A Brief History of Advertising

Colin McDonald & Jane Scott. The Sage Handbook of Advertising. Sage Publications. 2007.

“Studying a subject without an appreciation of its antecedents is like seeing a picture in two dimensions—there is no depth. The study of history gives us this depth as well as an understanding of why things are as they are.” ~ Brink and Kelley (1963)

From as early as the first half of the 19th century, there has been public ambivalence toward advertising (Nevett, 1982). In 1958, Martin Mayer wrote that the advertising man’s work “subjects him every day to the worst kind of commercial, social and psychological insecurity.” And more recently, William Phillips (1992) wrote: “In less than a hundred years, (British) advertising has run the gamut from the exuberant charlatanism of a cottage industry to the jitters of a world-beating big business which outgrew its financial strength.” And yet it is also accepted that it is a key part of keeping us informed, stimulating demand, and thus the economy, and paying for services we enjoy such as newspapers and television.This chapter seeks to document how today’s advertising industry has evolved. We focus on how the advertising agent came to exist, what the early agencies were like and how they developed overtime. We introduce some of the people and agencies that have made a lasting impression on the industry. Finally, this chapter considers how the messages used to communicate to consumers have evolved.Therefore, the main objectives for this chapter are to:

  • Show how advertising activity has evolved from the early ages to the present day.
  • Describe the development of advertising media.
  • Provide an overview of ad expenditure.
  • Discuss the origins and development of advertising agencies.
  • Describe the changing content and strategies used in advertising message design.
  • Discuss advertising today in the context of its history.

In short, this chapter seeks to show how advertising got to where it is.

How Advertising Has Evolved

We have divided the development of advertising into four periods. Advertising began with the earliest forms of commerce, but with the industrial revolution and mass production came the beginnings of mass marketing. The mid 19th century to the beginning of World War II saw the formalization of client, agency and media structures. Finally, modern times have witnessed fragmentation of agencies and media and greater sophistication by marketers and consumers in the uses of advertising.

Those interested in the history of advertising should visit the website of the History of Advertising Trust: http://www.hatads.org.uk. This remarkable British organization in Norfolk houses acres of archives of advertising through the ages and acts as a repository for clients and agencies to lodge their advertising when they can no longer accommodate it. They also have a substantial library of old and rare books on advertising.

Early Civilisations

Advertising began as soon as commerce began. Evidence of outdoor advertising (such as tradesmen’s signs and tavern signs) has been found from the early civilizations of Egypt, Mesopotamia, Greece and Rome, as have literary references to services ranging from booksellers to brothels (Nevett, 1982). Similarly, ads for slaves and household goods also occur in the written records of early civilization (Calkins, 1905). Town-criers read public notices aloud and were employed by merchants to shout the praises of their wares. One may consider these people as forerunners to voice-overs in radio or television commercials. Even political advertising is found in ancient times. An example is the Res Gestae, in which a carefully edited version of Augustus’ deeds was put up in the Roman Forum to help confirm his reputation.

Advertising from its earliest days served to inform, persuade (sell) and remind consumers just as it does today. But it was less pervasive than today because of the limited media and the limited number of goods available for trading (Norris, 1981). Up to the industrial revolution, advertising and production remained primarily a local phenomenon. Items such as land, slaves, and transport (i.e., both goods and services) were advertised, with these messages being usually more akin to classified or outdoor ads than the elaborate electronic advertising of today. Furthermore, it was essentially local.

The Industrial Revolution

Between 1760 and 1830, the Industrial Revolution transformed every aspect of the economy (and indeed, life in general) (Norris, 1981). The huge social and economic changes together with mass transportation resulting from the Industrial Revolution provided the need and means for mass, non-local marketing, which in turn led to mass advertising. People left subsistence farming and moved to the towns and the factories. As town populations rose, a middle class developed to provide government, professional, and business services in the new, more complex environment. For the producer, it meant that mass production, concentrated in a single factory, could produce enough to satisfy a new mass-market spread all over the country, spurred by the increasing urbanization. New transport methods, canals and railroads, could carry this produce to the distributors (directly or through wholesalers) in every town.

Developments in mass printing made it possible to distribute the advertising message more widely, through handbills, posters, and later, newspapers. These national media grew with transportation systems, stimulating growth in mass marketing and communications.

Advertising generated demanding consumers, who began to ask for the brands they knew. Retailers then stocked the advertised brands. Advertisers created economies of scale with pre-packaging giving consumers more confidence in quality compared to products sold loose and packaged by retailers.

The Mid-19th Century Onwards

The American Civil War in the 1860s and the World Wars that followed in the first half of the 20th century created a need for vast amounts of military equipment and uniforms on short notice. This further stimulated the mass production of industrial goods but, perhaps more importantly, it took consumers away from their roots and, to some extent, homogenized societies. Consumers could now please themselves and not just conform to the local provision. This period saw a shift from commerce being dominated by the difficulties of production (supply)to the satisfaction, and perhaps creation of, demand.

