Overview of Advertising Management: Messages, Media, and Measurement

Chapter Nine

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Chapter Nine Objectives

• Understand the magnitude of advertising and the percentage of sales revenue companies invest in this marcom tool.

• Recognize that advertising can be extraordinarily effective but that there is risk and uncertainty when investing in this practice.

• Appreciate the various functions advertising is capable of performing.

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Chapter Nine Objectives

• Explore the advertising management process from the perspective of clients and their agencies.

• Understand the functions agencies perform and how they are compensated.

• Explore the issue of when investing in advertising is warranted and when disinvesting is justified.

• Examine advertising elasticity as a means for understanding the contention that “strong advertising is an investment in the brand-equity bank.”

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Is Advertising Rocket Science?

“The truth is that advertising is harder than

rocket science. It’s news when a

rocket launch FAILS.

It’s news when an ad campaign

launch SUCCEEDS.”

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Advertising

Advertising is a paid, mediated form of communication from an identifiable source, designed to persuade the receiver to take some action, now or in the future.

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Magnitude of Advertising

2005 $280 Billion

$550 Billion

Worldwide

U.S.

$900 spent on advertising for

every man, woman, and child

in the United States.

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Some Top Spenders in U.S. Advertising

Company Advertising Dollars

General Motors $3.43 Billion

Proctor & Gamble $3.32 Billion

Time Warner $3.1 Billion

Pfizer $2.84 Billion

U.S. Government $1.1 Billion

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Advertising-to-Sales Ratios

Average 2 to 10%

Ranging from 1.4%

To 30.7%

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Advertising Effects

Are Uncertain

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Advertising Effects Are Uncertain

“If you want your brand to be fit, it’s got to exercise regularly. When you get the opportunity to go to the movies or do something else instead of working out, you can do that once in a while—that’s [equivalent to] shifting funds into [sales] promotion. But it’s not a good thing to do. If you get off the regimen, you will pay for it later.”

Jennifer Lawrence, P&G

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Advertising Functions

1. Informing 2. Influencing3.Reminding and Increasing Salience 4.Adding Value 5.Assisting Other Company Efforts

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Informing

• Make consumers aware of new brands.

• Increase TOMA (Top of Mind Awareness)

• Teach new uses for existing brands (called usage expansion advertising) – Campbell’s soup for formal family dinners and

for breakfast – Special K for afternoon or late-night snacking

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Influencing

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Reminding and Increasing Salience

• Making a brand more salient: enriching the memory trace for a brand so that the brand comes to mind in relevant choice situations.

• Increasing the customer’s interest in mature brands and the likelihood of choosing brands that might have otherwise not been chosen.

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Adding Value

• Three ways a company can add value to its offerings: – Innovating – Improving quality – Altering consumer perceptions

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Assisting Other Company Efforts

• Advertising may be used as a vehicle for delivering coupons and sweepstakes

• Assisting sales representatives

• Pre-selling a company’s products by introducing the product and legitimizing salespeople’s claims.

• Augment the effectiveness of price deals.

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The Advertising

Management Process

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The Role of Advertising Agencies

• Three alternative ways to perform the advertising function: – Use an in-house advertising operation– Purchase advertising services on an ad-as-

needed basis – Select a full-service advertising agency

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Top-25 U.S.

Advertising Agencies in

Ad Revenue, 2003

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Alternative ways to perform the advertising function

• Necessitates employing an advertising staff and absorbing the operation costs

• Unprofitable unless a company does a large amount of continual advertising

In-house advertising operation

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Alternative ways to perform the advertising function

AdvantagesAdvantages• In-depth knowledge and

skills• Obtaining negotiating

muscle with the media• Coordinating advertising

and marketing efforts

DisadvantagesDisadvantages• Some control is lost• Larger clients are

favored over small clients

• Occasionally inefficient in media buying

Full-service advertising agency

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Alternative ways to perform the advertising function

AdvantagesAdvantages• Use services only when

they are needed• Availability of high-

caliber creative talent• Potential cost

efficiencies

DisadvantagesDisadvantages• Specialists approach

client problems in a stereotyped fashion

• Lack of cost accountability

• Financial instability of smaller boutiques

A la carte

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Advertising Agency Organization

• Develop advertising copy and campaigns

• Copywriters, production people, and creative directors

Creative Services

Account Management

Media Services

Research Services

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Advertising Agency Organization

• Selecting the best advertising media

• Media planners develop overall media strategy

• Media buyers procure the selected media

Creative Services

Account Management

Media Services

Research Services

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Advertising Agency Organization

• Study clients’ customers’ buying habits, purchase preferences, and responsiveness

• Focus groups, mall intercepts, acquisition of syndicated research data

Creative Services

Account Management

Media Services

Research Services

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Advertising Agency Organization

• Link the agency with the client

• Act as liaisons so that the client does not need to interact directly with several different service departments and specialists

Creative Services

Account Management

Media Services

Research Services

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Agency Compensation

•Commissions from media (15%)•Reduced commission system(<15%)

•Labor-based fee system

•Outcome-based

Three Sources

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Ad Investment Consideration

Profit=Revenue –Expenses

Revenue =Price X Volume

Volume = Trial + Repeat

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Which Position is More Acceptable?

• The Case for Investing: the belief that advertising can increase profitability by increasing sales volume, enabling higher selling prices, and thus increasing revenue beyond the incremental advertising expense.

• The Case for Disinvesting: Firms often choose to reduce advertising expenses either when a brand is performing well or during economic recession. The belief is that an expense reduction, with all else held constant, will result in increased profits.

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Elasticity

A measure of how responsive the demand for a brand is to changes in marketing variables such as price and advertising.

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How to Increase Profit

1. Maintain status quo

2. Build Image Via Advertising

3. Grow Volume via Price Discounting

4. Increase Advertising and/or discount prices

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Ad Spending

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