SIC 7311 Advertising Agencies

Encyclopedia of American Industries | 2005 | Copyright

SIC 7311
ADVERTISING AGENCIES

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.

NAICS Code(s)

541810 (Advertising Agencies)

Industry Snapshot

According the Advertising Age's 2002 Agency Report, the world's six largest advertising agencies accounted for over 65 percent of $39.28 billion spent on advertising worldwide in 2001. But the advertising industry has suffered during the first years of the 2000s. The economy decline prior to and exacerbated by the terrorist attacks of September 11, 2001 has been sustained by the ongoing conflict with Iraq. As an indicator of the softened demand for advertising services, advertising agency employment fell to just over 180,000 in December 2002, down from an average employment of 194,400 in 2001 and 182,400 in 2002, representing the largest decline since 1991.

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.

Organization and Structure

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...

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