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Chapter 7 Establishing Objectives

and Budgeting for the

Promotional Program

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Learning Objectives

To recognize the importance and value of setting

specific objectives for advertising and promotion

To understand the role objectives play in the IMC

planning process and the relationship of

promotional objectives to marketing objectives

To know the differences between sales and

communications objectives and the issues

regarding the use of each

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Learning Objectives

To recognize some problems marketers encounter

in setting objectives for their IMC programs

To understand the process of budgeting for IMC

To understand theoretical issues involved in budget

setting

To know various methods of budget setting

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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

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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

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Sales-Oriented Objectives

Aim to increase sales

Require economic justification

Required to produce quantifiable results

Based on the achievement of sales results

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Figure 7.1 - Factors Influencing Sales

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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

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Communications Objectives

Provide relevant information

Create favorable predispositions toward the brand

Set using models wherein consumers pass through

three stages

Cognitive

Affective

Conative

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Figure 7.2 - Communications Effects

Pyramid

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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

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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

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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

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Criticisms of DAGMAR

Problems with the response hierarchy

Sales objectives

Practicality and costs

Inhibition of creativity

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Figure 7.4 - Traditional Advertising-Based

View of Marketing Communications

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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

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Figure 7.5 - Objectives and Strategies in

the Social Consumer Decision Journey

Source: Expert interviews; McKinsey analysis

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Figure 7.7 - 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

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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

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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

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Figure 7.8 - Marginal Analysis

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Figure 7.9 - Advertising Sales/Response

Functions

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Figure 7.10 - Factors Influencing

Advertising Budgets

Note: 1 relationship means the factor leads to a positive effect of advertising on sales;

2 relationship indicates little or no effect of advertising on sales.

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Figure 7.11 - Factors Considered in

Budget Setting

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Figure 7.12 - Top-Down versus Bottom-

Up Approaches to Budget Setting

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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

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Figure 7.13 - Alternative Methods for

Computing Percentage of Sales

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Figure 7.15 - Investments Pay Off in

Later Years

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Figure 7.16 - Competitors’ Advertising

Outlays do not Always Hurt

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Figure 7.18 - The Objective and Task

Method

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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

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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

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Quantitative Models

Employ computer simulation models involving

statistical techniques

Computer simulation models: Help determine the

relative contribution of the advertising budget to

sales

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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

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Figure 7.21 - How Advertising and

Promotions Budgets Are Set

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Budget Allocation: Factors to Consider

Allocating to IMC elements

Client/agency policies

Market size

Market potential

Market share goals

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Figure 7.24 - The Share of Voice (SOV)

Effect and Ad Spending: Priorities in Individual Markets

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Economies of Scale

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

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Organizational Characteristics

Factors that influence advertising and promotion budgets

Organizational structure

Power and politics

Use of expert opinions

Characteristics of the decision maker

Approval and negotiation channels

Pressure on senior managers to arrive at the optimal budget