Marketing Management

20th of June 2011

Communicating Customer Value

Integrated Marketing Communications Strategy

Total Promotion Budget and Mix

Setting Total Promotion Budget

• How much to spend on promotion??!• How does a company decide on its

promotion budget?• Four common methods to set total budget

for advertising– Affordable Method– Percentage of Sales Method– Competitive-Parity Method– Objective and Task Method

Setting Total Promotion Budget

• Affordable Method– This involves setting the promotion budget at levels

management thinks the company can afford– Usually used by small businesses with limited

resources – This method ignores the effects of promotion on sales– Places promotion last among spending priorities even

when it’s critical– It leads to an uncertain annual promotion budget– Long range market planning is thus difficult– It often results in under spending; however, it can lead

to over spending

Setting Total Promotion Budget

• Percentage of Sales Method– Involves the setting of promotion budget at a certain percentage

of current or forecasted sales or as a percentage of the unit sales price

– Based on availability of funds and not opportunities– Advantages of this method:

• Simple and easy to use• Enables the construction of relationship behaviour – between

promotion spending, selling price, and profit per unit– Disadvantages of this method:

• Wrongfully views sales as the cause of promotion rather than result of promotion

• Strong brands with higher sales have biggest ad budgets• Prevents increased spend to advance a turnaround in low sales• Long range planning is difficult• Relies on past and what competitors are doing

Setting Total Promotion Budget

• Competitive-Parity Method– This is the setting of your promotion budget to match

competitors’ budgets– Get industry promotion spending estimates from

publications and set based on industry average– Advantages:

• Prevents promotional wars with competitors• This involves the collective wisdom of the industry

– Disadvantages:• Competition doesn’t have all the answers. What if wrong?• No two companies are the same. Own promotional needs. • No evidence that competitive parity prevents promotional

wars.

Setting Total Promotion Budget

• Objective and Task Method– Involves setting the budget based on what it wants to achieve

with its promotions– It’s the most logical budget setting method– This method entails:

• Defining specific promotion objectives• Determining the tasks needed to achieve objectives• Estimating the costs of performing the tasks• The total sum of costs is the proposed budget

– Advantages:• Accountability for spend through assumptions measured via results

achieved– Disadvantages:

• It’s difficult to use – difficult to know which objectives will deliver

Shaping the Promotion Mix

• Nature of Each Promotion Tool– Please refer to textbook Pages 440 – 442

• Promotion Mix Strategies– Push or Pull Promotion Mix Strategies– Push Strategy: A promotion strategy which utilises the sales

force and trade promotion to push products through the channels. Producers promote the products to channel members who promote it to consumers.

– Pull Strategy: A promotion strategy which relies on spending plenty on advertising and consumer promotion to induce final consumers to purchase products. This creates a demand vacuum which pulls the product through the channels

Promotion Mix Strategies

Promotion Mix Strategies

Promotion Mix Strategies

• A Push Strategy uses personal selling and trade promotions

• A Pull Strategy uses advertising and consumer promotion

• Industrial goods companies mainly use push strategies• Direct-marketing companies mainly use pull strategies• Most large companies will use a combination of both pull

and push strategies• Considerations when designing promotion mix strategies

(see pages 443 and 444):– Type of product and market– Product life cycle stage

Integrating the Promotional Mix

• Checklist for integrating marketing communications, (see pages 444 and 445)– Start with customer touch points– Analyze trends – internal and external– Audit pockets of communication spending– Gather together to plan communications– Create compatible themes, tones, quality across

communication media– Create performance measures shared by all

communication elements– Appoint a person responsible for persuasive

communication efforts

See you next time.

Cheers Guys!