Market O The Uk Agencies example essay topic

I. Introduction The UK advertising industry has been at the forefront of the global market for several years now and is set to stay that way. The reason the advertising industry in the U. K has become world leader is due to a number of factors, primarily due to the strong economic structure in the U. K at present, but also a result of a number of political, economic and commercial events that have required active promotion. British advertising has gained a reputation over the past years as being the worlds most creative and effective, with adverts such as the Tango campaign, Hello Boys and Levis pushing the industry to the forefront. II.

Market Analysis 2.1 Market Size The UK advertising market is a growing market; between 1992 and 1999 the advertising expenditure rose by 171% to exceed lb 15 billion in 1999 for the first time. The following graph illustrates the strong growth this market has experienced. Source: Advertising Association Key events that were partly responsible for this development were the Millennium, the Sydney Olympics 2000 and the launch of Digital Television in the UK. The enormous competition in new technology market such as Internet or mobile phones is also a reason why advertising expenditure increased so strongly. Market forecasts predict a further growth; expenditure is prognosticated to increase by 60% by 2004 so that the market value would reach lb 19 billion. (Euromonitor 2000) 2.2 Market Segmentation In 1999, Newspaper and Television advertising are with the biggest market segment, they totally account for 58% of the total expenditure.

It is followed by Direct mail with 12%. All sectors have grown constantly since 1993 and further increase is expected for the future. The introduction of digital television and the emergence of more private channels could result in a much stronger growth in this sector. Appendix 1 and 2 and 3 illustrate the growth in the different segments with a graph and a table.

2.3 Porter's Five Forces Rivalry between existing firms There is intensive rivalry in the market because agencies need constantly to win new accounts. The normal procedure is that agencies pitch for new business, but even for existing accounts clients often demand a re pitch. Accounts of important clients are worth millions of pounds and agencies compete directly with each other therefore rivalry is an important factor in this market. Threat of new entrants Clients organise pitching and switch agencies regularly to ensure that their chosen agency offers the best and most creative strategy for their campaign.

This means that in this market is always room for innovative new entrants, because clients look for new input. Because winning clients and accounts requires creativity and new ideas small agencies have a chance to compete with the big players. Threat of substitute products This part of Porter's forces does not comply with the market for advertising agencies. A possible development could be that companies decided to move their advertising business in - house, but this is a very unlikely possibility because companies need the creative input of different source. Bargaining power of suppliers There are several key suppliers in this market; the most important are mailing services, communications companies, outside space providers and media companies. The big media conglomerates such as Granada Group PLC, Pearson PLC and BSkyB are major sources of advertising space and can therefore dictate the prices for this to a certain extent.

(Keynote) Bargaining power of buyers The buyers, which are the clients of advertising agencies, are in a powerful position, because they can pick the agency, which suits them, best. Because agencies are usually paid about 15% of the billings there is not so much bargaining about the fees but more competition which agency gets the account at all. 2.4 STEP Analysis Socio -cultural factors Population: 59.511. 464 (July 2000 est.) Age structure: 0-14 years: 19% (female 5,572,189; male 5,843,192) 15-64 years: 65% (female 18,723,583; male 18,935,931) 65+ years: 16% (female 5,471,383; male 3,748,841) (July 1995 est.) Ethnic divisions: English 81.5%, Scottish 9.6%, Irish 2.4%, Welsh 1.9%, Ulster 1.8%, West Indian, Indian, Pakistani, and other 2.8% Religions: Anglican 27 million, Roman Catholic 9 million, Muslim 1 million, Presbyterian 800,000, Methodist 760,000, Sikh 400,000, Hindu 350,000, Jewish 300,000 (1991 est.) Literacy: 99% of the total population can read and write (1991 est.) These factors are important for agencies when they conduct the creative work of developing campaigns. It must be taken into consideration, that many UK agencies operate internationally and that many target countries may have a very different socio - cultural environment.

Technology The emerge of digital television (TV), satellite, cable and multichannel terrestrial TV is providing additional media space. The advertising industry is embracing new electronic media like the Internet and needs technically skilled employees to exploit and use the new media. Web advertising is expected to become increasingly popular, with an estimated 150 million connections to the Internet by the year 2000. The use of Wap phones is very popular in the UK and it can also provide additional media space. Economy The UK is one of the world's great trading powers and financial centres, and its Economy ranks among the four largest in Western Europe. National product: GDP - purchasing power parity - $1.29 trillion (1999 est.) National product real growth rate: 1.9% (1999 est.) National product per capita: $21.800 (1999) Inflation rate (consumer prices): 2.3% (1999) Labour force: 29.2 million Unemployment rate: 6% (1999) Fiscal year: 1 April - 31 March (source: web) Political (Legal) The general deregulation of the media, in particular television has helped to make advertising easier and increased the available space.

The UK remains a major advertising market with a variety of media outlets, comparatively lax legislation and a many major fast-moving consumer goods (FMCG) producing companies. Infrastructure Telephone: 2, 1 people per telephone line Mobile phone ownership: 46% (2001) Radio: 70 million radios in the UK Television: 2, 3 people per receiver Broadcast stations: 207 (source: Pocket World in Figures, 1999) The good technological infrastructure determines the way of advertising agencies must take advantage of the variety of media. 2.5 Competitor Analysis The marketplace: Agencies offer selling advertising space and diverse creative services (copywriting and artwork). As far as performance is concerned, the advertising industry must take into account: Billings and turnover. Definition: Billings: Value of media time or space purchased Turnover: the turnover includes flat fees, commissions, retention and per-job fees. (source: keynote) Three different kinds of firms exist: Full service agencies provide: SS Planning SS Creative services SS Production of advertisements SS Media buying Besides the traditional developing of advertising campaigns, these agencies are diversifying by providing additionally other promotional services, which relate to the campaigns. Media Independents They focus on media buying and are not involved in the creation of campaigns.

Holding companies Holding companies are powerful due to their size and financial standing. They own many agencies and media businesses therefore they dominate the market. Advertising and promotion: Most agencies do not advertise their services themselves. However, various ancillary businesses such as market research and media space sellers do advertise to attract both media buyers within agencies and clients.

Top ten Advertising Agencies Companies Market Share (1999) 1997 Part of their clients Turnover (lbm) Pre-tax profit (lbm) Abbott Mead Vickers plc 4.5 431.3 16.2 British Telecom, Sara Lee, Volvo, Prudential and Pepsi-Cola. BMP DDB Ltd 3.0 365.3 6.3 Barclaycard, the Labour Party, Volkswagen, Sony Reuters and Vol vic. Saatchi & Saatchi plc 2.7 1,978.7 796.4 Procter & Gamble, Toyota, DuPont, General Mills Delta Airlines, Lloyds-TSB T BWA GGT Simons Palmer Ltd 2.6 96.3 -1.7 Energizer Bunny and Taco Bell's Chihuahua, Nissan and Apple Computer Publicis Ltd 2.5 95.2 (1996) 3 (1996) ASDA, Harp, Kilkenny and Mastercard J Walter Thompson 2.4 257.4 (1996) 5.3 (1996) Mazda, Barclays Capital, P&O European Ferries-Stena Line McCann Erickson SA 2.2 271.6 3.1 Royal Sun Alliance, Nestle and Unilever Ogilvy & Mather 2.1 10.3 (1996) 3 (1996) N / A DMB&B Ltd 2.0 423.6 6.2 Southern Comfort, Gateway, Wickes, and Welfare-to-work from the government. M & C Saatchi Ltd 1.8 41.7 (1996) 4.4 (1996) The Conservative Party Source: Euromonitor, Keynote (accessed March 2001) 2.6 Key Success Factors o The UK advertising industry is seen as the most creative. o New technologies like the Internet and digital TV have lead to more advertising space and introduced new methods such as banner advertisement. o Mergers and acquisitions are a constant source of growth for the big media holdings that dominate the market. o The UK agencies operate internationally and are therefore able to attract world or European wide advertising customers.

2.7 Customer Analysis Big Corporations When large business customers like ASDA advertise they are mainly concerned about an agency's reputation and creativity; they have high requirements on media used, quality and representing the company's image. They don't care very much about the price. In 1997, Publicis Ltd held the lb 20 m account for ASDA. To illustrate which companies spend the most money on advertising and are therefore the most important and desired customers appendix 4 shows their expenditure. Small Business Customers Small stores want to disseminate knowledge about their business; they do not care much about the reputation of an agency and creative ideas. The decisive factors for them are the cost.

Public Service Customers Besides the UK government, whose importance in this business is assessed under point 2.8, there are other advertisers from the public sector. This group has big advertising budgets and worries little about the price of their campaign. Their main concern is whether an advertisement can transmit their ideas or service clearly to the citizens. They also require the use of all media in order to have a perfect campaign.