Tellis (1998) suggests that military employment meant that women did the shopping, leading to a change in what goods were demanded. Without the men at home to assist with the chores and production of homemade goods, women became more willing to buy ready-made products, such as food and clothes, rather than make them themselves. Innovations in production, combined with the increased responsibilities and independence now felt by women, created demand for new products that made life easier such as sewing machines, cameras, automobiles, and kitchen appliances.

The improving transport infrastructure allowed for transportation of these mass-produced goods to more people. These conditions—low production costs from economies of scale, overcapacity from mass production, markets ready to absorb their offerings, and a still-fragmented distribution system were right for manufacturers to grow into industry leaders. In other words, markets shifted from local to national, and consumers were beginning to enjoy much more choice.

Advertising sought to increase demand to absorb the rapidly increasing output from mechanised production (Nevett, 1977). The manufacturers who benefited most were those for whom variable production costs were low in relation to the fixed costs, or the profit margin per unit was high, or the product was frequently bought by the same customers, or ideally all three. In such conditions, high proportions of sales revenue could be put into advertising. Print media were now more established and perhaps more respectable, and advertising was increasingly cost effective relative to personal selling. Advertising helped increase the demand, the stores passed it back, and the salesmen became part of the distribution channel, selling to wholesalers and retailers rather than end users.

Branding became increasingly important at this time, due to the range of products now competing for consumers. Consumers needed to know which particular item to ask for (based on which one seemed most appealing to them). So each item needed to be branded with a unique name, and its unique advantages communicated to the consumer (although how this was done was fiercely debated, as shall be discussed later in this chapter). Both packaging and advertising were key ways that branding was communicated (Tellis, 1998).

Advertising regulation was triggered by the practices of the patent medicine industry, and the numerous outlandish and untested claims they made (Tellis, 1998). Not only were regulations enforced by the government (for example, the US Pure Food and Drug Act 1906), but advertisers themselves imposed self-regulation, recognizing that the outrageous claims of some medicine makers were giving all advertisers a bad name (Phillips, 1992).

Post World War II

Although World Wars may seem to have little to do with advertising, all forms of commerce ossified while the populace was engaged in hostilities and a surge of development was released when they ceased. The post-WWII economic boom saw consumers making up for postponed purchases, especially in the US and Europe as economies were rebuilt. From an industry perspective, marketing began to be seen as a company function separate from the sales department, and industry was boosted by the arrival of television. Television made access to the mass market much easier, and was particularly beneficial for developing brand names and introducing new products. Furthermore, as shall be discussed later in this chapter, it changed the way advertising messages were structured and delivered.

Technological development accelerated, and new kinds of media created new ways to reach and engage markets. The internet in particular is still evolving as a medium. The TiVo-ing of television has made it possible for viewers to skip commercials entirely, making advertisers justifiably nervous that the interruptive model is broken beyond repair (Samuel, 2004). Fragmentation has made it difficult for a single medium to capture large audiences within a specified target. Even if audiences are reached, media sophistication has increased viewers’ beliefs in their own ability to “see through” the tactics of advertisers (Bloxham, 1998).

The Evolution of Advertising Media

“It has helped create a vast new audience of magnitude which was never dreamed of … This audience, invisible but attentive, differs not only in size, but in kind from any audience the world has ever known. It is a linking up of millions of homes.”

To what new medium does this quote refer? The Internet? Digital television? It was actually radio, with this comment made by the chairman of General Electric in 1929 (cited in Sicart, 2000).

While today, immense interest is centred on the internet, comparable levels of attention were devoted to the introduction of television, radio, telephone, magazines, and newspapers (Leckenby, 2004). History shows that, while each new medium may be proclaimed as a radical transformation in communications leading to the death of existing media, in reality the old adapt to and largely survive in partnership. Since wax tablets, we cannot think of any medium that has disappeared; they merely have a diminishing share of the growing cake. Sometimes the old medium melds into the new, making the new medium something other than it might have been, radio and the web for example (Leckenby, 2004). When a medium is in an early stage of development, it is still dependent on formats derived from earlier technologies instead of exploiting its own extensive power (Murray, 1997).

So, although often they will assume less importance, old media continue to prosper, or at least exist, because they possess unique attributes that satisfy different audience needs (Coffee and Stipp, 1997; Leckenby, 2004). For example, radio did not replace newspapers, TV did not replace the movies or radio, and satellites and cable did not replace broadcast television (Coffee and Stipp, 1997). Instead, new media have facilitated interpersonal communication to a greater extent than their forerunners (Cathcart and Gumpert, 1983).

The new media disrupted existing patterns and trends, appealing to new social groups (i.e., audiences) and encouraging new uses based on novel technological properties (Leckenby, 2004). The balance of this section considers the main media types, namely, posters or outdoor media which came first, newspapers, magazines, radio, TV, and the internet, the most recent mainstream medium.

Of course, there are other media types such as cinema and sports clothing designed to be seen on TV. Almost anything that moves, and many things that cannot, now carry advertising but we confine ourselves to the main forms noted above.

