An advertising agency acts as a liaison between a company, its consumers and the general public. While most agencies plan, execute and evaluate the promotional strategy of their clients, the role of the agency differs by client and project. Agencies work with both traditional media, such as television, print and radio advertising, as well as online advertising. This includes e-mail, websites and social media.
When a company needs to sell a product or service or improve its image, it uses an advertising campaign to communicate with its consumers or the public. Companies hire ad agencies when they need more expertise or don't have the time or resources to launch a campaign.
The advertising agency can handle a part or all of the advertising process, which encompasses research, planning and creative work, such as copy writing and art. The process also can include production and media buying. Production can be shooting a commercial or physically printing and posting ad materials, while media buying is the purchase of ad time and space on radio, TV or billboards.
According to Advertising Age magazine, the first newspaper ad was printed in 1704 in Boston, and the first magazine ads were printed in Benjamin Franklin’s General Magazine in 1742. One hundred years later, Volney Palmer opened the first advertising agency in Philadelphia, and in 1899, the Association of American Advertisers was formed. In 1922, the first radio commercial aired in New York, and by 1938, radio surpassed magazines as a source of ad revenue. The first television commercial was shown in 1941 on NBC.
Agencies vary in size and speciality, from a small boutique servicing one geographic region or industry to a global "superagency" that serves many markets. The most common type of agency is the full-service agency, which offers a complete range of services, including market research, media buying, copy development and artwork, along with other marketing and communications programs.
A second type is the limited-service agency, which specialises in a specific aspect of the advertising process, usually the creative production. Some agencies also focus on a particular market, such technology or cosmetics. A third type, the in-house agency, consists of the company's own staff who treat other departments as clients.
According to the American Association of Advertising Agencies, the traditional method of agency compensation is the commission system, which has been used for the majority of the 20th century. It is based on advertising time or space purchased for the client. With this method, compensation is based on the expenditures of the client and may not reflect the time or effort put into the project by the agency.
Some agencies prefer to use other systems, such as fixed fees or a combination of fixed fees and commission. The AAAA found that the other commonly used compensation methods are based on business performance, campaign success or the sale or license of the agency’s intellectual property.
To ensure that advertising does not play a negative role in society, rules and regulations have been established for agencies to follow. Organizations like the American Advertising Federation have an Advertising Code of Ethics for their members, which offer guidelines. These include the need for advertising to be truthful, be substantiated by evidence and refrain from making false comparisons or claims.