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1. Ad agency compensation is increasingly turning to performance- or out come based compensation. Explain how this form of ad agency compensation works and why it potentially is superior to alternative methods of compensating ad agencies. 2. Using explain the various means by which advertising is capable of influencing a brand’s profitability. 3. In the context of the discussion of price and advertising elasticities, four situations were presented by comparing whether price or advertising elasticity is stronger. Situation 2 was characterized as “build image via increased advertising.” In your own terms, explain why in this situation it is more profitable to spend relatively more on advertising rather than reduce a brand’s price.

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