Outdoor

The early history of outdoor provided here is mostly drawn from Houck (1969), Bernstein (1997) and the US Association of National Advertisers (1952) but see also Nelson and Sykes (1953). The US history of outdoor is also from the Outdoor Advertising Association of America (2006).

Outdoor advertising as a means of mass communication probably began in ancient Egypt when five-foot high basalt tablets were carved with hieroglyphics announcing laws, decrees, and warnings. The Rosetta Stone, held by the British Museum, bears a record of remissions of taxes and other dues owed bythe Egyptian people. Priests saw the advantage of circulating these messages to the public and placed copies of the stone in temples along the main highways bearing their desired messages to a wider audience.

The Roman government made its laws known to the public via inscriptions on tablets, buildings, and monuments, often utilizing animals and objects to catch the eye. Soon advertising was circulated with the use of placards at gladiator contests and circuses to promote the event. This is the earliest known form of the sports advertising which now adds colour to professional sports stadia around the globe. Pompeii used almost every available public space to advertise—a goat was the symbol of a dairy, a flagon denoted the wine merchant, while a knife denoted the cutler.

In the 1400s, handbills and poster bills appeared and 200 years later the outdoor sign emerged, dominating London’s streets. Many signs became works of art. Saturation bill posting was prevalent as was the competitor’s practice of tracking the poster sticker and slapping his own bill over the newly posted one. Bill posters painted their names on areas to make sites their own and eventually erected proprietary “fences” or “hoarding.”

The large American outdoor poster (more than 50 square feet) originated in New York when Jared Bell printed circus posters in 1835. Early American roadside advertising was generally local. Merchants painted signs or glued posters on walls and fences to advise travellers of their wares. In 1850, advertising began to be used on streetcars/trams.

Electric signs became possible in 1879, thanks to Thomas Edison, allowing advertising to glow through the night, changing cityscapes for ever. Times Square remains the apotheosis of neon, although some 21st century Asian cities may dispute that.

Michigan formed the first state bill posters’ association in 1871 and a number of states followed suit with the Associated Bill Posters’ Association for North America created in 1891. Between 1900 and 1912, the billboard structure was standardized for America, allowing for national billboard campaigns. Big brands such as Kellogg, Palmolive, and Coca-Cola began mass-producing posters for use across the country. From 1913, the US industry has allowed public service advertising free use of unsold space.

The prevalence of posters varies greatly by country partly due to regulation and local environmental considerations. Benelux countries, for example, have many small sites but few large ones, whereas Russia, Italy, and Greece have many large sites, but almost no medium-sized ones. Germany has by far the largest number of sites in Europe (355,208), with the UK having the second largest (141,744) (World Advertising Research Centre, 2006).

Nowadays, outdoor advertising is ubiquitous and not necessarily out of doors. It covers massive billboards as well as trains, underground stations, buses, airports, phone boxes, tabletops, public bathrooms, and bus shelters. It may be decorating a tiny car-parking ticket or emblazoned across the sky, towed by a plane. Computer and digital technology has opened up the ability to display moving and still images on any surface. Soon ads will be instantly projectable anywhere in the world along with the ability to change the message at a moment’s notice according to current news and other factors.

Newspapers

Throughout the 18th and 19th centuries, the development of advertising and of newspapers went hand in hand. In Europe, newspapers began to emerge in Germany, England, and France in the early 1600s. In 1625, London’s Weekly Relations News printed one of the first newspaper ads. In 1704, the Boston Newsletter was the first US newspaper to carry an ad which offered the reward for the capture of a thief (Wells et al., 2000). Founded in 1785 and published daily in the United Kingdom, The Times is a national newspaper which was printed in broadsheet format for over 200 years until it switched to compact size in 2004. It is the original “Times” newspaper, although it does share its name with other papers such as The New York Times.

About 400 million people buy a daily newspaper and readership exceeds one billion people per day (World Association of Newspapers, 2005). Some analysts predicted the demise of the newspaper due to the rising popularity of television news and the internet. But this forecast was ill-founded and newspapers adapted with new products (e.g., free dailies), new formats (e.g., downsizing from broadsheet to a more compact size), new titles, and improved distribution, whilst embracing the internet to increase their online presence. In 2004, for example, the audience for newspaper websites grew 32%, and it has grown 350% over the last 5 years (World Association of Newspapers, 2005). Newspapers have, in the process, become less a source for news than comment on the news and entertainment. Advertisers continue to use the medium, with revenues predicted to continue rising and newspapers anticipated to remain the second most popular advertising vehicle behind television, attracting 30% of all main media advertising expenditure (World Association of Newspapers, 2005; Zenith Optimedia, 2006).

These figures, however, combine two rather different types of advertising: display and classified. Display advertising is typically for national brands, whether retail or not, whereas the classified sections deal with the availability of individual opportunities in much the same way as advertising three millennia earlier. Classifieds are local and account for the strength of local and regional newspapers versus nationals. The range of classified advertising is as wide as human needs and wants: property for sale and rental, holidays, jobs, and lonely hearts are just a few popular categories. Classified advertising is usually seen as informational but, as any reader of the lonely hearts columns can testify, emotion and persuasive appeals exist too.

