Organization Behavior a Report on Advertising Industry Essay

Excerpt from Essay :

Organization Behavior

A Report on Advertising Industry

This paper presents a detailed report on the environmental factors, competitive environment, and current trends in the advertising sector. The purpose of this report is to highlight and discuss the major challenges which companies in the advertising sector are facing in the present business landscape. It starts with a brief overview of the advertising industry; its introduction, functions, and purposes, and proceeds by discussing the major environmental forces that impact the companies in this industry. These are political, economic, social and technological forces. The later section explains the competitive environment in detail. That is, how advertising companies are managing to compete in the presence of a stiff competition from existing competitors, new entrants, and substitute services. The report also discusses the introduction and role of the five key players of the advertising industry. Moreover, the trends, opportunities for graduates, Gap analysis and action plan have also been discussed in this report for the advertising sector. All the discussion has been made in the light of some recently published academic articles, books, and magazines. All the references used in this report are authentic and give useful information on this sector.


Advertising is a way to communicate important messages and product or service offerings to the potential audience. The purpose of advertising is to persuade the parties of interest towards some important initiative or offering by an individual, Business Corporation, or a Government institution (Clark, Doraszelski & Draganska 2009). Advertising is generally done through sponsors or advertising agencies to a specific target audience. Hence, there exists an advertising industry which facilitates every type of clients with a variety of advertising services. It is done on various advertising and promotional mediums including electronic media, print media, social media, public relation events, direct mails, and text messages (Website Magazine 2012). In the past, advertising agencies used to offer their services against a pre-decided commission from their clients. With the passage of time, they have started offering full range of advertising and allied services. For example; they provide creative ideas for slogans and logos, ads designing, creative writing, defining target audience, and the like. The advertising industry has taken a big advantage from the Internet and Globalization (Website Magazine 2012). It has emerged as one of the most successful industries of the present times. Therefore, it makes great contributions to the economy by educating people, promoting businesses, and creating jobs for the unemployed (Doole & Lowe 2008).


The PEST Analysis gives important information on what is happening in the Political, Economic, Social, and Technological Environment of a business. Advertising companies operates in a highly uncertain business environment which turns either in favor or against their growth and profitability (O'Guinn, Allen, & Semenik 2012). Therefore, it is vital for these companies to analyze all the environmental factors before taking strategic their decisions or implementing business policies. The PEST Analysis for advertising industry is as follows:

1. The Political and Legal Environment:

The Political and Legal Environment consists of the policies, rules, and regulations that are implemented by the Government of a country on the business corporations and govern the way they operate in their industries. Advertising companies operate under the supervision and guidelines of the Ministry of Information and Broadcasting. It is obligatory for these companies to strictly follow these guidelines and avoid any ads or messages that may hamper the integrity of the nation in which they operate (Doole & Lowe 2008).

As the advertising companies operate in the services sector, they are subject to business taxation under the same category. The taxation patterns and policies vary according to the mediums of promotion used by these companies. For instance, the tax on electronic media is generally higher than on print media. Any unfavorable change in the Government's fiscal policy, taxation policy, or regulations for business organizations also has a negative impact on the advertising sector.

2. The Economic Environment:

Economic environment involves the earning and spending patterns of individuals and businesses in response to different economic factors. These parties take a direct impact from the economic conditions of their country. The most important economic factors are inflation, unemployment, industrial growth, exchange rates, GDP, Health and educational infrastructure, attractiveness for Foreign Direct Investments, etc. The Advertising sector takes impacts from all these factors in one way or another. An increase in the inflation rate makes their costs of doing business higher while high industrial growth, GDP, and attractive FDI opportunities flourish their business in the local market (O'Guinn, Allen, & Semenik 2012).

3. The Social Environment:

Advertising companies are supposed to offer their services in an honest and responsible way. The most important thing is to follow the business ethics in each and every task they perform for their clients. In the advertising sector, ethical marketing has always been the most critical issue. To prove itself as a socially and ethically responsible citizen, an advertising company must not use any ads, messages, pictures, or videos that may hurt the religious, moral, racial, or cultural values of some group of the society. The contents of the advertisements must not be ambiguous or deceptive as they may misrepresent the facts to the audience. Moreover, the ads should conform to the social and personal factors of the consumers; including lifestyles, preferences, income levels, and demographical patterns. The ads must also be free from any bias, favoritism or criticism on any particular group of the society (Doole & Lowe 2008).

4. The Technological Environment:

With the rapid advancements in the field of Information Technology, advertising industry has become far more efficient than it was a few years ago. The super-fast internet and excessively used social media network has completely shaped the way people used to stay well-informed with their favorite products or services. Advertising companies have completely gone digitalized; the designing, writing, printing, and communicating the clients' messages and promotional campaigns has significantly improved with the latest software and hardware. Now-a-days, every advertising company invests a heavy amount on purchasing machineries, electronic equipment, and material to present the best quality ads to the customers on behalf of their clients. However, technology has largely increased their costs and the risks associated with the usage of expensive electronic equipment. Advertising companies have to keep themselves fully primed with the changes in their technological environment in a view to operate in the most competitive and resourceful way (O'Guinn, Allen, & Semenik 2012).


Michael Porter's Five Forces Model analyzes the intensity of competition among the same industry competitors. It basically gives a precise picture of a company's knacks and capabilities to survive in its industry in the presence of a stiff competition. This section discusses these five forces for the companies that operate in the advertising sector:

1. Competition among Existing Competitors:

Advertising sector is composed of a large number of advertising companies and agencies that give a strong competition to each other. They use different marketing strategies and tactics to attract more and more clients towards their service offerings and make handsome profits. They offer discounts to prestigious clients, free designing of ads upon larger orders, and special packages on premium offers. The competition among existing competitors has increased up to such an extent that they have now entered into a cold war against each other. They do not just compete on the basis of price or quality, but also on the size of their operations. For this, they invite small advertising agencies to merge in their business and grow in the industry.

2. The Threat from New Entrants:

In addition to a large number of big fish in the industry, advertising companies also have to face competition from new entrants. These new entrants try to snatch clients from the market leaders by offering their services at cheaper rates. Although it is difficult for them to penetrate in the industry on quicker basis, but they significantly reduce the profitability of existing competitors. If existing companies do not take them seriously or strategize to compete with them, these new entrants easily establish their brand image in the industry (Doole & Lowe 2008).

3. The Threat from Substitute Services:

Advertising industry is highly exposed to the threat of substitute services. There is a variety of promotional mediums that can be used to advertise products and services or communicate messages to the audience (Selling Power 2012). Also, it is a fact that not all advertising companies specialize in every type of promotional medium. Thus, if a company fails to satisfy its client, he does not return to it the next time he needs to promote his product. He will either choose another company or a totally different promotional medium. A client always has an option to choose one or more from electronic media (TV, Radio, Internet, etc.), print media (newspapers, broachers, etc.), billboards, in-store displays, or social media. Thus, the existence of substitute promotional mediums increases the level of competition among industry competitors.…

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