Establishing objectives and budgeting for the promotional program

Web Exercise Of MKTG 420

and Budgeting for the

Promotional Program

7-2

Value of Objectives

 Communications

 Objectives facilitate coordination of the various

groups

 Planning and decision making

 Objectives guide decision making and development

of the integrated marketing communications plan

 Measurement and evaluation of results

 Objectives provide a benchmark to measure success

or failure

7-3

Marketing Objectives versus Integrated

Marketing Communications Objectives

Marketing objectives

• Identify what is to be accomplished

by the overall marketing program

• Defined in terms of specific and

measurable outcomes

• Must be quantifiable, realistic, and

attainable

Integrated marketing communications objectives

• Statements of what various aspects

of the IMC program will accomplish

• Based on the particular

communications tasks required to

deliver the appropriate messages

to the target audience

7-4

Sales-Oriented Objectives

 Aim to increase sales

 Require economic justification

 Required to produce quantifiable results

 Based on the achievement of sales results

7-5

Factors Influencing Sales

7-6

Problems with Sales Objectives

Successful implementation requires all marketing elements to work together

• Carryover effect: Monies spent on advertising do not have immediate impact on sales

Advertising has carryover effect

It is difficult to determine precise relationship between advertising and sales

Do not offer much guidance for planning and developing promotional program

2

7-7

Communications Objectives

 Provide relevant information

 Create favorable predispositions toward the brand

 Set using models wherein consumers pass through

three stages

 Cognitive

 Affective

 Conative

7-8

Communications Effects Pyramid

• Low-level objectives, such as brand awareness, must be accomplished before moving to higher levels. Therefore, advertisers set their communications objectives in relation to where the target audience currently lies, with respect to the various blocks of the pyramid.

• The stages at the base of the pyramid are easier to accomplish than those toward the top, such as trial and repurchase or regular use. Thus, the percentage of prospective customers declines as they move up the pyramid.

7-9

Problems with Communications

Objectives

 Translating sales goals into communications

objectives

 Promotional planners have difficulty estimating

what constitutes adequate levels of awareness,

knowledge, liking, preference, or conviction

 No formulas or guidelines

7-10

Defining Advertising Goals for Measured

Advertising Results (DAGMAR)

 Communications effects are the logical basis for

advertising goals and objectives to measure success

or failure

 Communications task

 Performed by and attributed to advertising rather

than marketing factors, includes following stages

 Awareness, comprehension, conviction, and action

7-11

Characteristics of Objectives

 Present concrete and measurable tasks

 Have well-defined target audience

 Take into consideration the benchmark and the

degree of change sought

 Benchmark measures: Determine target market’s

present position regarding the various response

stages

 Specify the time period in which the goals must be

accomplished

7-12

Criticisms of DAGMAR

Problems with the response hierarchy

Sales objectives

Practicality and costs

Inhibition of creativity

3

7-13

Traditional Advertising-Based View of

Marketing Communications

This slide can be used to discuss the traditional advertising-based view of marketing communications, which uses the hierarchy of response model to move consumers along the pathway toward purchase. Professor Don Schultz calls this inside-out planning. It focuses on what the marketer wants to say when the marketer wants to say it, about things the marketer believes are important about his or her brand, in the media forms the marketer wants to use.

An alternative approach suggested by Professor Tom Duncan is called zero-based communications planning. It involves determining what tasks need to be done, which marketing communications functions should be used, and to what extent. This approach focuses on the task to be done and searches for the best ideas and media to accomplish it. 7-14

Zero-Based Communications Planning

 Involves determining:

 What tasks need to be done

 Which marketing communications functions should

be used and to what extent

 Focuses on the task to be done and searches for the

best ideas and media to accomplish

7-15

Conclusions on Research of Advertising

in a Recession

Source: G. Tellis and K. Tellis, “Research on Advertising in a Recession,” Journal of Advertising Research 49, no.3 (2009), pp. 304–27.0

7-16

Establishing the Promotional Budget

 Formulated when:

 A new product is introduced

 Internal or external factors necessitate a change to

maintain competitiveness

 Established using economic theory, marginal

analysis, and contribution margin

 Contribution margin: Difference between the total

revenue generated by a brand and its total variable

costs

7-17

Marginal Analysis

 Increase in advertising/promotional expenditures

increases sales and gross margins to a point, after

which they level off

 Weaknesses - Assumes that sales are:

 A direct measure of advertising and promotions

efforts

 Determined solely by advertising and promotion

7-18

Marginal Analysis

This slide can be used to explain marginal analysis and how it relates to the advertising budgeting process. Profits are a result of the gross margin minus advertising expenditures.