Magazines

By the mid 19th century, a few well-known magazines had launched, for example, Harper’s Illustrated Weekly in the US and Punch in the UK, but these magazines did not then contain advertising—they were primarily literary. Soon however, this untapped revenue opportunity was recognized, and by the end of the 19th century, magazine advertising accounted for two thirds of publisher revenues. Newspaper revenues soon reached a similar proportion, although regional and local newspapers and classified advertising meant that magazines carried a greater proportion of national advertising (Tellis, 1998). This trend has continued.

Magazines were traditionally for the wealthy and well-educated. But in the late 1880s, this situation changed. Firstly, E.C. Allen introduced the People’s Literary Companion which appealed widely to US general readers. Secondly, Congress lowered postage rates for periodicals so publishers could economically mail their magazines to subscribers (Wells et al., 2000). By 1900, magazines blanketed the United States the way television does now, with 3500 magazines in circulation, reaching 65 million readers (Rothenberg, 2005).

Nowadays, magazines are created for every possible type of audience, with both, mass titles appealing to all (e.g., Readers Digest) and niche titles catering to very small audiences (e.g., Australasian Dirt Bike). Magazine publishers, like newspapers, are also embracing the web to ensure continued growth.

The reach of the magazine industry can be illustrated by the following:

  • The main publishing house in Europe, Axel Springer, has over 150 newspaper titles and magazines in 32 countries and over 10,000 employees (Axel Springer 2006).
  • The UK company EMAP (2006) claims to have “over 150 top selling consumer magazines in the UK, France and around the world.”
  • IPC Media, another UK company, claims to be “the UK’s leading consumer magazine publisher,” with an unrivalled portfolio of brands, selling over 350 million copies each year, and reaching over 70% of UK women and 50% of UK men (IPC Media, 2006).
  • Time Warner, the largest US magazine publisher, claims its 145 or so magazines “are read 340 million times each month worldwide by 173 million adults over 18 years of age, with two out of every three U.S. adults reading a Time Inc. publication every month.” (Time Warner, 2006).

Radio

Radio exemplifies the spike which new media types can inject, both causing, and being caused by, significant historical events (Leckenby, 2004). Radio in the US began in the 1920s and almost immediately started to take advertising (Berkman, 1987). During the Great Depression, progress in communication technology made radio available to most American households. Radio was the first national medium for mass marketing, and created a great opportunity for quickly introducing new products and developing brand names (Tellis, 1998). NBC President Merlin Aylesworth said that radio was “an open gateway to national markets, to millions of consumers and thousands of retailers” (Museum of Broadcast Communications, 2005).

In other countries, such as the UK, radio was, for a long time, purely public service broadcasting. The first UK commercial radio station, London Broadcasting Company, was launched on 8 October 1973, 50 years after the BBC (BBC, 2006).

Television

Television broadcasting can be seen as an outgrowth of radio since it used similar technology but with additional visual images. The first US television commercial appeared on 1st July 1941, when the Bulova Watch Company paid $9 to WNBT for a 10-second spot before a baseball game between the Brooklyn Dodgers and Philadelphia Phillies. A Bulova watch was superimposed on a map of the US, with a voiceover of the company’s slogan “America runs on Bulova time!” (Bulova, 2006).

The close relationship between television and radio allowed television to draw substantially on the knowledge acquired from the evolution of commercial radio. In its early years, television did not have the same level of penetration as radio because of the high costs associated with producing (and purchasing) the sets.

In the UK, the Television Act established commercial television in 1954 and set up the Independent Television Authority. In 1955, commercial television began, in the London area, with a live transmission from the Guildhall. Since 1936, TV had hitherto been limited to public service broadcasting from the BBC. The first commercial screened was for Gibbs SR toothpaste. The most popular programme was Sunday Night at the London Palladium (ATV) (Office of Communication, 2006).

In 2005, there were an estimated 1.7 billion television sets worldwide (Greene et al., 2005). Television continues to be the largest source of worldwide advertising revenue, accounting for an estimated US$147 billion in 2005 (or 37.2% of all major media expenditure) (Zenith Optimedia, 2005). However, television’s dominance of the advertising pie is being threatened by the introduction of new technology such as TiVo which enables the consumer to save programmes and skip advertisements. Product placement, programme sponsorship and advertainment are specific strategies that advertisers are using to reach audiences in light of these technological developments (Scott and Craig-Lees, 2006). Another strategy is designing ads that still work in fast forward mode.

Internet

The Internet is the fastest-growing new medium ever (Leckenby, 2004). Internet advertising began in 1994 and early advertisers included AT&T, MCI, Sprint, Volvo, Saturn, Timex, Jim Beam, and Air Walk (EC2 @ USC, 2001). It continues to grow 27% each year, and is predicted to overtake outdoor advertising in 2006 (Initiative, 2006; Zenith Optimedia, 2006). From 2005-2008, Zenith Optimedia predicts that it will create US$15.8 billion new ad dollars worldwide and grow 76% (Zenith Optimedia, 2005, 2006).

