Advertising

The 4-M Approach to Advertising

• Who is your Market?

• What Message do you want to convey to the Market?

• What Media will you use to convey the Message to the Market?

• How will you Measure the effects of the Message delivered by the Media to the Market?

The second M - Message

DMB&B advertising standards

• Does ad position the product simply and with unmistakable clarity?• Does ad bolt the brand to the clinching benefit?• Does ad contain a Power Idea?• Does ad design in Brand Personality?• Is ad unexpected?• Is ad single-minded?• Does ad reward the prospect?• Is ad visually arresting?• Does ad exhibit painstaking craftsmanship?

The third M: Media

• Media Objectives

• First step in the process of formulating media plan.

• Must flow from marketing and advertising plans

• Geared to pinpointed target market

Concepts in Media Planning: Reach

• Unduplicated percentage of a population that is exposed to the advertising media schedule (or vehicle) at least once during a designated time period.

• Reach is expressed as either

– (a) Number of people (or households)

– (b) % of target market

Concepts in Media Planning: Frequency

• Number of times during the designated time period that a household (or individual) is exposed to the vehicle or to the schedule.

• Usually defined as an average number.

• Problem: Some people may be exposed a few times and others several times. It may be important to distinguish between these groups.

Concepts in Media Planning: Exposure Distribution• Proportions of target households (or individuals) exposed to the

advertising schedule (or vehicle) different numbers of times.

Number of Exposures Proportion of Target Exposed

0 201 152 103 304 105 5> 5 10

• The above distribution is also referred to as Effective Reach• Tradeoff between reach and frequency

Concepts in Media Planning: Continuity

• Refers to how advertising is scheduled over the time span of a campaign period

• Continuous Advertising

• Flighting

• Pulsing

• Usually based on the expected relative volume of business during intervals within the campaign period

Gross Rating Point (GRP)

• Characterizes the gross weight of a given media effort against a defined target market.

• GRP = Reach * (Average) Frequency

• If media reached 70% of designated target market and the average exposure frequency was 3.0 exposures.

• GRP = 70*3.0 = 210 GRPs

Cost conventions• Magazines: CPM

• Cost per thousand = Cost of ad space ($, Pts, DM) *1000 /

Circulation

• Television: CPRP• Cost per rating point =

Cost of commercial time / Program rating

• World Wide Web1. Cost per thousand (CPM) = Ad rates web sites charge for

displaying an ad 1000 times (or “impressions)2. Cost per click (CPC) = Ad rate charged when the surfer

responds to a displayed ad3. Cost per lead / sale (CPS) = Charged only if viewer responds

with personal information which leads to a sale of the product

General guidelines for formulation of media objectives

• Goal Establishment

• Reach and Frequency

• Continuity over time

• Competitive approach

• Merchandising support requirements

• Creative requirements of the message

• Image and corporate policy considerations

Structural Media Goals• Product Life Cycle (PLC) considerations

– Relationship between PLC and Media Strategy

• Introductory stage: Need to build awareness Reach more important than Frequency

• But, if product is for a niche market Frequency may be more important

• If firm is willing to invest considerable promotional monies• (Peckham’s Formula)

Continuity implications• Low reach objective

Distributors may be unhappy• Maturity stage: Need for reminder advertising

Maximize number of messages delivered

Structural Media Goals

• Breadth of Target Market

• Greater geographic market dispersion

Greater emphasis on Reach

• Repurchase Cycle

• Shorter cycle Greater Frequency needed

• Longer cycle Market Demographics may change

Reach is focus

• Target Market Turnover (baby food)

• Greater turnover Need to constantly update media strategy

Media Planning and Scheduling Models

• Objective Function

• Decision Variables

• Constraints

• Methodology

The fourth M: Measurement

• Communication Effects (Copy Testing)

– Viewer playback of what ad is saying

– Cognitive response (thoughts while watching)

– Motivation research (hidden meanings)

– Objective measures

– Theater testing

– Day after recall (DAR)

• Sales Effects

– Experimental designs

– Scanner data

– Direct response / mail

– Split cable

Measurement: Need for Models

• In words that surely stirred any sleepy executive attending the early morning speech, Mr. Esrey said clients are "going to hold [ad agencies] more closely accountable for results than ever before. That's not just because we're going to be more demanding in getting value for our advertising dollars. It's also because we know the technology is there to measure advertising impact more precisely than you have done in the past."

William T. Esrey CEO, SPRINT

at the 1995 AAAA meetings

April 27, 1995

• Need for models that relate advertising to actual market outcomes, i.e. sales.

Measuring the Impact of AdvertisingA Case Study of Kraft Foods

Advertising effects

• Immediate

• Long-term

• "Halo"

Philip Morris owners of Kraft spent $2 billion on advertising in 1991.

But only 25% of marketing spending is on advertising, remaining on trade and consumer promotion.

Question: If 25% is not right, what is?