Using this theory to establish a budget, a firm would continue to spend advertising dollars as long as the revenues created by the expenditures exceeded the advertising costs. As shown on the graph, the optimal expenditure level is the point at which costs equal the revenues they generate (point A).

4

7-19

Advertising Sales/Response

Functions

• The concave-downward function assumes that the effects of advertising spending follow the microeconomic law of diminishing returns. That is, as the amount of advertising increases, its incremental value decreases. The logic is that those with the greatest potential to buy will likely act on the first (or earliest) exposures, while those less likely to buy are not likely to change as a result of the advertising.

• The S-shaped response function assumes that initial outlays of the advertising budget have little impact (range A). However, after a certain budget level has been reached (range B), advertising and promotional efforts begin to have an effect, and additional expenditures result in increased sales. When advertising expenditures enter range C, however, incremental spending will have little additional impact on sales.

7-20

Budgeting Approaches: Top-Down

Approaches

Affordable method

•Firm determines the amount to be spent in various areas

Arbitrary allocation

•Budget is determined by management solely on the basis of what is felt to be necessary

Percentage-of-sales method

•Advertising and promotions budget is based on sales of the product

Competitive parity method

•Budget amounts are established by matching the competition’s percentage-of-sales expenditures

•Clipping service: Clips competitors’ ads from local print media

ROI budgeting method

•Advertising and promotions are considered investments, and are expected to earn a certain return

7-21

Alternative Methods for Computing

Percentage of Sales

7-22

Competitors’ Advertising Outlays do not

Always Hurt

7-23

Figure 7.18 - The Objective and Task

Method

7-24

Objective and Task Method

 Advantage

 Budget is driven by the objectives to be attained

 Disadvantage

 Difficult determine which tasks will be required and

the costs associated with each

5

7-25

Payout Plan

 Determines the investment value of the advertising

and promotion appropriation

 Projects the revenues a product will generate, as

well as the costs it will incur

 Better and logical approach to budget setting than

the top-down approach

7-26

Quantitative Models

 Employ computer simulation models involving

statistical techniques

 Computer simulation models: Help determine the

relative contribution of the advertising budget to

sales

7-27

Steps to Develop and Implement the

Budget

Employ comprehensive strategy

Develop strategic planning framework that employs an integrated marketing communications philosophy

Develop contingency plans

Focus on long-term objectives

Evaluate effectiveness of programs have to be consistently

7-28

How Advertising and Promotions

Budgets Are Set

7-29

Budget Allocation: Factors to Consider

Allocating to IMC elements

Client/agency policies

Market size

Market potential

Market share goals

7-30

The Share of Voice (SOV)

Effect and Ad Spending: Priorities in Individual Markets

6

7-31

Economies of Scale

Set of advantages that allows firms to spend less on advertising and realize a better return

This slide can be used to define economies of scale. Larger advertisers can maintain advertising shares that are smaller than their market shares because they get better advertising rates, have declining average costs of production, and accrue the advantages of advertising several products jointly. In addition, they are likely to enjoy more favorable time and space positions, cooperation of middlepeople, and favorable publicity. These advantages are known as economies of scale.

7-32

Organizational Characteristics

 Factors that influence advertising and promotion budgets

 Organizational structure: Centralized versus decentralized, formalization, and complexity

 Power and politics: Including the level of interaction between functional departments

 Use of expert opinions: For example, advise from consultants, or trade and academic journals

 Characteristics of the decision maker: Preferences and experience

 Approval and negotiation channels: How many approval levels, approval limitations, and so forth

 Pressure on senior managers to arrive at the optimal budget: More important than ever in an economic downturn