Chapter 7 PowerPoint

Promotional StrategyMKT4230

Establishing Objectives and Budgeting for the Promotional Program

Patricia Knowles, Ph.D.

Associate ProfessorClemson University

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2Promotional StrategyMKT4230 2

Setting ObjectivesThere are obstacles that get in the way of setting IMC program objectives:

• Complex marketing situations

• Conflicting perspectives

• Uncertainty over resources

TextbookPages 216


Value of ObjectivesSpecific objectives are the foundation upon which other important decisions rest. Setting specific IMC program objectives is so important to do:

• Communications: Setting objectives facilitates coordination of the various groups working on the campaign. Many problems can be avoided if all parties have written, approved objectives to guide their actions and serve as a common base for discussing issues related to the promotional program.

• Planning and Decision Making: Specific promotional objectives guide development of an integrated marketing communications plan, as well as decisions related to creative options, media selection, and budget allocation.

• Measurement and Evaluation: Objectives provide a benchmark against which the success or failure of the promotional campaign can be measured. Most organizations are concerned about the return on their promotional investment; comparing actual performance against measurable objectives is the best way to determine if the return justifies the expense.

TextbookPages 217 - 218


Characteristics of ObjectivesThese are characteristics of good communication and promotional objectives:

• Specific: A clear definition of what is to be achieved by the program.

• Measurable: Outcomes such as sales volume, market share, profits, or return on investment.

• Quantifiable: Delineates the target market and notes the time frame for accomplishing the goal (often one year).

• Realistic and Attainable… as in “increase sales by 10% during the next 12 months.”



Sales vs. Communications ObjectivesThis chart presents the differences between marketing and communications objectives:


Sales Objectives

• Primary goal is increased sales• Requires economic justification• Should produce quantifiable results

Communications Objectives

• Increased brand knowledge, interest, favorable attitudes and image

• Immediate response not expected• Goal is creating favorable

predispositions


Problems with Sales ObjectivesThese are some of the problems related to sales objectives:


Won’t work in isolation

Ad effects take time

Hard to determine precise relationship between advertising and sales

Offers little guidance to those planning and developing the promotional program


Factors Influencing SalesThese are the various factors that can affect sales:

TextbookPages 220 - 221 / Figure 7 - 1

CompetitionTechnology

Economy

Product Quality

Price

Distribution

Advertising & Promotion


Where Sales Objectives are AppropriateThis visual presents a packaging design that resulted in a 15.7 percent increase in sales. Some promotion efforts are designed to induce an immediate behavioral response.

TextbookPages 221 - 222 / Exhibit 7 - 3

To celebrate its 100th anniversary, Kayem Foods changed the design of their frankfurter package.

Within 12 weeks of the introduction of the new copy and label, regional sales rose by 15.7 percent, which prompted a national rollout.


Where Sales Objectives are AppropriateThis visual shows a direct-response ad that Mercury Insurance Group uses to sell products and services. Direct-response advertising often evaluates its effectiveness on the basis of sales. Merchandise or services are advertised to customers, who then make purchases by mail, on the Internet, or by calling a toll-free number.


Sales objectives may also be appropriate for TV ads if the ad is the only form of communication and promotion being used, and the response is immediate.

Discount coupons are used to increase sales during a particular time period, so sales objectives are appropriate here as well.


Test Your KnowledgeWhich of the following statements about communications objectives is true?

A. Sales goals are easily translated 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 for planning,

executing, and evaluating promotional programs. D. Marketing managers often do not recognize the value of setting communications

objectives.


Communications ObjectivesThis visual shows a hierarchy of effects model and the steps consumers move through before making a purchase:

TextbookPage 223

Purchase

Purchase intentions

Favorable attitudes and image

Brand knowledgeand interest

Brand awareness

Conative (behavioral)Ads stimulate or

direct desires

Affective (feeling)Ads change attitudes and

feelings

Cognitive (thinking)Ads provide

information and facts


Creating an ImageThis is an ad that Consolidated Edison uses to create an image of its company.

TextbookPages 223 / Exhibit 7 - 6

Some advertisements do not require immediate action on the part of the consumer, but encourage consumers to consider the brand when they enter the market for products in this category.

