Advertising agencies are independent businesses that evolved to develop, prepare, and place advertising in advertising media for sellers seeking to find customers for their goods, services, and ideas (American Association of Advertising Agencies, 2000). Advertisers use agents when they believe the agency will be more expert than they are at creating advertisements or at developing an advertising campaign. As businesses have become more complex and diversified, many of them have consulted agencies to help them carry out their marketing communication efforts.

The modern advertising agency provides a variety of important services to clients, including media planning and buying, research, market information, sales promotion assistance, campaign development and creation of advertisements, plus a range of services designed to help the advertiser achieve marketing objectives. The first documented advertising agency in the United States was the N. W. Ayer Agency, established in 1877 (Gilson, 1980). Prior to this time, advertising agents were space brokers—agents who solicited ads from businesses and then sold them to newspapers that had difficulty getting out-of-town advertising (Gilson, 1980; Russell and Lane, 1998).

EVOLUTION OF THE ADVERTISING AGENCY FROM THE 1870s TO THE EARLY 1900s

During the late nineteenth century, most advertising appeared in newspapers, on posters, and in handbills (Wells et al. 2000). Because it was difficult to reproduce illustrations, most of these ads were simple text-based items. By 1900, the first specialized magazines had begun to appear in the United States. Magazines such as Field & Stream (in 1895) and Good Housekeeping (in 1900) established niche markets, which allowed for mass marketing to consumers with varied interests. Also, print technology had evolved considerably, making full-color illustrations possible. Advertising agencies began to use the new technology to create more attractive advertisements for the new niche markets, thus becoming creative centers rather than merely space brokerages.

The late nineteenth and early twentieth centuries were times of public concern about unethical business practices. Many professions formed their own organizations to create ethical standards of operation. The American Association for Advertising Agencies (AAAA) was founded in 1917, partially in response to these ethical concerns. Newspapers also set their own ethical standards concerning rates charged for advertisements. By 1917, publishers had agreed to set a flat rate of 15 percent as the standard commission an advertising agency would receive—with the exception of local advertising, for which there was generally no predetermined commission (Russell and Lane, 1998).

In addition, two laws were passed to alleviate concerns about unethical advertising practices. The Federal Trade Commission Act of 1914 was originally designed to make all unfair methods of competition unlawful. It was not until 1922 that advertising was legally regulated under this act. The case that set this legal precedent was FTC v. Winsted Hosiery Company (1922) (Russell and Lane, 1998). The Pure Food and Drug Act of 1906 was the first act that limited the advertising of patent medicines—drugs that were advertised using exaggerated claims of effectiveness—for use by children.

EVOLUTION OF THE ADVERTISING AGENCY FROM 1920 TO THE EARLY 1950s

By the 1920s, the majority of advertising agencies had determined that most family purchasing decisions were either made by or influenced by women (Goodrum and Dalrymple, 1990). Thus, advertising agencies created full-color magazine advertisements for goods such as expensive automobiles, refrigerators, and radios. Newspapers continued to use simple advertisements. Although Guglielmo Marconi had invented the first operating radio in 1895, radio became popular for home and family use only in the early 1920s. In that decade, as a result of radio’s mass appeal, advertising agencies produced radio programs for the sole purpose of attracting consumers for popular national products. For example, soap operas were originally created for the purpose of advertising Procter & Gamble’s soap products (Gilson, 1980).

The 1930s were a time of renewed public interest in legislation concerning unfair and deceptive business practices. The 1934 Wheeler-Lea Amendment to the Federal Trade Commission Act enabled the Federal Trade Commission (FTC) to protect consumers from deceptive advertising in the food, drug, therapeutic device, and cosmetic industries (Russell and Lane, 1998). The Robinson-Patman Act of 1936 prevented manufacturers from providing promotional allowances to a retail customer unless it also offered promotional allowances to that customer’s competitors. Although World War II suspended production of many peacetime goods and services, many advertising agents found employment working for the War Advertising Council, which was responsible for mobilizing public support for the war effort. This organization later became the Ad Council.

EVOLUTION OF THE ADVERTISING AGENCY FROM THE 1950s TO THE EARLY 1990s

The end of World War II saw a culmination of more than a decade of unsatisfied consumer demand as a result of the Great Depression and war. Most markets for goods and services found a willing consumer base for new products— including television sets. Due to the proliferation of television sales in the 1950s, advertising agencies began to combine the visual impact of print ads with the aural impact of radio to create a lifelike effect. This, in turn, created a change in the structure of advertising agencies. For example, prior to the 1950s, the main source of creativity was the person writing the advertising message— referred to as the copywriter. As television made more consumers comfortable with visual imagery, the art director and artist became more important (Goodrum and Dalrymple, 1990).