The web is particularly well suited for search applications such as online local, directory, and classified ads which have been found by the Interactive Advertising Bureau to be efficient in profit terms (Interactive Advertising Bureau, 2006). More surprisingly, they also found significant branding benefits for those same categories.

Advertising Expenditure

One of the major problems in pulling together international advertising expenditure data is that different countries produce different figures at different times and use different methods, definitions, and currencies to measure this expenditure (Dunbar, 1977; Green, 1990). Nevertheless, this section draws some of this research together to demonstrate the growth of advertising expenditure overtime and to identify emerging markets.

The United Kingdom has traditionally been one of the world’s top markets, consistently spending, as a percentage of GDP, about 50% more than the other large EU countries (World Advertising Research Centre, 2006). However, the 1980s saw the other European markets grow due to the deregulation of television which helped grow the television stations’ revenues and the number of minutes of commercials shown each day (Green, 1990). By 1990, advertising had exceeded the growth in the economy in 16 European countries every year since 1980 (Green, 1990). However, recent years have seen the more mature markets of Northern America, United Kingdom and Western Europe lose share of worldwide advertising spend, as other markets in Asia and Central and Eastern Europe grow (Initiative, 2006). Indeed, Initiative (2006) predict that 2006 will see Asia overtake Western Europe to become the second largest advertising market in the world. To demonstrate this,

Since 1964, worldwide ad spending has grown from $23.6 billion (Mandese, 2004) to $600 billion (Coen, 2006). The sectors have shifted their advertising shares. Traditionally, frequently boughtgrocery and pharmaceutical products accounted for the bulk of consumer advertising. More recently, these products are advertising less while other kinds of advertising have increased, with retail, automotive, telecommunications, and financial products in the top spending categories. Pharmaceuticals still continue to round out this top five (Zenith Optimedia, 2006).

Furthermore, the relative importance of advertising has steadily declined as expenditures on other sales techniques have increased (not only price promotions, but sponsorship, in-store display, product placement, etc). Mayer (1991) comments that whereas in 1980 advertising absorbed approximately two-thirds of all marketing expenditures, by 1990 this share had reduced to one-third. Dawley (2006) suggests that in the US, the shift to non-media spending is happening faster than average, whereas in Europe and emerging economies, it is slower.

Advertising Agencies: Their Origins and Development

Appearance of the Agent

By the mid-nineteenth century, manufacturers could deliver and advertise nationally. Newspapers were proliferating and hungry for advertisements. Manufacturers found that knowing where and how to place ads (especially outside their home location) was difficult. Newspaper circulations were unknown (or kept secret) and advertising rates were uncontrolled and varied. Gathering lists of newspapers in which ads could be placed was time-consuming and costly.

This was responsible for a change in the role of the advertising agent from working primarily for the media to representing the consumer to the brand owner, i.e., working for the client. Agents traditionally represented newspapers (i.e., the media), compiling lists of newspapers and placing ads with them on behalf of advertisers. The newspapers negotiated with the agent to be on his list and the agent contracted with the newspaper for large amounts of advertising space at discount rates before reselling the space to advertisers at a higher rate. Hence, the advertising industry owes its survival to its ability to negotiate between media outlets and manufacturers needing to advertise (Lears, 1994).

Although the advertisers still created the ads themselves, it was more efficient to deal with a single agent (or broker) instead of having to keep track of all the outlets. Because the agent worked explicitly for the media, the media outlet paid him a commission for the advertising he obtained for them. This is the origin of the unique commission system in advertising, in which the agent is paid not by the one who pays for the advertising but by the supplier (the media)—a system which is not yet dead, but is increasingly supplanted by service fees.

The Role of Francis Ayer

In Philadelphia in 1841, Volney B. Palmer set up the first US ad agency. In 1869 Francis Ayer bought him out and founded N. W. Ayer & Son. By 1874, Ayer was issuing his own publications, the first of which was the Ayer and Son’s Manual for Advertisers, an annual publication listing newspapers from which the agency sought its business, the newspapers’ rates, and their circulation. The following year they established a printing department which offered typesetting. Other creative services were not offered in these early years, as Ayer believed the client knew its product best (Hower, 1949).

The most significant decision made by this agency was to introduce the radical practice of open contract. This contract guaranteed clients the lowest possible rates the agency could negotiate with publications. Commission was later added and ranged from 8.5% to 15%. By 1909, the open contract became known as “OC +15” by the agency, and the 15% commission later became an industry standard (Hower, 1949; Leiss et al., 1997). This bound the agent and the advertiser for a period of time, usually a year, with the former taking a standard percentage of the billing as his commission. The agent no longer squeezed the advertiser to make a profit, but rather, acted on the latter’s behalf in finding the best group of journals for the advertiser’s needs. The percentage commission tied the agencies’ profits to the gross amount of billings they could win. They would grow only to the degree that new sources of advertising could be channelled through the agencies rather than conducted directly with the newspapers. This new arrangement helped make Ayer the number one agency of the 1890s (Leiss et al., 1997).

