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 slowly improved afterward.

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. By 2014, the three mega-agencies were Publicis Omnicom Groupe, WPP, and Interpublic (see Figure 11.1).

391

Omnicom and Publicis announced their merger in 2013, creating the world’s largest mega-agency, with more than $22 billion in revenue. Omnicom, based in New York, had more than 71,000 employees in 2013 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, Digitas, and the public relations firm MS&L. Publicis employed more than 49,000 people worldwide in 2013. 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 165,000 employees in 110 countries. The Interpublic Group, based in New York with 43,500 employees worldwide, holds global agencies like McCann Erickson (the top U.S. ad agency), DraftFCB, and Lowe Worldwide, and public relations firms GolinHarris and Weber Shandwick.

image
FIGURE 11.1

GLOBAL REVENUE FOR THE WORLD’S LARGEST AGENCIES (IN BILLIONS OF DOLLARS)

Source: “World’s 10 Largest Agency Companies,” Advertising Age, December 31, 2012, p. 26.

Note: These firms control more than half the distribution of ad dollars globally. Omnicom and Publicis announced their merger in 2013.

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.

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 with new clients like Gap, Kmart, Sephora, Athleta, and JCP.9

image
FIGURE 11.2

FORECAST FOR 2015: WHERE WILL THE ADVERTISING DOLLARS GO?

Source: “Share of Ad Spending by Medium: U.S.,” Advertising Age, December 31, 2012, p. 16.

Note: Outdoor advertising includes billboards, transit advertising, and kiosk ads. TV includes network TV, spot TV, syndicated TV, and cable TV networks.