Establishing Objectives and Budgeting for the Promotional Program

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Value of Objectives

Objectives

Focus & Coordination Plans & Decisions Measurement & Control

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Characteristics of Objectives

Attainable

Realistic Objectives

Measurable

Not Mutually Exclusive

Specific

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Advertising Can Shape Corporate Images

2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Marketing Versus Communications Objectives

Marketing Objectives
Generally stated in the firms marketing plan Achieved through the overall marketing plan Quantifiable, such as sales, market share, ROI To be accomplished in a given period of time Must be realistic and attainable to be effective

Communications Objectives
Derived from the overall marketing plan More narrow than marketing objectives Based on particular communications tasks Designed to deliver appropriate messages Focused on a specific target audience

Vs.

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Many Different Factors Affect Sales

$ALE$

Advertising and promotion

Competition

Product quality

Distribution

Technology

Price

The economy

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Direct Response Ads Seek Sales

2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Some Communications Use Nontraditional Methods

2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Sales As Advertising Objectives

2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Test Your Knowledge

Which of the following statements about communications objectives is true? A) It is easy to translate sales goals into communications objectives. B) It can be difficult to determine the relationship between communications objectives and sales performance. C) Communications objectives cannot serve as operational guidelines to the planning, execution, and evaluation of the promotional program. D) Marketing managers do not recognize the value of setting communications objectives.

2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Advertising and Movement Toward Action

Purchase Conviction Preference Liking Knowledge Cognitive
Realm of thoughts. Ads provide information and facts.
Competitive ads Argumentative copy Image copy Status, glamour appeals Announcements Descriptive copy Classified ads Slogans, jingles, skywriting Teaser campaigns Point of purchase Retail store ads, Deals Last-chance offers Price appeals, Testimonials

Conative
Realm of motives. Ads stimulate or direct desires.

Affective
Realm of emotions. Ads change attitudes and feelings

Awareness

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Image Ads Can Have a Strong Effect on Preference

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Pyramid of Communications Effects

5% Use 20% Trial 25% Preference 40% Liking 70% Knowledge 90% Awareness

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The DAGMAR Approach

Define Advertising Goals for Measuring Advertising Results

Awareness

Comprehension Comprehension

Conviction

Action

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Pros and Cons of DAGMAR

Pros
Assessment of campaign effectiveness Value of communicationbased objectives Measurement of stages Less subjective

Cons
Problems with the response hierarchy Sales objectives Practicality and cost

Inhibition of creativity

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Advertising-Based View of Communications

Advertising Through Media

Acting on Consumers
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Balancing Objectives and Budgets

What were willing and able to spend

Dollars

What we need to achieve our objectives

Goals

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Test Your Knowledge

In marginal analysis all of the following should be considered EXCEPT: A) sales B) fixed costs of advertising C) advertising expenditures and other variable costs D) gross margin E) net worth

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Marginal Analysis

Sales Sales in $

Gross Margin

Ad. Expenditure

Profit Point A

Advertising / Promotion in $
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BASIC Principle of Marginal Analysis

Increase Spending

If the increased cost is less than the incremental (marginal) return

Hold Spending

If the increased cost is equal to the incremental (marginal) return.

Decrease Spending

If the increased cost is more than the incremental (marginal) return

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Assumptions for Marginal Analysis

Sales are the result of advertising and promotion, and nothing else Sales are the principal objective of advertising and promotion

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Advertising Sales/Response Functions

A. ConcaveDownward Response Curve
Incremental Sales

B. S-Shaped Response Function

Incremental Sales

Initial Spending Little Effect

Range A

Range B

Middle Level High Effect

Range C

Advertising Expenditures

Advertising Expenditures

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High Spending Little Effect

Top-Down Budgeting

Top Management Sets the Spending Limit

The Promotion Budget Is Set to Stay Within the Spending Limit

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Top-Down Budgeting Methods

Competitive Parity

Arbitrary Allocation

Top Management

Percentage of Sales

Return on Investment

Affordable Method

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Bottom-Up Budgeting
Total Budget Is Approved by Top Management

Cost of Activities are Budgeted

Activities to Achieve Objectives Are Planned

Promotional Objectives Are Set

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Test Your Knowledge

Well known brand name products do not receive incremental advantages from increased dollar expenditures on advertising. Once the ad hits the market, subsequent budget increases result in little or no incremental gains. This might best be explained by: A) arbitrary allocation B) the objective and task method C) competitive parity D) an S-shaped response E) rapidly diminishing returns

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Objective and Task Method

Establish Objectives (create awareness of new product among 20 percent of target market) Determine Specific Tasks (advertise on market area television and radio and local newspapers) Estimate Costs Associated with Tasks (determine costs of advertising, promotions, etc.)

Monitor and Adjust (monitor performance and adjust)

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Media Expenditures

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Are There Economies of Scale?

Proposition I Larger firms can support their brands with lower relative advertising costs than smaller firms.

No evidence to support this!

Proposition II The leading brand in a product group enjoys lower advertising costs per sales dollar than do other brands.

No evidence to support this!

Proposition III There is a static relationship between advertising costs per dollar of sales and the size of the advertiser.

No evidence to support this!

2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Ad Spending and Share of Voice

Competitors Share of Voice

High

Decreasefind a Defensible Niche Attack With Large SOV Premium

Low

Increase to Defend

Low

Maintain Modest Spending Premium

High

Your Share of Market

2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin