The Changing Architecture of Advertising Agencies

Sharon Horsky ()
Additional contact information
Sharon Horsky: Arison School of Business, IDC, Herzliya, Israel 46150

Marketing Science, 2006, vol. 25, issue 4, 367-383

Abstract: In contrast to other marketing activities, advertising is usually outsourced—historically, to an integrated full-service advertising agency that provides both creative and media services. Recently, major changes have occurred, specialized media shops have appeared, and large holding companies with several agencies and a separate media shop have emerged. This paper describes how firms in the current industry structure choose their agents. A theoretical section specifies the firm's decision process in obtaining the creative and media components. Conditions under which one or both could be effectively produced internally are identified. In the prevalent case when these components are outsourced, we evaluate whether they can be more efficiently produced by a bundled full-service agency or by unbundling to separate agents. An empirical section tests the theory implications with cross-sectional data on U.S. firm choices of advertising agents. The bundled full-service agency is still widely used. Firms with large advertising budgets unbundle to take advantage of media discounts obtained by market-making media shops. Internal agencies are used when firms have internal creative abilities, or have low-level requirements in both creative and media. The creative and media agencies within holding companies are found to act independently.

Keywords: advertising agencies; media shops; outsourcing; unbundling; double marginalization (search for similar items in EconPapers)
Date: 2006
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

Downloads: (external link)
http://dx.doi.org/10.1287/mksc.1060.0198 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormksc:v:25:y:2006:i:4:p:367-383

Access Statistics for this article

More articles in Marketing Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().