In this case, Consolidated Edison creates favorable images of the company by linking pictures of children to Con Ed workers in action.


Communications Effects PyramidThese are the effects of communications on consumer behavior:


20% TrialConative 5% Use

90% AwarenessCogniti

ve 70% Knowledge/Comprehension

40% LikingAffective 25% Preference


GfK Purchase FunnelGfK Purchase Funnel is used by many in the automobile industry as a diagnostic model of consumer decision making.


In essence, it is an inverse of the communications effects pyramid, and shows that 90% awareness funnels down to 5% purchase/use.

There are two major problems with translating sales goals into communications objectives:

• Determining what an adequate level is for customer awareness, knowledge, liking, preference, and conviction.

• Having no formulas or guidelines that provide this information. A promotional manager must base decisions on personal experience, as well as the marketing history of this and similar brands.


Problems with Communications Objectives



The DAGMAR ApproachThis is the DAGMAR model and the four stages of the communication process:


Define

Advertising

Goals for

Measuring

Advertising

Results Action

Awareness

Conviction

Comprehension


Characteristics of ObjectivesThe basic characteristics of a good objective:


Concrete and Measurable Tasks

Benchmark Measures

Well-Defined Audience

Specified Time Period


Criticisms of DAGMARThis visual summarizes the criticisms of the DAGMAR approach:


Costly and Time Consuming

Problems with Response Hierarchy

Only Relevant Measure is Sales

Inhibits Creativity


Advertising-Based View of MarketingThis chart shows a traditional advertising-based view of marketing communications:

TextbookPages 229 - 230/ Figure 7 - 4

Acting on Consumers

Ads


Utilizing a Variety of MediaThis visual shows how the San Diego Zoo attempts to attract visitors through a variety of media:


• Provide funding for the society’s programs• Maintain a large and powerful base of

supporters for financial and political strength

• Educate the public about the society’s programs

• Maintain a favorable image on a local, regional, national, and international level

• Draw visitors

To achieve these objectives, the society’s IMC program employs a variety of integrated marketing communication tools, including the website shown on this slide.

Note: This is a good time to show some of the San Diego Zoo and Wild Animal Park videos on the accompanying CD.


Balancing Objectives and BudgetsThis visual shows the delicate balancing act between how much money a company is willing to spend on advertising, and how much money should be spent to achieve advertising goals.

While establishing marketing objectives is an important part of the planning process, the limitations of the budget are important too. No organization has an unlimited budget, so objectives must be set with the budget in mind.

TextbookPage 231

What we’re willing and able to spend

What we need to achieve our objectives


Establishing the BudgetThese are the two promotional budgeting decisions that every organization must make:

TextbookPage 231

To whom should we allocate the monies?

How much should we spend on advertising

and promotion?


Budget Decisions in a Down EconomyDuring a recession, advertising and promotional budgets are the first to be cut. The best defense is a good offense. This is the opposite of what often occurs, because many managers fail to realize the value of advertising and promotion. They see it merely as an expense, rather than an investment.

Textbook3 / Exhibit 7 - 11


Marginal AnalysisThis visual shows a graphical representation of the concept of marginal analysis. As advertising/promotional expenditures increase, sales and gross margins also increase, but then level off. 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).


Weakness of Marginal AnalysisThe two basic assumptions about marginal analysis that limit its usefulness:


Sales are determined solely by advertising

and promotion.

Sales are a direct measure of advertising and promotions efforts.


Test Your KnowledgeIn 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


Budget AdjustmentsThis chart presents situations in which advertising budgets should be maintained as-is, increased, or decreased.


Increase Spending

If cost is less than the marginal revenue generated

HoldSpending

If the cost is equal to the marginal revenue generated

Decrease Spending

If the cost is more than the marginal revenue generated


Sales Response ModelsThe two models of the advertising/sales response function.


Incr

emen

tal S

ales

Advertising Expenditures

A. Concave-Downward Response Curve

Incr

emen

tal S

ales

Advertising ExpendituresRange A Range B Range C

B. S-Shaped Response Function

Hig

h Sp

endi

ngLi

ttle

Effe

ct

Initi

al S

pend

ing

Litt

le E

ffect

Mid

dle

Leve

lH

igh

Effec

t


Factors Influencing Advertising BudgetsThese are some of the additional factors that should be considered when establishing an advertising budget.


