Question 1

Which of the following is NOT a valid criticism of the commission compensation system for an ad agency?

Accepted Answer

The commission compensation system is generally considered easy to administer because it involves calculating a percentage of the media buy. This simplicity is one of the reasons it has been traditionally used.

Question 2

The Performance by Results system reflects three groups of performance measures.Which of the following is NOT one of those measures?

Accepted Answer

Comparison to previous year's communication budget is not one of the three groups of performance measures in the Performance by Results system. The other three options, marketing communication effectiveness, overall business performance, and agency process evaluation, are all included as measures.

Question 3

What form of compensation is used to pay the advertising agency when the client's advertising program does not involve a large amount of media billings?

Accepted Answer

When the client's advertising program does not involve a large amount of media billings, the advertising agency is usually paid a negotiated fee, rather than receiving a share of the profits or a rebate from the media. This negotiated fee can vary depending on the scope of work and services provided by the agency. A 17.65 percent mark up on costs is a common fee structure for media buying, but it does not apply in this scenario where media billings are low.

Question 4

Which of the following compensation methods should an advertiser adopt if its primary goal is to achieve efficiency and accountability?

Accepted Answer

An incentive-based compensation agreement, also known as pay-for-performance, is the best choice if an advertiser's primary goal is to achieve efficiency and accountability. This is because the compensation is tied to the performance of the campaign, which incentivizes the agency to perform at its best and deliver results. It also provides a clear and measurable way to evaluate the success of the campaign, ensuring accountability.

Question 5

Under which type of compensation system might an agency be more inclined to recommend expensive media such as network television and national magazines to its clients?

Accepted Answer

In a commission system, the agency earns a percentage of the amount spent on media by the client. Therefore, the agency would be more inclined to recommend expensive media such as network television and national magazines as they can earn a higher commission on the larger media spend.

Question 6

Under the cost-plus compensation method,all of the following costs might be included in the calculation,EXCEPT:

Accepted Answer

Agency self-promotion costs are typically not included in the cost-plus compensation method. This method usually covers direct costs related to the client's project, including a profit margin, but not the agency's self-promotion expenses.

Question 7

The four behavioural objectives that are measures of marketing communication effectiveness are intent to purchase,trial,repeat purchase,and _______.

Accepted Answer

The four behavioural objectives that are measures of marketing communication effectiveness are intent to purchase, trial, repeat purchase, and brand loyalty. While viral media, brand understanding, and positioning are important concepts in marketing, they are not specifically measures of communication effectiveness. Brand loyalty, on the other hand, directly relates to the effectiveness of marketing communication in building a lasting relationship between the consumer and the brand.

Question 8

Why are negotiated commission structures becoming more common?

Accepted Answer

Negotiated commission structures are becoming more common because they allow for a more balanced consideration of the needs of the client as well as the amount of time and effort the agency spends on an account. This helps to create a mutually beneficial relationship between agency and client.

Question 9

Under the _______,the client agrees to pay the agency a fee based on the cost of its work plus some agreed-on profit margin.

Accepted Answer

In a cost-plus arrangement, the fee is based on the cost of the agency's work plus some agreed-on profit margin. This is different from a media commission system (B), where the agency earns a commission based on the amount of media that it places for the client, and an incentive-based system (C), where the fee is tied to performance metrics such as sales or brand awareness. A fee-combination arrangement (D) is not a commonly used term in the advertising industry.

Question 10

Jenna sees a commercial for a new brand of toothpaste.She decides to consider it the next time she goes to the drug store.This is an example of which behavioural objective?

Accepted Answer

Jenna's consideration of purchasing the new brand of toothpaste shows her intent to buy, making it an example of intent to purchase as a behavioural objective.

Question 11

The advertising remuneration process which rewards the agency based on the achievement of mutually agreed upon objectives is called:

Accepted Answer

The Performance by Results system is the process where the agency is rewarded based on the achievement of mutually agreed upon objectives. The cost-based system (A) is when the agency is compensated based on the cost of the work done. The fee-combination method (C) is a hybrid method of paying an agency fee based on a combination of costs and performance. The advertising reward method (D) is not a recognized industry term or practice.

Question 12

Which of the following statements about agency commissions is true?

Accepted Answer

The statement "Some leading agencies now receive average commissions of 8 to 10 percent" is true. Option B is incorrect, as it states that nearly all leading agencies still earn a 15 percent commission, which is not the case. Option C is also incorrect, as many agencies still earn a significant portion of their income from the traditional 15 percent commission. Option D is partially incorrect, as some agencies are willing to negotiate their commission rates.

Question 13

Which of the following is NOT a measure of marketing communication effectiveness?

Accepted Answer

Retail sales results are a measure of overall marketing effectiveness, not just marketing communication effectiveness. The other options specifically measure the effectiveness of marketing communication efforts in increasing brand awareness, shaping brand image, and creating positive attitudes towards advertising.

Question 14

Why would General Motors switch to an incentive-based compensation system with several of its agencies?

Accepted Answer

By switching to an incentive-based compensation system, General Motors is likely trying to encourage its agencies to explore and develop new methods of reaching consumers, beyond traditional mass media advertising. This would help the company stay innovative and competitive in a changing marketplace.

Question 15

An agency books television media space at a cost of $1,000,000.If cash discounts do not apply,what price does the agency pay to the media company?

Accepted Answer

The answer of An agency books television media space at...

Question 16

An agency books television media space at a cost of $1,000,000.The standard agency commission on this buy is:

Accepted Answer

The standard agency commission is typically 15% of the total media buy cost, so in this case it would be $150,000 (0.15 x $1,000,000). Therefore, option B is the correct answer. Option A is too low, and options C and D are not relevant to the question.

Question 17

The Red River Valley advertising agency receives compensation from its clients based on how well it meets predetermined performance goals.Indicate the compensation method that best corresponds to this situation.

Accepted Answer

The compensation method that best corresponds to this situation is incentive-based as the agency receives compensation based on how well it meets the predetermined goals. In other words, the agency is incentivized to produce quality work and achieve specific objectives, which is the essence of the incentive-based compensation system.

Question 18

Agencies that are reluctant to let clients see their internal cost figures are less likely to accept a:

Accepted Answer

The answer of Agencies that are reluctant to let clients...

Question 19

A ________ is a type of compensation arrangement where an agency charges a client a fixed monthly amount of money for all of its services and credits media commissions against this monthly rate.

Accepted Answer

A fee-commission combination is a compensation arrangement where an agency charges a fixed monthly fee for its services and credits any media commissions against this monthly rate, blending both a fixed fee and commission elements.

Question 20

Negotiated commission rates for advertising agencies:

Accepted Answer

Negotiated commission rates are becoming more commonplace as the advertising industry moves away from traditional commission structures to more flexible and customized arrangements that better reflect the value and scope of services provided. This trend is driven by the desire for more tailored advertising solutions and the increasing complexity of marketing campaigns.

Quiz 2: Organizing for IMC: Role of Agencies