Although N.W. Ayer & Son (through Volney Palmer) has been seen as the original US agency through Volney Palmer, William James Carlton started to sell advertising space in 1864, founding the agency that later became J. Walter Thompson Company, which has also claimed to be the oldest American advertising agency in continuous existence. In the UK, advertising agencies certainly date back to the 18th century when Charles Lamb was a copywriter in England. The Mitchells agency was in business in 1811.

Framework for the Modern Agency

As middlemen, agents such as N.W. Ayer initially developed great power, since advertisers depended on them for their knowledge of the rates. But soon they could no longer justify their commissions as their insider knowledge of media and purchasing skills were brought into the open. What they could leverage however, was their knowledge of how to do advertising. So as they gained in size and experience, and as manufacturers’ needs became more sophisticated, brokers began to offer more services than creating ads. These had always included planning the media mix, but extended to market research, promotions, and overall marketing strategy. In an age where few companies had marketing departments, ad agencies filled the gap and provided a consumer perspective for manufacturers. Thus, they evolved into what were called full service agencies, working on behalf of advertisers rather than publishers. However, their compensation remained the commission system, creating a conflict of interest: agencies worked for advertisers to maximize ad effectiveness, but their earnings were in proportion to the dollars spent on media space and production. However, this was not unusual: architects are still paid pro rata to costs even though they are supposed to be saving costs for their clients. But the commission system was also questionable given that it discouraged advertising agencies from proposing media neutral solutions (Lace, 2000).

By 1990, the long-term pressure on agency rates of commission (the media commissions were shared, legally ornot, with major clients) and the conflict of interest noted above, led to remuneration shifting toward fees. This proved not to be wholly satisfactory: some sharp clients negotiated fees on the basis of spending a certain budget and then, once the fee was final, doubled the budget (and the work for the agency). Conversely, agencies would demand payment of the agreed fees even where the client had been forced to cut the ad budget.

Fees were also promoted as being superior to commission by being fairer and giving agencies more certainty about their cash flows. However, problems soon emerged with this too as it was found that when economic conditions improved, agencies became prisoners of that guaranteed income (Lace, 2000).

The main consequence of this remuneration pressure was to reduce agency headcounts and take them back from full service to simply creating ads. Their media role had already, from the 1980s, gone to specialist media buyers, far fewer in number, who could use their greater buying muscle to secure, allegedly, better deals for clients. We understand that not all clients have been satisfied with the transparency of the distribution of media commissions but the literature is silent on the matter.

A final (so far) twist in the tail has been the introduction of Payment by Results. This has been promoted as “an enhancement in the advertising agency remuneration agreement, based on the achievement of mutually agreed targets or criteria for higher advertiser satisfaction, providing an equitable return to the agency” (ISBA, 1999), i.e., a win- win situation, with the advertiser being more satisfied and the agency receiving higher income and performing better.

The theory of Payment by Results means that both sides can maintain a proper focus on truly important business issues. Objectives have to be quantified and having performance assessed against them, is in theory, good practice. This promotes proactivity, responsibility, efficiency, openness, honesty, accountability, transparency, and better and longer-lasting relationships (Lace, 2000).

There are three types of “results” that can be used for this purpose: business performance such as sales or market share or incremental profit; intermediate (brand equity) metrics such as intention to purchase; and service criteria such as how prompt the agency is in returning phone calls. 2004 estimates suggest that 40% of creative agencies and 46% of media agencies in the US and UK are using this system (Beckett, 2004). Procter & Gamble is one company using this method, announcing in 1999 that they would be treating their ad agencies as partners and sharing the ups and down of profits whether the agency was responsible or not (Waters, 1999).

However, the practical results from Payment by Results have not been as positive as enthusiasts hoped. Agencies are happy to accept bonuses, as they see them, when results are good but not penalties when they are bad because such failures are always the fault of the client—they say. Payment for agency service, particularly favoured in the US, is highly subjective and not “results” anyway.

This section has reviewed the evolution of agency development and remuneration from a historical perspective. For a contemporary overview, we refer you to David Wethey’s (2007), Chapter 3.1 covering client-agency relations.

Mergers and Acquisitions

We do not have space for a full account of the hundreds if not thousands of major ad agency acquisitions over the last 150 years. This section highlights just a few to give a flavour of the evolution that has taken place.

Whilst we have not seen definitive research, it seems that the aggregate market shares of the three tiers of agency firms by size (i.e., large, medium, and small) remains fairly constant. Given the regular acquisitions of agencies since the earliest times, this seems a little odd. The effect of acquisitions ought to increase the aggregate share of the largest agencies and yet it does not seem to do so. One reason is the departure from the largest agencies of star performers to start their own agencies.

