Establishing Objectivesand Budgeting for the Promotional Program

Establishing Objectivesand Budgeting for the Promotional Program

7

McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Starbucks

• Core competencies– Third Place– Neighborhood coffee shop

• Failed Ventures– Joe magazine– Café Starbucks– Circadia

• Losing focus– Hear Music– Akeelah and the Bee

• Closing down stores

Value of Objectives

CommunicationsCommunications

Planning & Decision Making

Planning & Decision Making

Measurement& Evaluation

Measurement& Evaluation

Specific Objectives

Characteristics of Objectives

Specific

Measurable

Quantifiable

Attainable

Realistic

Measurable Results

Marketing vs. Communications Objectives

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

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.

Sales Objectives

Increased Sales

Increased Market Share

Brand Extensions

Factors Influencing Sales

Competition Technology

The economy

Product quality

PriceDistribution

Advertising & promotion

Where Sales Objectives are Appropriate

Where Sales Objectives are Appropriate

Test Your Knowledge

Which 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.

IMC perspective Geico

• Increases in Advertising– Sell via internet & direct sales– In 2005, increased advertising expenditures 75%

to $403 million– In 2006, spent twice as much as nearest

competitor– Also spent in more places

• Increases in Sales– 5.8% new customer acquisition (2.1% is industry

average)– 91% ad message recognition– Only brand to have double digit market share

growth 13.1%

From Awareness to Action

AffectiveRealm of emotions.Ads change attitudes and feelings

CognitiveRealm of thoughts.Ads provide information and facts

ConativeRealm of motives.Ads stimulate or direct desires

Teaser campaigns

“Image” copyStatus, glamour appeals

AnnouncementsDescriptive copyClassified ads, slogans, Jingles, skywriting

Competitive adsArgumentative copy

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

Testimonials

Purchase

Conviction

Preference

Liking

Knowledge

Awareness

Creating an Image

Communications Effects Pyramid

20% TrialCon

ativ

e

40% LikingAffec

tive

90% AwarenessCog

nitive

5% Use

70% Knowledge/Comprehension

25% Preference

The DAGMAR Approach

Define

Advertising

Goals for

Measuring

Advertising

Results ActionAction

AwarenessAwareness

ConvictionConviction

ComprehensionComprehension

Characteristics of Objectives

Concrete, measurable tasks

Benchmarkmeasures

Well-definedaudience

Specifiedtime period

Pros and Cons of DAGMAR

ConsCons

Inhibition of creativityInhibition of creativity

Relies heavily on the response hierarchy

Relies heavily on the response hierarchy

May not increase salesMay not increase sales

Practicality and costPracticality and cost

ProsPros

Focus on communications objectives

Focus on communications objectives

Measurement of stagesMeasurement of stages

Better understanding of goals and objectives

Better understanding of goals and objectives

Less subjectiveLess subjective

Advertising-Based View of Communications

Acting on Consumers

Ads

Utilizing a Variety of Media

San Diego Zoo Protect Endangered Species

*Click outside of the video screen to advance to the next slide

Establishing & Allocating the Promotional Budget

SponsorshipUnderwriting

PublicRelations

SalesPromotions

Internet

Group Sales

DirectMarketing

Test Your Knowledge

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

Establishing a Budget

Budget Adjustments

Increase SpendingIncrease Spending If the cost is less than the

marginal returnIf the cost is less than the marginal return

HoldSpending

HoldSpending

If the cost is equal to the incremental returnIf the cost is equal to the incremental return

Decrease SpendingDecrease Spending

If the cost is more than the incremental returnIf the cost is more than the incremental return

Assumptions for Marginal Analysis

Sales are determined

solely by advertising

and promotion

Sales are a direct measure of advertising

and promotions efforts

Sales Response ModelsIn

crem

en

tal S

ale

s

Advertising Expenditures

A. Concave-Downward Response Curve

Incr

em

en

tal S

ale

s

Advertising ExpendituresRange A Range B Range C

B. S-Shaped Response Function

Hig

h S

pendin

gLi

ttle

Eff

ect

Init

ial Sp

endin

gLi

ttle

Eff

ect

Mid

dle

Level

Hig

h E

ffect

Purchasefrequency

Factors Influencing Advertising Budgets

Product life cycle

Productdurability

Differentiation

Productprice

Hidden productqualities

Top-Down vs. Bottom-Up Budgeting

Top-Down Budgeting Methods

TopManagement

TopManagement

AffordableMethod

AffordableMethod

CompetitiveParity

CompetitiveParity

Percentage of Sales

Percentage of Sales

Return onInvestmentReturn on

InvestmentArbitraryAllocationArbitraryAllocation

Test Your Knowledge

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 is best explained by:

A) Arbitrary allocation

B) The objective and task method

C) Competitive parity

D) An S-shaped response

E) Rapidly diminishing returns

Object and Task Method

Isolate objectivesIsolate objectives

Reevaluate objectivesReevaluate objectives

Determine tasks requiredDetermine tasks required

Estimate required expendituresEstimate required expenditures

MonitorMonitor

Payout Planning

Quantitative Models

Allocating to IMC Elements

Share of Voice Effect

Decrease–find a defensible nicheDecrease–find a defensible niche Increase to defendIncrease to defend

Attack with large SOV premium

Attack with large SOV premium

Maintain modest spending premiumMaintain modest

spending premiumCom

peti

tor’

sS

hare

of

Voic

e

Hig

hLo

w

HighLowYour Share of Market

Economies of Scale

There is no evidence to support any of these!

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.

Organizational Characteristics

• Factors that influence advertising and promotion budgets– The organization’s structure– Power and politics– The use of expert opinions– Characteristics of the decision maker– Approval and negotiation channels– Pressure on senior managers to arrive

at the optimal budget