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Belch: Advertising and
Promotion, Sixth Edition
II. Integrated Marketing
Program Situation Analysis
3. Organizing for
Advertising & Promotion
relationships. Many companies have been unbundling agency services and consolidating
media buying to get more clout from their advertising budgets. Nike, Maytag, and
Gateway are among those that have switched some or all of their media buying from
full-service agencies to independent media buyers. As noted earlier, many of the major
agencies have formed independent media services companies that handle the media
planning and buying for their clients and also offer their services separately to companies
interested in a more specialized or consolidated approach to media planning,
research, and/or buying. Exhibit 3-6 shows a page from the website of Initiative Media
Worldwide, the largest media services company in the world.
As you have seen, the type and amount of services an agency performs
vary from one client to another. As a result, agencies use a
variety of methods to get paid for their services. Agencies are typically
compensated in three ways: commissions, some type of fee arrangement, or percentage
charges.
Commissions from Media
The traditional method of compensating agencies is through a commission system,
where the agency receives a specified commission (usually 15 percent) from the media
on any advertising time or space it purchases for its client. (For outdoor advertising,
the commission is 16 2 /3 percent.) This system provides a simple method of determining
payments, as shown in the following example.
Assume an agency prepares a full-page magazine ad and arranges to place the ad on
the back cover of a magazine at a cost of $100,000. The agency places the order for the
space and delivers the ad to the magazine. Once the ad is run, the magazine will bill
the agency for $100,000, less the 15 percent ($15,000) commission. The media will
also offer a 2 percent cash discount for early payment, which the agency may pass
along to the client. The agency will bill the client $100,000 less the 2 percent cash discount
on the net amount, or a total of $98,300, as shown in Figure 3-8. The $15,000
commission represents the agency’s compensation for its services.
Appraisal of the Commission System Use of the commission system to
compensate agencies has been quite controversial for many years. A major problem
centers on whether the 15 percent commission represents equitable compensation for
services performed. Two agencies may require the same amount of effort to create
© The McGraw−Hill
Companies, 2003
Exhibit 3-6 Initiative
Media is the leading
independent media buying
service
Agency Compensation
85
Chapter Three Organizing for Advertising and Promotion