In the UK, the largest 10% of agencies by number represent about 85% of the market by value, and this seems to have been stable along with the market shares bytier. What has, however, changed since the 1960s, in the US, Europe and increasingly round the world is the growth of conglomerates, of which the two largest in 2005 were Omni comand WPP. The importance of conglomerates is illustrated by the UK market where in 2006, conglomerates had 82% of the billings of the top 30 agencies, whereas in 1996 they had 73%.

In 2004, Omnicom, based in New York, had worldwide revenues of $9.7 bn, of which 53% was in the US, whereas WPP, based in London, had worldwide revenues of $9.4 bn, of which 60% was outside the US. These were followed by Interpublic (New York) ($6.2 bn), Publicis (Paris) ($4.8 bn), and Dentsu (Tokyo) ($2.9 bn). Dentsu as a single agency has a large share of its parent conglomerate’s total revenue (68%) and McCann Erickson was 23% of Interpublic, but, for example, J. Walter Thompson and Ogilvy & Mather together were only 22% of WPP.

A major stimulus of the global conglomerate movement was the founding of Saatchi & Saatchi in London in 1970, by brothers with international aspirations. Conglomerates existed before then with Interpublic being the largest at that time and still the largest in the UK in 1996. Conglomerates then saw the merits of multinational campaigns but often struggled with persuading both their local agencies and subsidiary management of multinational businesses to share campaigns. For example, Heublein sought to internationalize Smirnoff vodka advertising at that time but with limited success. The Saatchis saw advertising as a global business and were attracted to, and attractive to, global accounts such as British Airways. Favourable conditions in the London stock market, where the Saatchis listed their company in 1975, and increased cash flow, gave the brothers ready access to the cash needed to buy out the generation of US executives who were looking towards retirement. By 1986, the brothers had turned their original $40,000 stake into a global confederation of 80 companies with capitalized billings of $3.2 billion (Rothenberg, 2005).

Whilst some agencies such as Young and Rubicam and Ogilvy & Mather disagreed with the Saatchis’ actions, favouring their own integrated and co-ordinated approach, other agencies believed the Saatchis’ approach to expansion was right—or at least a response that was necessary to remain competitive. In late April 1986, three of the most prominent US agencies—BBDO, Needham Harper & Steers, and Doyle Dane Bernbach—announced their own three-way merger under the umbrella of a new company called the Omnicom Group. By mid-May though, Saatchi & Saatchi fought back for dominance, announcing its purchase of the world’s third-largest agency, Ted Bates Worldwide (Lears, 1994).

A little more than a year after the Bates buyout, in 1987, Martin Sorrell (who as finance director of Saatchi & Saatchi had helped engineer its spectacular expansion), made a hostile offer for J. Walter Thompson. His successful $566m bid for Thompson and his hostile acquisition of the Ogilvy Group 2 years later in 1989 turned Sorrell’s WPP Group into one of the two largest marketing communications conglomerates. It also owned the world’s largest public relations agency, the largest direct-marketing specialist and about three dozen other subsidiaries. WPP acquired the other major holdout group, Young and Rubicam, in 2000 (Lears, 1994; Rothenberg, 2005; WPP, 2005).

This world of high finance is a long way from the business of making ads to which we now return.

Evolution of Advertising Content

Advertising Has its Roots in Providing Information

From the 1800s to the early 20th century, advertisements were nearly all classified, un-illustrated offers made to all citizens in order to sell something specific (Phillips, 1992). According to Phillips (1992) nearly all print ads were what we now call informational—what was for sale, the price, and where to find it—although others consider that the distinction between persuasion and pure information may be in the eye of the beholder. What is true is that the classified format of most advertising, then and now, limits the creative opportunities for the ad agency to thumb-nail-size illustrations, small type, and single-column width (Fox, 1984).

Therefore, much advertising at the turn of the 20th century was focused on providing information, with prominent copywriters such as John E. Powers viewing the content as news (Beard, 2005). This approach was often referred to as the “tell” approach, which contrasted to the more persuasive hard sell, “salesmanship in print” approach, which provided the basis for the influential “reason-why” approach (Rowsome, 1970). Advertising agencies sought to disassociate themselves from the showy, aggressive humbug style used by the patent-medicine purveyors in the mid-late 18th century (Laird, 1998).

However, a more artistic soft-sell was established by the early 1900s, following increased calls for enhanced originality and creativity, and the necessity for appealing to emotions (Beard, 2004). Marchand (1985) notes that advertisers increasingly viewed human nature as instinctive and non-rational with growing beliefs that audience members would respond more to emotional appeals than logical arguments and reasons. Advertising increasingly entertained without explicitly selling (Beard, 2005).

In writing this type of history, authors are tempted towards separating evolution into distinct stages, whereas the reality is that they overlap. The rules for devising classified ads in the 17th century apply to classifieds today and the glossy emotional four-colour display ads we associate with the 20th century were in use a hundred years before. The main factors driving differences in content are the changing media discussed above and increasing consumer and advertiser sophistication. Indeed, Fox (1984) has suggested that hard and soft sell advertising has cycled back and forth throughout the 20th century according to the industry’s own rhythms and its perception of the public’s boredom level. Furthermore, the recognition that products have life cycles and can die, but brands, properly managed, can last forever (Rothenberg, 2005), coupled with the difficulty of maintaining product differences in an age with high production technology, shifted attention from product to brand differences which by their nature are more subtle.