They do not care very much about the agency's reputation, but creative ideas are very important. In 1997, St Luke's Holdings Ltd won the Government's much-contested lb 18 m Welfare-to-work campaign, because of their innovative ideas. Non-profit Charity The aim of non-profit organisations like UNICEF is to arise people's concern of something e.g. environment, child labour or animal protection. The want to pass their idea to people's mind therefore the perfect media and perfect ideas are needed.

Even though these facts are important they also need to look at the price of an agency's service. Frequency In the advertising area, customers can change from one agency to another agency easily, and switching costs are low. An example here is Abbott Mead Vickers BB DO Ltd who won six new accounts and lost seven in 1997. Leverage Because big customers like Unilever, Procter and Gamble or supermarkets like ASDA have multimillion-pound accounts, the financial success of many agencies depends on how many of these clients they can attract.

Therefore it is important to try to keep the existing ones and constantly to win constantly new accounts. 2.8 Stakeholder Analysis Customers Customers are very important stakeholders; their role has already been discussed under point 2.7. UK Government Although it is often omitted from many advertising rankings, the UK government is one of the country's biggest advertisers and stakeholder. COI Communications (or Central Office of Information as it used to be known) describes itself as the UK government's "executive agency for publicity procurement". Through stricter central government fiscal control and media buying competitiveness, the market is expected to slow down.

This slowdown is bound to have an impact on High Street spending and subsequent advertising expenditure. Public The public who is targeted by advertising campaigns is an important stakeholder; their views have a great influence on the content of campaigns and therefore their opinions and views must be taken into consideration. The changing structure of the target audience is important. One factor that will influence the industry is the growing number of Internet users and companies. Web advertising is expected to become increasingly popular, with an estimated 50 million connections to the Internet by the year 2000. Banks As many agencies are PLCs and part of big holdings, banks are important stakeholders.

They have a substantial interest in the financial success of agencies and therefore can be in a very powerful position. Institutions With the move to digital television there will be creative new opportunities that will affect the industry. European Union (EU) copyright proposals on telecommunications and media will also have a direct impact on the switch from analogue to digital TV. Another important reason for such growth is the continued number of corporate mergers and reorganizations. 2.9 Strengths, weaknesses, opportunities and threats Strengths: o UK advertising agencies are worldwide market leader. o The introduction of digital television and the Internet has made more media space available. o The diversification of services is attractive to customers because they only need to employ one agency. Weaknesses: o The advertising agencies do not only depend on the economical situation in the UK but also in Europe, Asia and the USA because they have international customers. o The switching of accounts is very easy this uncertainty about the future, if an agency is able to keep an account is problematic for business planning. o The share price can decrease very quickly when an agency looses an account.

Opportunities: o Web advertising is growing strongly and offers new technological opportunities for targeting special interest groups. o The digital TV also allows targeting niche groups such as sport fans etc. o The introduction of the EURO will lead to more European wide advertisement and this will give the UK agencies the opportunity to win more business from other European countries. Threats: o A decline in any of the industry's major market is a serious threat to the agencies, because this could lead to a decrease in advertising spending. o Legal restrictions by the UK Government or the European Union can make the development of sensational campaigns more difficult. 2.10 Current Issues The new media like digital television and the Internet are an important issue for agencies at the moment because they are going to change the nature of advertising permanently. It is necessary to react and to learn to apply these new media to use them in the most effective way. Concentration of media ownership impacts the industry. The power concentrated only in a few hands because of mergers and has as a result, increased prices There are growing concerns that the USA and Europe may slide into a recession.

The Bank of England has just lowered interest rates to stimulate growth. However, the UK Treasury could be expected to counter future inflation with stricter monetary policies, impacting on company marketing and advertising budgets also affecting advertising rates. There are a few high points that will generate additional income for the advertising agencies. A British General Election in 2001/2002, European Parliament elections, and the British bid for the 2006 World Cup and a future Olympic Games. IV. Conclusion The future outlook for advertising agencies is very positive; even though there could be a recession all forecasts predict strong growth for all sectors.

The already dominating media conglomerates will pursue their growth strategy by further mergers and acquisitions. Technological developments will change the nature of advertising and the importance of involving the new media will enhance. Agencies need to adjust to these changes to use them to their full potential; this is especially necessary to keep internationally competitive..