Establishing Objectives and Budgeting for the Promotional Program

Establishing Objectives and Budgeting for the Promotional Program

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

Focus &Coordination

Focus &Coordination

Plans &DecisionsPlans &Decisions

Measurement& Control

Measurement& Control

Plans &DecisionsPlans &Decisions

Focus &Coordination

Focus &Coordination

Value of Objectives

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ObjectivesObjectives

AttainableAttainable

MeasurableMeasurable

SpecificSpecific

RealisticRealistic

SpecificSpecific

MeasurableMeasurable

AttainableAttainable

RealisticRealistic

Not Mutually Exclusive

Not Mutually Exclusive

Characteristics of Objectives

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ObjectivesObjectives

Advertising Can Shape Corporate Images

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Marketing ObjectivesMarketing Objectives

• Generally stated in the firm’s 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

• Generally stated in the firm’s 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

Marketing ObjectivesMarketing Objectives

Marketing Versus Communications Objectives

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Communications Objectives

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

• 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.Vs.

TheeconomyThe

economyDistributi

onDistributi

on TechnologyTechnology PricePrice

Advertising and

promotion

Advertising and

promotion

Competition

Competition

ProductqualityProductquality

PricePriceTechnologyTechnologyDistribution

Distribution

ProductqualityProductquality

Competition

Competition

Advertising and

promotion

Advertising and

promotion

Many Different Factors Affect Sales

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$ALE$$ALE$

Direct Response Ads Seek Sales

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Some Communications Use Nontraditional Methods

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Sales As Advertising Objectives

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Test Your Knowledge

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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.

Advertising and Movement Toward Action

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Teaser campaigns

AffectiveRealm of emotions.Ads change attitudes and feelings

CognitiveRealm of thoughts.Ads provide information and facts.

ConativeRealm of motives.Ads stimulate or direct desires.

“Image” copyStatus, glamour appeals

AnnouncementsDescriptive copyClassified adsSlogans, jingles, skywriting

Competitive adsArgumentative copy

Point of purchaseRetail store ads, Deals“Last-chance” offersPrice appeals, Testimonials

Purchase

Conviction

Preference

Liking

Knowledge

Awareness

Image Ads Can Have a Strong Effect on Preference

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20% TrialConative

40% LikingAffective

90% AwarenessCognitive

5% Use

70% Knowledge

25% Preference

90% Awareness

70% Knowledge

40% Liking

25% Preference

20% Trial

Pyramid of Communications Effects

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The DAGMAR Approach

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DefineAdvertisingGoals forMeasuringAdvertisingResults ActionAction

AwarenessAwarenessAwarenessAwareness

ConvictionConviction

ComprehensionComprehensionComprehensionComprehension

ConvictionConviction

Pros and Cons of DAGMAR

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Problems with the response hierarchyProblems with the response hierarchy

Assessment of campaign effectiveness

Assessment of campaign effectiveness

ProsPros ConsCons

Sales objectivesSales objectives

Practicality and costPracticality and cost

Inhibition of creativity

Inhibition of creativity

Value of communication-based

objectives

Value of communication-based

objectives

Measurement of stagesMeasurement of stages

Less subjectiveLess subjective

Problems with the response hierarchyProblems with the response hierarchy

Assessment of campaign effectiveness

Assessment of campaign effectiveness

Sales objectivesSales objectives

Practicality and costPracticality and cost

Value of communication-based

objectives

Value of communication-based

objectives

Measurement of stagesMeasurement of stages

Less subjectiveLess subjective

Advertising Through Media

Acting on Consumers

Advertising-Based View of Communications

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Balancing Objectives and Budgets

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Dollars Goals

What we’re willing and

able to spend

What we need to achieve

our objectives

Test Your Knowledge

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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

Marginal Analysis

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Advertising / Promotion in $

Sales in $

Point A

Profit

Sales Gross Margin

Ad. Expenditure

BASIC Principle of Marginal Analysis

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Increase SpendingIncrease Spending

Decrease SpendingDecrease Spending

HoldSpendingHold

Spending

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

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

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

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

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

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

Assumptions for Marginal Analysis

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Sales are the principal

objective of advertising

and promotion

Sales are the result of

advertising and promotion, and nothing else

Advertising Sales/Response Functions

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Incremental Sales

Advertising Expenditures

A. Concave-Downward Response Curve

Incremental Sales

Advertising Expenditures

Range A Range B Range C

B. S-Shaped Response Function

High Spending

Little Effect

Initial Spending

Little Effect

Middle Level

High Effect

The Promotion Budget Is Set to Stay Within the Spending Limit

The Promotion Budget Is Set to Stay Within the Spending Limit

Top Management Sets the Spending LimitTop Management Sets the Spending LimitTop Management Sets the Spending LimitTop Management Sets the Spending Limit

Top-Down Budgeting

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Affordable Method

Affordable Method

Affordable Method

Affordable Method

Competitive Parity

Competitive Parity

Percentageof Sales

Percentageof Sales

Return onInvestmentReturn onInvestment

Arbitrary AllocationArbitrary Allocation

Percentageof Sales

Percentageof Sales

Competitive Parity

Competitive Parity

Arbitrary AllocationArbitrary Allocation

Top-Down Budgeting Methods

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TopManagement

TopManagement

Total Budget Is Approved byTop Management

Total Budget Is Approved byTop Management

Cost of Activities are BudgetedCost of Activities are Budgeted

Activities to Achieve ObjectivesAre Planned

Activities to Achieve ObjectivesAre Planned

Promotional Objectives Are SetPromotional Objectives Are Set

Cost of Activities are BudgetedCost of Activities are Budgeted

Activities to Achieve ObjectivesAre Planned

Activities to Achieve ObjectivesAre Planned

Promotional Objectives Are SetPromotional Objectives Are Set

Bottom-Up Budgeting

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Test Your Knowledge

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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

Estimate Costs Associated with Tasks(determine costs of advertising, promotions, etc.)

Estimate Costs Associated with Tasks(determine costs of advertising, promotions, etc.)

Determine Specific Tasks(advertise on market area television and radio and local newspapers)

Determine Specific Tasks(advertise on market area television and radio and local newspapers)

Establish Objectives(create awareness of new product among 20 percent of target market)

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)

Determine Specific Tasks(advertise on market area television and radio and local newspapers)

Establish Objectives(create awareness of new product among 20 percent of target market)

Establish Objectives(create awareness of new product among 20 percent of target market)

Objective and Task Method

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Monitor and Adjust(monitor performance and adjust)

Monitor and Adjust(monitor performance and adjust)

Estimate Costs Associated with Tasks(determine costs of advertising, promotions, etc.)

Estimate Costs Associated with Tasks(determine costs of advertising, promotions, etc.)

Media Expenditures

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Are There Economies of Scale?

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No evidence to support this!No evidence to support this!

No evidence to support this!No evidence to support this!

No evidence to support this!No evidence to support this!

Proposition ILarger firms can support their brands with lower relativeadvertising costs than smaller firms.

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

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

Ad Spending and Share of Voice

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Decrease–find a Defensible NicheDecrease–find a Defensible Niche

Increase to Defend

Increase to Defend

Attack With Large SOV Premium

Attack With Large SOV Premium

Maintain Modest Spending Premium

Maintain Modest Spending PremiumC

ompetitor’s

Share of Voice

High

Low

HighLowYour Share of Market