The Creative Revolution: Big Ideas, Big Personalities

Bill Bernbach (a founder of Doyle Dane Bernbach, now part of Omnicom), Leo Burnett (founder of the Leo Burnett agency) and David Ogilvy (who worked for Mather & Crowther which became Ogilvy & Mather, now part of WPP) came to prominence in the late 1950s and 1960s. Some of the key personalities of this era were:

  • David Ogilvy said it was “brand personality” and not “any trivial product difference” that drew consumers to products. Ogilvy believed in research and copy testing, but also had a tremendous sense of style straddling both the hard and soft approaches to advertising (Wells et al., 2000). His agency created clean, powerful ads marked by graceful, sensible copy and a palpable respect for the consumer’s intelligence (Advertising Age, 2005).
  • Leo Burnett believed in finding the inherent drama in every product and presenting it as believably as possible through warmth, shared emotions, and experiences (Advertising Age, 2005). The “Chicago-style” of advertising he introduced (i.e., sentimental ads drawn from heartland-rooted values) showed love and respect for the people; it perfectly understood and revolved around the consumer. Using strong, simple, and instinctive imagery, advertising produced at Burnett’s talked to people in a friendly manner (Advertising Age, 2005; http://ciadvertising.org, 1996).
  • Bill Bernbach’s creative philosophy was simple: “find the simple story in the product and present it in an articulate, intelligent, persuasive way” (Marshall, 1982).
  • Theodore F MacManus had a style that was influential, image-oriented, and atmospheric. His elaborate layouts and emotional appeals were a direct contradiction of the rational reason-why appeals, hence his moniker “the father of soft sell” (Beard, 2005; http://ciadvertising.org, 1999).
  • Rosser Reeves picked up where the no-nonsense “advertising must sell” preachings of Claude Hopkins left off, creating the Unique Selling Proposition concept that focused on driving home a central, research-based selling point (Advertising Age, 2005). Reeves believed that a basic dilemma in advertising was that few products were distinctly different. Reeves developed the USP concept in an attempt to distinguish one product from its competitors. The USP was an advancement over previous “reason-why” advertising in that it operated as a part of consumer identity (http://ciadvertising.org, 2000).
  • Jeremy Bullmore was the creative leader of what was arguably JWT’s golden era in the UK from the mid 1950s until the 1980s. One of his contributions was that the ad, or stimulus, was unimportant, but it was the consumer’s response that mattered (Bullmore, 2003).

By the 1980s, clients increasingly wanted to measure results, meaning short-term financial results. Partly because sales effects were more obvious and partly due to the growing power of mass retailers, companies began shifting their marketing budgets away from television and radio to sales promotion (Belch and Belch, 2001; Coen, 2005; Wells et al., 2000).

Advertising in the Context of its History

Advertising adapts to current culture, pressures, and conditions. The extent to which advertising mirrors society or creates new culture is considered elsewhere in this handbook but plainly it does both. It is a craft, rather than a science just as it has always been but practitioners now intellectualize to a greater extent. There are awards for advertising creativity and effectiveness. Clients seek to pay only for measurable results.

At the same time, advertising is more regulated and advertisers are expected to respect social goals, such as reducing childhood obesity or excessive consumption of products deemed dangerous.

Advertising remains what it always was: a means of informing, persuading, and reminding customers and potential customers. At the same time, it has become vastly more complex as media and agencies have fragmented. Consumers are bombarded by ever more messages and have built mechanisms to cope.

Summary

The main conclusions from this chapter are:

  • Some aspects of advertising are much the same as they always were. Ads seek to gain attention to their brands and, for display advertising, use emotions and entertainment to build brand-consumer relationships.
  • Classified advertising, by contrast, seeks to find buyers for specific sales opportunities.
  • Media have proliferated bringing new techniques but also more confusion.
  • Advertising agencies became the experts from the mid 19th century in the more developed markets but, partly due to complexity, have returned to ad creativity leaving media and other forms of communication to specialist agencies.
  • In the last decades of the 20th century, mergers and acquisitions have created a handful of global media and communications giants led by WPP and Omnicom followed by a second tier of worldwide groups and partnerships.
  • At the individual agency level, however, the churn of individual talent and the need to avoid brand conflicts has kept the market shares of the large, medium, and small agencies, en bloc, relatively stable.
  • Despite the ups and downs, advertising continues to increase as a share of GDP. Traditional packaged goods brands however are less dominant advertisers whereas retailers, including web retailers, and public service advertisers have increased their share.
  • Measurement techniques have become more sophisticated partly in response to advertiser demands to see quantified results.
  • Ad content has increased in variety with more entertainment and appeals to emotion.
  • Regulation, much of it self-regulation, helps to ensure advertising meets the sensitivities of changing cultural demands.