It was during the 1950s that large numbers of returning veterans began to marry and have children— the generation of children known as babyboomers. For the first time in the United States, advertising agencies found it profitable to market certain goods and services directly to the youth market. Ads for blue jeans and stereo equipment appeared in newspaper inserts, in youth-oriented niche market magazines, and on television. During the 1960s, large accounts from Fortune 500 companies migrated from the larger agencies to smaller, more responsive agencies (Goodrum and Dalrymple, 1990). The newer, more creative advertisements proved popular and profitable. The profits allowed agencies to spend more money on advertising research— often employing behavioral psychologists to design elaborate studies of consumer buying behavior (Goodrum and Dalrymple, 1990). It was the function of the behavioral psychologist to determine why consumers buy goods and services. Advances in product design during the 1960s and 1970s resulted in few differences between most products—a problem known as product parity (Goodrum and Dalrymple, 1990)—and forced advertising agencies to become more creative in order to differentiate their client’s product from competitors’ equally good products. All of this creativity had a cost—it became very expensive to produce two-minute TV advertisements. Advertising agencies solved the cost dilemma by designing thirty-second television commercials with memorable advertising slogans— short phrases designed to keep a consumer’s attention and maintain recognition of a particular brand of good or service. Advertising agency clients began to demand results for increasingly expensive ads—in the form of research data from the end-consumer (Goodrum and Dalrymple, 1990). However, the cost of this research, including the employment of advertising researchers, was too great for small agencies, forcing smaller agencies to merge into larger ones during the 1980s (Goodrum and Dalrymple, 1990). During this decade, some advertising agencies moved from traditional radio and TV advertising toward sales promotion techniques (such as rebates, coupons, and sweepstakes) that offered measurable proof of increased sales (Wells et al., 2000).

EVOLUTION OF THE ADVERTISING AGENCY FROM 1991 TO THE PRESENT

Present-day advertising agencies employ many of the techniques that were popular in the early years of advertising. Newspapers continue to advertise primarily in text format, although color inserts are becoming popular. Advertising agencies continue to be able to advertise in smaller and smaller niche-market magazines. Radio remains a popular advertising medium in local markets. The widespread availability of cable TV and satellite transmission has fragmented television advertising into niche markets. However, some changes in the advertising industry continue to change how advertising agencies operate. These changes are discussed below.

Globalization. Advertising agencies are under increasing pressure to create ads for products in a global market, often advertising the same brand to different markets around the world. Agencies must often consider culture, language, and customs when designing an advertisement tailored to the international market. Today, in order to meet the demands of a global market, advertisers are forming large multinational agencies and continuing to debate whether to standardize advertising globally or to segment advertisements by culture or nationality (Wells et al., 2000). The Internet. Although the Internet continues in be most accessible in developed countries, satellite transmission may soon make Internet access available to most people worldwide. The Internet allows advertising agencies to target consumers worldwide and to conduct market research inexpensively. The easy access to market research information may allow advertising agencies to continue developing ads to reach smaller and smaller niche markets worldwide. At the same time, certain forces are reducing the availability and use of information gathered over the Internet. For example, the Children’s Online Protection Act (1998), or COPA, is a U.S. law that affects business transactions by children using the Internet. COPA requires Web sites soliciting personal information from children under the age of 13 to prominently post a privacy policy and require parental consent for the release of personal information provided by those children before any business can be transacted. Many countries are developing laws similar to COPA, and it remains to be seen how COPA and other impending legislation will affect advertising agencies that conduct business globally.

The Role of Government in Advertising As of 2000, the Ad Council acts as an advertising agency that addresses social ills such as drunk driving, racial intolerance, and domestic violence (Russell and Lane, 1998; The Ad Council, 2000). The Ad Council will probably expand its role as an advertising agency that serves as a catalyst for social change.

Changing Incentives While the 15-percent commission on gross sales has been around for some time, it is now common to offer other incentives, such as box seats at sporting events and music concerts (Mayer, 1991).

EVOLVING CAREER FIELDS IN ADVERTISING

Today’s advertising agencies include a vast array of specialists who work together to create a complete and thorough advertising campaign. Account managers allocate agency resources, including time, money, and personnel for individual projects. An account manager often assembles a team of individuals, each bringing a particular advertising specialty to the project. The team includes an art director, creative director, artist(s), copywriters, and designers. The team may also include other specialists such as media analysts, product testers, researchers, and public relations consultants.