Kraft's Approach

• Take three alternative approaches and look for convergent validity

1. In-market test.

• Expensive

• Requires detailed marketing data including store sales, local market household sample, etc.

2. Conceptual models

• Labor intensive and cumbersome

• Cost effective

3. Empirical analysis

• Needs comprehensive marketing information

• **Exciting**

• Uses Media Marketing Assessment Inc.'s (MMA) models

MMA: General findings on advertising using empirical models

• There is a positive and measurable contribution from advertising in 98 of 102 cases studied.

• Clients are able to use this information to make advertising work harder.

How do the models work?

• Inputs• 4 year brand level data• Sales and marketing history• Time interval: week• Data on 23 major markets accounting for half of brand's U.S.

volume• Obtained from internal client sources and other suppliers like

AC Nielsen, etc.

• Output• Sales as a function of own and competitive marketing actions

and exogenous factors such as weather and commodity pricing.

Interpreting the results

• What were the actual sales levels

• What did the model estimate sales to be

• Where the model missed

Methodology: Brand A - Boston Market

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ErrorSales = f(Marketing, Competition, ExogenousFactors)

Determining advertising effects

• Immediate effects

• Am I under supporting my brand

• And by how much

Advertising - Immediate Effect

0 25 50 75 100 125 150 175 200-14

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Advertising Expenditure Index

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Determining advertising effects

• Halo effects

• Two distinct product forms of a brand available. Each has own distinct copy.

– Form 1 ads sell both Forms 1 and 2.

– Form 2 ads sell both Forms 1 and 2.

Advertising “Halo” Effect

0 50 100 150 200 250 300

Form 1Advertising

Form 2Advertising

Form 2Sales

Form 1Sales

How is Kraft using the results?

• Calculate ROMI

• Compute level of advertising spending that maximizes profits.

• Trade-off spending across brands.

• Brand value and trademark equity.

How is Kraft using the results?

• Can I promote/advertising a whole set of products rather than individual brands.

• Need to look at halo effects across brands and identify "Market Structure".

• Halo effects quantified by cross-advertising elasticities.

Future directions

• Local planning

• Where do I increase spending.

• Where can I cut spending.

Local Planning

Albany

Boston

Chicago

New York

San Francisco

Denver

Dallas

Miami

Philadelphia

Brand A Advertising Elasticity

Future directions

• Spending optimization

• Media scheduling and planning

• "focal point of a lot of our development efforts at MMA: media scheduling and planning"

• "The fact that brands interact with each other is known (Halo effect). We've quantified it. When one applies this information in the planning process, we see that you can't plan an individual brand in a vacuum. It must be in the context of the related brand plans as well."

Kraft's conclusions based on the models

• Not surprisingly, we are finding that advertising is our most profitable investment. The return on our ad dollars far exceeds that of either trade or consumer promotion spending. This is true, however, only when we take into account all three components of advertising's impact...immediate effects, long-term effects, and the "halo" effect.

• With the help of new marketing data bases that include elements from the full marketing mix, and the use of increasingly sophisticated models, we are comfortable with many of the answers we are getting.

Mike Duffy,Kraft Foods, Inc.

Traditional method:

Look at demographic categories and purchase levels in each category.

head of households 18-49

25-54

55+

females 18-49

25-54

55+

Heaviest purchasing group

for product categories of interest: females 18-49.

Selecting TV Programs Using Purchase Data

Traditional Method (Continued)

Compute cost-by-exposure (CE) index

= cost-per-thousand x Exposure index for

index (CPM) for show females 18-49

Shows with the highest CE index among females 18 to 49

would be the “best selections.”

Traditional Method (Continued)

• Cost-per-thousand index for a show

Average C-P-M for all network prime time shows = $10.

Cost of reaching 1000 viewers of show X = $15.

CPM index for show X = (10/15) x 100 = 67.

• Exposure index (household level or demographic segment level)

% of episodes of show X watched by household (segment)

% of episodes of show X watched by sample (market)

• Purchase index (for household level)

Total purchases in the category by the household

Average purchase of category by sample

Show Cost/1000index/show: C

Exposure Indexper household forfemales 18-49: E

Cost per exposureindex; CE = C *

E /100CBS News 101 77 78NBC News 96 76 73

ABC World News 103 86 89Tonight Show 78 94 73

Nightline 94 101 95Newhart 79 98 77

Alf 92 115 106Who’s the Boss 95 110 105Moonlighting 65 120 78

Matlock 135 76 103Growing Pains 99 112 111

Wiseguy 151 96 145Night Court 90 109 98Cosby Show 77 115 81

Cheers 68 111 75Knots landing 97 96 97

Dallas 95 85 81Golden Girls 110 83 91

Murder She Wrote 124 66 82Family Ties 61 114 70

Young & Restless 111 92 102General Hospital 80 108 86

Price is Right 162 81 131

TraditionalMethod

Problem with traditional method

• Requires identification of demographic segment from another data source based on purchase incidence.

