicis has Digitas LBi and Razorfish, and Interpublic operates R/GA. Realizing the potential of their online ad businesses, major Web services have also aggressively expanded into the advertising market by acquiring smaller Internet advertising agencies. Google bought DoubleClick, the biggest online ad server; Yahoo! purchased Right Media, which auctions online ad space; and Microsoft acquired aQuantive, an online ad server and network that enables advertisers to place ads on multiple Web sites with a single buy. Google, as the top search engine, has surpassed the traditional mega-agencies in revenue, earning $66 billion in 2014, with almost all of that coming from advertising. Facebook, the top social networking site, is not yet in Google’s league but remains poised to become a bigger advertising threat with an audience of over 1.4 billion users worldwide in 2015. Facebook earned $12.4 billion in 2014, most of that profit also coming from ads.17

Facebook has made its biggest strides in mobile advertising. While Google accounted for nearly 32 percent of all online global ad spending in 2013—over $120 billion—Facebook finished in second place, with roughly 6 percent of the total spent on online global advertising that year. In 2014, the New York Times reported that Facebook was closing the mobile gap, noting that the social media site accounted for nearly 16 percent of mobile advertising dollars in the previous year, while Google’s share had dropped.18

As the Internet draws people’s attention away from traditional mass media, leading advertisers are moving more of their ad campaigns and budget dollars to digital media. For example, the CEO of consumer product giant Unilever, a company with more than four hundred brands (including Dove, Hellmann’s, and Lipton) and a multibillion-dollar advertising budget, doubled its spending on digital media back in 2010, since customers were spending much more time on the Internet and mobile phones. “I think you need to fish where the fish are,” the Unilever CEO said. “So I’ve made it fairly clear that I’m driving Unilever to be at the leading edge of digital marketing.”19

Online Marketers Target Individuals

Internet ads offer many advantages to advertisers, compared to ads in traditional media outlets like newspapers, magazines, radio, or television. Perhaps the biggest advantage—and potentially the most disturbing part for citizens—is that marketers can develop consumer profiles that direct targeted ads to specific Web site visitors. They do this by collecting information about each Internet user through cookies (see Chapter 2 for more on cookies) and online surveys. For example, when an ESPN.com contest requires you to fill out a survey to be eligible to win sports tickets, or when washingtonpost.com requires that you create an account for free access to the site, marketers use that information to build a profile about you. The cookies they attach to your profile allow them to track your activities on a certain site. They can also add to your profile by tracking what you search for and even by mining your profiles and data on social networking sites. Agencies can also add online and retail sales data (what you bought and where) to user profiles to create an unprecedented database, largely without your knowledge. Such data mining is a boon to marketers, but it is very troubling to consumer privacy advocates.

392

Internet advertising agencies can also track ad impressions (how often ads are seen) and click-throughs (how often ads are clicked on). This provides advertisers with much more specific data on the number of people who not only viewed the ad but also showed real interest by clicking on it. For advertisers, online ads are more beneficial because they are more precisely targeted and easily measured. For example, an advertiser can use Google AdWords to create small ads that are linked to selected key words and geographic targeting (from global coverage to a small radius around a given location). AdWords tracks and graphs the performance of the ad’s key words (through click-through and sales rates) and lets the advertiser update the campaign at any time. This kind of targeted advertising enables smaller companies with a $500 ad budget, for example, to place their ads in the same location as larger companies with multimillion-dollar ad budgets.

Beyond computers, smartphones—the “third screen” for advertisers—are of increasing importance. Smartphones offer effective targeting to individuals, as does Internet advertising, but they also offer advertisers the bonus of tailoring ads according to either a specific geographic location (e.g., a restaurant ad goes to someone in close proximity) or the user demographic, since wireless providers already have that information. Google has also developed unique applications for mobile advertising and searching. For example, the Google Goggles smartphone app enables the user to take a photo of an object—such as a book cover, a landmark, a logo, or text—and then have Google return related search results. Google’s Voice Search app lets users speak their search terms. Such apps are designed to maintain Google’s dominant search engine position (which generates most of its profits) on the increasingly important mobile platform.

Advertising Invades Social Media

Social media, such as Facebook, Twitter, and Foursquare, provide a wealth of data for advertisers to mine. These sites and apps create an unprecedented public display of likes, dislikes, locations, and other personal information. And advertisers are using such information to further refine their ability to send targeted ads that might interest users. Facebook and other sites (like Hulu) go even further by asking users if they liked the ad or not. For example, clicking off a display ad in Facebook results in the question “Why didn’t you like it?” followed by the choices “uninteresting,” “misleading,” “offensive,” “repetitive,” and “other.” All that information goes straight back to advertisers so they can revise their advertising and try to engage you the next time. Beyond allowing advertisers to target and monitor their ad campaigns, most social media encourage advertisers to create their own online identity. For example, Ben & Jerry’s Ice Cream’s Facebook page has more than seven million “friends.” Despite appearances, such profiles and identities still constitute a form of advertising and serve to promote products to a growing online audience for virtually no cost.

Companies and organizations also buy traditional paid advertisements on social media sites. A major objective of their paid media is to get earned media, or to convince online consumers to promote products on their own. Imagine that the environmental group the National Resources Defense Council buys an ad on Facebook that attracts your interest. That’s a successful paid media ad for the council, but it’s even more effective if it becomes earned media—that is, when you mark that you “Like” it, you essentially give the organization a personal endorsement. Knowing you like the ad, your friends view it; as they pass it along, it gets more earned media and eventually becomes viral—an even greater advertising achievement. As the Nielsen Media rating service says about online earned media, “Study after study has shown that consumers trust their friends and peers more than anyone else when it comes to making a purchase decision.”20 Social media are helping advertisers use such personal endorsements to further their own products and marketing messages—basically, letting consumers do the work for them.

393

A recent controversy in online advertising is whether people have to disclose if they are being paid to promote a product. For example, bloggers often review products or restaurants as part of their content. Some bloggers with large followings have been paid (either directly or by “gifts” of free products or trips) to give positive reviews or promote products on their site. When such instances, dubbed “blog-ola” by the press, came to light in 2008 and 2009, the bloggers argued that they did not have to reveal that they were being compensated for posting their opinions. At the time, they were right. However, in 2009, the Federal Trade Commission released new guidelines that require bloggers to disclose when an advertiser is compensating them to discuss a product. In 2010, a similar controversy erupted when it was revealed that many celebrities were being paid to tweet about their “favorite” products. One of Facebook’s more recent ad ventures is called “sponsored stories.” The way this works, according to the New York Times, is that companies, including Amazon, “pay Facebook to generate . . . automated ads” when a user clicks on the “Like” button for a Facebook participating brand partner or “references them in some other way.” Sponsors and product companies like this service because they save money, since “no creative work is involved.” However, in 2012, this practice resulted in Facebook’s settling a state of California class action suit out of court. The lead plaintiff in the case, a costume designer from Seattle, innocently clicked the “Like” button for an online language course offered by Rosetta Stone. Then several months later, according to the Times, “she showed up in an ad for Rosetta Stone on her friends’ Facebook pages.”21 Part of the case involved her resentment about not consenting to be used in an ad or receiving any compensation. As new ways to advertise or sponsor products through social media continue to develop, consumers need to keep a careful eye out for what is truly a friendly recommendation from a friend and what is advertising.