Environmental factors and competitive environment in the advertising industry

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 INDUSTRY -- OVERVIEW:

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).

P.E.S.T ANALYSIS FOR ADVERTISING INDUSTRY

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).

THE KEY PLAYERS IN THE ADVERTISING INDUSTRY

Advertising industry consists of five key players; each of them has an important role to play in the whole advertising process. These key players are; advertisers, advertising firms or agencies, media channels, suppliers, and the target audience for advertisements.

1. Advertisers:

Advertisers are the individuals, business corporations, or government institutions that advertise their products, service offerings, or messages to the target audience. These entities bear the whole expenses that are incurred on their advertisements. Thus, they are the most concerned parties for the success, effectiveness, or failure of their advertisements. Advertisers may develop their own messages to communicate to the target audience or take creative ideas from other advertisers. However, it is considered quite unethical and illegal for advertisers to copy texts, pictures, and concepts that are formerly used by other advertisers.

2. Advertising Agencies:

Advertising agencies are the most important player in the advertising world. They are the specialized businesses that create, develop, and communicate the advertisers' messages and offerings to the target audience. They charge a certain sum of money from advertisers for their services that vary according to the size, design, and complexity of the advertisements.

3. Media Channels:

The third player in the advertising industry is media channels. It constitutes all those communication mediums through which an advertising agency advertises the messages of their clients (advertisers). The most common communication mediums are television, radio, newspapers, and the Internet. Each of these media channels has a separate target audience in the form of viewers, listeners, or readers. Therefore, advertisers choose these channels according to the attributes and target audience of their products or service offerings.

4. Suppliers:

Suppliers are the businesses that facilitate the above three parties in the advertising process by providing required materials and placing ads on preferred locations. However, some advertising agencies also perform the functions of a supplier; thus eliminate this player from the advertising process and save their costs (Doole & Lowe 2008).

5. Target Audience for Advertisements:

All the functions and efforts performed by advertising agencies, media channels, and suppliers are directed towards one goal -- to communicate the message of advertiser to its target audience. The effectiveness or failure of an advertisement is determined by the positive or negative response of target audience. Therefore, advertising agencies try their best to advertise the messages of their clients to the potential group of people that will really take interest in the purpose for which that message was advertised (Doole & Lowe 2008).

TRENDS IN THE ADVERTISING INDUSTRY

Trends in the advertising industry reflect the changes that have been experienced by the industry participants over time. For the last couple of decades, advertising industry has largely contributed towards the economic growth of countries. It promoted businesses through advertisements on a variety of mediums, created jobs for the unemployed, and enabled the general public to get acquainted with the latest products and services available in different industries and sectors of their own country and the outside World (Website Magazine 2012). The most significant change which this industry has seen is a shift of advertising media from print to the Internet. Social media networks, blogs, and websites are the most cost efficient way of advertising in the present times. They are also considered as the most widely used information mediums by the general consumers. Moreover, the number of television and radio channels and newspapers has also increased over time. All these things have increased the intensity of competition among advertisers and advertising agencies (Doole & Lowe 2008).

SUITABILITY TO THE ADVERTISING INDUSTRY

Advertising has always been an integral part of the marketing and promotional strategies of business organizations. It is the most effective way of communicating important messages to the target audience. But when it comes to suitability, the companies in the advertising industry are expected to bring out something interesting for the audience to whom the advertisements are being targeted. They are responsible for a useful and effective communication to the parties of interest so that the purpose of advertisers is fulfilled at the minimum possible cost. To assist in the fulfillment of advertisers' purpose, advertising agencies are obliged to follow the instructions given by those advertisers and complete their assignments within the allocated time and money. Reason being, an advertisement is only effective if it communicates the advertiser's message effectively but does not disturb the marketing budget (Selling Power 2012).

OPPORTUNITIES FOR GRADUATES

Advertising companies deal with advertisers from all types of industries; each of these industries has its own business setup, operations, offerings, and target customers. Therefore, advertising sector has greater opportunities to learn and explore new things. University graduates can find a variety of career opportunities in this sector. For example; they can enter into marketing and promotion, research & development, graphics and multimedia designing, and public relations. In media channels, they can learn how to present the messages of advertisers in the most effective and resourceful way. There are great opportunities for graduates to improve their personalities and public communication skills. They can enjoy a fast career growth if they perform exceptionally well in the industry.

THE GAP ANALYSIS AND ACTION PLAN FOR ADVERTISING INDUSTRY

Gap Analysis refers to the degree to which an organization strives to achieve what it aimed to achieve. It is basically an assessment technique that tells the difference between the actual and desire state in any given target or objective. In the advertising industry, Gap analysis can be used to assess the effectiveness of advertisements that were created by advertising agencies for their clients; i.e. business corporations. For example, an advertisement is created to increase the awareness of a particular product or service among the target consumers. The purpose is to increase the sales volume by attracting more and more customers towards that product or service (O'Guinn, Allen, & Semenik 2012). The manufacturer takes the services of an advertising agency to create and communicate his advertisement to the potential customers. After a particular time period, he analyzes the change in his sales volume for that product or service. Through Gap analysis, he can easily assess whether that advertisement has contributed towards a positive change or not. If he observes a significant increase in the number of visitors in his outlet or finds an increase in the sales revenues, he concludes that the advertisement brought good results for his business (Website Magazine 2012). In Gap analysis, a company first looks at its future goals. That is, what objectives it had set for a particular advertisement for a specific period of time in the future. Afterwards, it analyzes its current position or the progress which it has made since future objectives were set. The third step is to assess the discrepancies between the actual and the desired state. This assessment can either be quantitative or qualitative. In a quantitative assessment, the company can use figures and past trends in order to judge the progress towards its objectives. On the other hand, it can qualitatively analyze the customer satisfaction, awareness, and change in his consumer behavior over time (John & Reve 2010).

CONCLUSION

Advertising industry has an important role to play in the economy. It promotes businesses, creates awareness among customers, and contributes towards economic development. Like any other industry, advertising industry is also exposed to certain challenges from its business environment. An advertising company can better meet these challenges if it analyzes the environmental factors that impact its business operations and growth. The intensity of competition is also very in the advertising sector. The firms not only have to compete with their existing competitors, but also have threats from new entrants and substitute services. The major role in the advertising process is played by the advertising agencies and the media channels. These both parties assist the advertisers and communicate their messages to the target audience in an effective way. However, advertisers can assess the effectiveness of their advertisements through Gap analysis and make better decisions about their products or services. The advertising sector also gives attractive opportunities for graduates in that they can learn new things, improve their public communication and interpersonal skills, and enjoy a fast career growth in the marketing and promotion field.