• But even within the demographic group those who buy a lot, may not be those who watch the shows a lot. Sure, there would be overlap, but no information on how much.

• Hence indirect methods do not necessarily relate purchase incidence to exposure.

•"Price is Right" is the second best pick for diet frozen entrees. However, viewers of this show have a below average purchase incidence, even though they are part of the target segment.

• By looking at actual purchase behavior, we can directly relate purchase incidence and exposure.

• Do not worry about demographic group.

For each household in the sample, compute cost-by-exposure (CE) index.

= CPM for show Exposure index for the household

Compute the average CE index for, say, the heaviest third of purchasers.

Hence, if criterion is to reach the heaviest purchasers of the product, above method is appropriate.

In a similar manner the CE index can be computed to reach the lightest purchasers of the product.

The CE index may also be weighted by the purchase index if it is necessary to compare across high and low incidence purchasers.

Household data based method

Comparison of methods for Diet Frozen Entrees

Traditional Method Direct selection based on purchases

1. Wisegy 1. Wiseguy

2. Price is Right CBS News

3. Growing Pains Murder, she wrote

4 Alf Matlock

5. Who’s the Boss Price is Right

6. Matlock Night court

Correlation across methods

YogurtTraditional Purchase based

Traditional 1.0Purchase based 0.57 1.0

Diet FrozenEntrees

Traditional 1.0Purchase based 0.22 1.0

Carbonated SoftDrinksTraditional 1.0Purchase based 0.68 1.0

Prediction of different methodsStep 1:Determine the top 10 shows for each product category using both

traditional as well as purchase methods.

Do this for each of two years (in this case 1988 & 1989)

- Insert Table 2 & 3 here -

Step 2:Determine the number of the top ten selections that were the same

from 1988 to 1989 for the two methods

Product Category Traditional Purchase

Yogurt 5 6

Diet Frozen entrees 5 8

Carbonated softdrinks

5 7

Conclusions

• From the perspective of

*maximum effectiveness and efficiency of reaching target audience

*predicting future media vehicle requirements

the purchase based method appears to have important implications.

• Household scanner panel data may have its advantages after all!

• What does this mean for the viability of bulk buying and subsequent allocation by gross demographic categories?

• Tradeoff between economies of bulk buying and effectiveness in reaching target consumers.

Promotion Mix

• What is the nature of each promotional tool?

• Advertising

• Personal selling

• Sales promotion

• Publicity

• Promotion Mix and Product Type

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Sales Promotion

• Short term incentives designed to encourage:

• Brand switching

• Purchase acceleration

• Stockpiling

• Increased consumption

• Two kinds:

• Trade promotions

• Consumer promotions

Types of Promotions

CONSUMER

• Sampling

• Coupons

• Price-offs

• Package coupons

• Premiums

• Contests / Sweepstakes

• Refunds / Rebates

• Bonus packs

• Price packs

• Continuity plans

TRADE

• Off-invoice

• Free goods

• Slotting allowances

• Spiffs

• Street money

• Dating

• Merchandising allowances

• Co-operative advertising

• Sales contests

• Sales bonuses

Measuring Effectiveness of Trade Deals

BEFORE(2 Mon.)

DURING(2 Mon.)

AFTER(2 Mon.)

Sales / MonthPrice to RetailerManufacturer CostsMarginProfits with PromoProfits w/o PromoIncremental ProfitsNet Profits

10000$20$10$10

200000200000

0-

30000$17.50

$10$7.50

450000200000250000

2000$20$10$10

40000200000-160000

90000

When to Trade Deal: Manufacturer P.O.V.

PROMOTE MAYBE

DO NOTDO NOT

PromotionalElasticity

HoldingCosts

HIGH

LOW

LOWHIGH

Computing Coupon Costs

Number of Coupons Distributed DCost per 1000 for Distribution CFace Value of Coupon FProcessing Fee PRedemption Rate R

Total Number of Redemptions= D*RCost of Distribution = D*C/1000Cost of Redeeming = (F+P)*D*RTotal Cost =D((F+P)*R+(C/1000))Cost per Redemption =Total Cost/#Redeemed

=((F+P)*R+(C/1000))/R

Computing Couponing Profits

Profit Contribution per Unit Sold MFraction of Incremental Redemption Sales IFraction of Redemptions that are Legitimate L

Total Incremental Profits = D*R*L*I*MTotal Costs =D*((F+P)*R+(C/1000))Net Incremental Profits =D*(R*L*I*M-(F+P)*R-(C/1000))

Required Incremental Sales to Break EvenNet Incremental Profits = 0D*(R*L*I*M-(F+P)*R-(C/1000)) = 0R*L*I*M = (F+P)*R-(C/1000)I = ((F+P)/(L*M)) + (C/(1000*R*L*M))