Purchasefrequency

Product life cycle

Productdurability

Differentiation

Productprice

Hidden productqualities


Top-Down vs. Bottom-Up BudgetingThis chart outlines the top-down and bottom-up approaches to budgeting.

Promotion objectives are set

Bottom-Up Budgeting

Activities needed to achieve objectives are planned

Costs of promotion activities are budgeted

Total promotion budget is approved by top management

Top management sets the spending limit

Top-Down Budgeting

Promotion budget set to stay within spending limit



Top-Down Budgeting MethodsThese are examples of various top-down budgeting methods.


AffordableMethod

CompetitiveParity

Percentage of Sales

Return onInvestment

ArbitraryAllocation

TopManagement


Build-Up ApproachesObjective and Task Method is one build-up approach to budgeting and consists of three steps:

• Define communications objectives to be accomplished• Determine specific strategies and tasks needed to attain them• Estimate costs associated with performance of these strategies and tasks

The total budget is based on the accumulation of these costs.

TextbookPage 246


Implementing the Objective and Task ApproachThese are the steps of objective and task budgeting, which reflects a bottom-up approach.


Isolate objectives

Determine tasks required

Estimate required expenditures

Monitor

Reevaluate objectives


Payout PlanningThis chart illustrates that the first months of a new product’s introduction typically require heavier-than-normal advertising and promotion to stimulate product awareness and subsequent trial. To determine how much to spend, marketers often develop a payout plan that projects revenues the product will generate, as well as the costs it will incur, over two to three years.


A three-year payout plan is shown on this slide. The product will lose money in year 1, almost break even in year 2, and show a profit by the end of year 3.

Note that the cost of advertising and promotion is highest in year 1, and declines in years 2 and 3.


Quantitative ModelsQuantitative budgeting models are available, but have met with limited success. Generally, these methods employ computer simulation models involving statistical techniques, such as multiple regression analysis, to determine the relative contribution of the advertising budget to sales.

TextbookPage 249

Because of problems associated with these methods, their acceptance has been limited.

As these methods are improved and refined, they may achieve more widespread success.

Computer Simulation


Allocating to IMC ElementsThis is how advertising expenditures were allocated in between 2008 and 2009. Advertisers distributed their funds among the various advertising venues and those allocations shifted over time.


Note that many advertisers are shifting from traditional advertising media to sales promotions targeted to both consumers and the trade.

As this figure shows, radio and magazines took the hardest hits.

The only media showing increases during this time frame were for the Internet (display advertising) and free-standing inserts (FSIs).


Other Budget Allocation FactorsThese are other factors that may influence a company’s budget allocation decisions:

• Client/Agency Policies: There may be disagreement over whether monies should go to sales promotions or advertising, creative talent or specific media. Decisions will also be impacted by past successes.

• Market Size: Smaller markets are often easier and less expensive to reach.

• Market Potential: A market with low sales but high potential may be a candidate for additional appropriations.

• Market Share Goals: Does the company want to maintain or increase market share? As a rule, new brands receive higher-than-average advertising support. Older, mature brands have reduced advertising support. Well-established brands require a lower expenditure.

TextbookPage 251 - 252


Other Budget Allocation FactorsThis chart outlines strategies for advertising spending based on company or brand market share and a competitor’s share-of-voice (SOV).

TextbookPages 252 / Figure 7 - 22

Decrease–find a defensible niche Increase to defend

Attack with large SOV premium

Maintain modest spending premiumCo

mpe

titor

’sSh

are

of V

oice Hig

hLo

w

HighLow

Your Share of Market


Economies of ScaleThese are three propositions related to the economies of scale in advertising:

TextbookPage 252

There is no evidence to support any of these!

Proposition ILarger firms can support their brands with lower relative advertising 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.


Organizational CharacteristicsThe following factors influence budget allocation decisions, although they may vary from one organization to another, and each influences the amount assigned to advertising and promotion.

• Organization’s 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 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.


Chapter 7 PowerPoint

Marketing

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